Hong Kong is officially in a recession, according to third-quarter results released Thursday. It contracted 3.2 per cent from July to September, a stark contrast to the 0.5-per cent downturn in the previous three-month period. On a larger scale, the recession contacts with a 2.9-per cent decline in the third quarter as the recession, the first in a decade for the city, appears to have no end in sight.
“Frankly, there is no room for optimism,” said Hong Kong Chief Executive Carrie Lam. The government will release its updated GDP projection next month.
Protests, now in their fifth month, are the root cause of the trading epicentre’s economic woes. Exports, impacted by both the protests and US-China trade war, spiralled downward seven per cent over last year, which was the largest downturn in a decade.
“Much of the pressure is now coming from the political unrest. The trade war itself would cause Hong Kong’s GDP growth to slow but not a contraction, while the political unrest could,” said Tommy Wu, a Hong Kong-based economist at Oxford Economics.
The tourism industry has endured a large portion of the damage with hotels, which were routinely full, at only two-thirds capacity. At one point, flights were suspended at the international airport, complicating travel arrangements. The retail industry has also seen reduced spending and even store closures due to the civil unrest. Some stores have closed early or completely closed shop in the wake of citywide demonstrations. In a few cases, activists have vandalized storefronts, banks, and restaurants.
Lam’s government has taken measures in an attempt to safeguard the economy, but those have proved inadequate at preventing longterm damage. Two rounds of stimulus packages and subsidies at $255 million unveiled in August and $2.4 billion announced last week to aid small companies and workers. Last week, Financial Secretary Paul Chan revealed further economic measures, including rent reductions at buildings leased by the government and transportation subsidies for taxi companies and ferries. Li Ka-shing, the city’s richest man, even pledged $128 million to businesses affected by the protests, declaring the economy “is facing unprecedented challenges.”
Even amid the economic turmoil, Lam sees the potential for a bright, longterm future for the economy through partnerships with mainland China.
“Hong Kong is playing an active part in our country’s two far-reaching initiatives, the Guangdong – Hong Kong – Macau Greater Bay Area, and the Belt and Road,” she told those gathered at the Asia House Future of Trade Conference. She gave went on to give the opening speech at the 2nd China International Import Expo Thursday.
Hong Kong is represented at the event, lasting until Tuesday, by 200 companies and the Hong Kong Trade Development Council. The Bay Area project is designed to turn the region into a Silicon Valley rival by 2035. The area was predominantly agriculturally-focused since 1980, but grew in technology and financial sectors as the most populous urban area in China.
Civil unrest continues to overshadow these projects, however. None of the initiatives will find strong footholds in Hong Kong until protests abate, which shows no sign of happening anytime soon. For Lam, the answer to satisfying protestors begins with them stopping their demonstrations and economic disruption.
“Once calmness returns, we are committed to finding solutions to some of those deep-seated problems revealed by the extensive protests over the past [five] months,” Lam said. “We will not rest, I will not rest until we have found a peaceful, harmonious, and inclusive path for Hong Kong.”
Despite continued public demonstrations and local economic downturn, the stock markets are holding up, minor blips notwithstanding. The Hang Song Index is up four per cent year-over-year and investment money continues to pour in. Anheuser-Busch InBev opened its IPO on the Hong Kong Stock Exchange, drawing $5 billion, which was the second-largest of 2019 next to Uber. It drove the stock market to third-largest in terms of money raised for the year.
The stock market is only one indicator of the economy, however, and the average Hong Konger is likely to continue to feel the microeconomic effects of protests even as it holds relatively steady. Lam’s position is a precarious one as she must answer to the mainland Chinese government and both are in the international spotlight. While she agreed to withdraw the extradition bill and promised it would not return, that satisfied only one of the five demands by protestors. Even if Lam wanted to give in to all the conditions, she has her hands tied by Beijing.
Even so, the task falls upon her shoulders to quell the demonstrations. Beijing cannot roll in with tanks as it did during the Tiananmen Square massacre because of the modern spread of information. While the international community is not standing with Uighur Muslims imprisoned in concentration camps, while those atrocities committed by Beijing are not enough to be the final straw, a military suppression of Hong Kong likely would be enough as it would have economic ramifications.