As protests continue in Hong Kong, government officials and economists question the impact on the economy. For the city that was built on trade, and quickly became an epicenter for global markets, Hong Kong’s economy is already showing signs of strain due to political uncertainty. The protests against Chinese extradition legislation initially appeared successful, as the government suspended, though it became evident that the government would only postpone the measure while refining the policy before elections in November. Opposition has continued throughout the summer, and at times turned violent, as police and gangs allegedly hired by the Communist Party of China have beaten and gassed civilians.
Stock Market Lags
On the stock market, the Hang Seng Index lost 2.35 percent of its value at the close of last week, ending the week down 5.2 percent. The losses were the largest since May, before the protests began. The situation is further complicated by the US-China trade war that will not end anytime soon, as US President Donald Trump announced new tariffs taking affect September 1st. According to Bloomberg data, Hong Kong is performing lower than in previous years, shrinking by 0.3 percent from the previous quarter. While growth is still positive at 0.6 percent, retail sales and forecasts are both down considerably when contrasted with 2018.
“The trade war is hurting Hong Kong,” said Iris Pang, an economist for Hong Kong’s ING Bank. “At the same time, into the second half of 2019, we will have protests also damaging the Hong Kong economy through consumption and the job market. It means that we are doubly hit.”
A Second Umbrella?
In an attempt to explain the effect of protests, economists referenced the 2014 “Umbrella Movement.” Over a period of nearly three months, activists demanded greater election transparency and universal suffrage. They were unsuccessful, however, and authorities responded largely in the same manner as they have been in 2019, with occasionally brutal law enforcement tactics. As for the economic effect, there was widespread fear that the unrest would slow economic growth, but in reality, it met growth targets for the year. Still, there were undeniably smaller-scale repercussions such as businesses closing and transportation interruptions.
This year, the economic threat is real, and, while a large part of it is likely due to the trade war, there is a quantifiable effect that can be attributed to the protests. Tourism, which was a boon in the first few months of the year, slowed to half its growth rate in June while countries across the globe issued travel advisories. Even arrivals from mainland China ground to a halt and, as a result, the hotel industry saw its occupancy rates slide by 20 percent in June and likely further in July. According to one tour manager, two-thirds of his Chinese customers cancelled their trips.
Hong Kong Financial Secretary Paul Chan detailed the economic ramifications in a blog post last week. In his post, he warned of an employment downturn which might see unemployment rise from its current two-decades low of 2.8 percent. To counteract the negative effects of the trade war and protests, Chan’s government will weigh options for boosting industries, which have been weakened, to sustain jobs.
“The recent controversy over the amendment of the extradition bill has provoked large-scale public processions and protests, along with a series of violent storming, affecting both large and small local traders. Many people working in the retail and catering sectors saw a notable drop in business,” Chan said. “Besides, these incidents have also undermined Hong Kong’s international image and business environment. To foreign enterprises and tourists, Hong Kong seems to have become unstable and unsafe, affecting their desire to travel, do business and invest in Hong Kong.”
Chan urged the people of Hong Kong to resist social division and violence in order to find solutions to the political problems. The future of the city is at stake and activists must take into account future generations and love for their communities.
Chan also referenced a multitude of economic indicators which predict a dark short-term future for Hong Kong’s economy. The International Monetary Fund’s revised forecast, a recent Hong Kong Productivity Council survey, and government data all display downward trends, confirming what many business owners already realized. For a city built on enterprise and trade, Hong Kong must stabilize its environment. While it can’t control the trade deal, the government does have the power to remedy the activism situation. Unfortunately, thus far its only solution has been heavy-fisted.
While parts of Chan’s message are rooted in positivity, Chief Executive Carrie Lam, the head of the Hong Kong government, is having none of it. She recently told representatives from chambers of commerce that there is “no room for optimism for the second quarter and the entire year.”
For the protests, there is only one logical outcome and that is the government having its way. There are numerous historical examples to draw upon, such as the recent Umbrella Movement to the Tiananmen Square Protests. After each, the Chinese found a way to return to business as usual while gaining nothing from Hong Kong’s activism. It’s entirely likely that this time around will be the same. Unlike the Umbrella Movement, however, there are real economic consequences this year and until now, there does not seem to be a timely solution which would prevent more damage. Coupled with external factors such as the US-China trade war, a gloomy future lies in store for Hong Kong, a city that until recently, thrived off of business.