Hong Kong’s Recession: A Shot in the Arm For Protesters

Popularly known as a dream destination for the business community and foreign investment, Hong Kong is one of the world’s most important financial and trading hubs. Currently, however, Hong Kong is facing its worst economic crisis since China took control of it in 1997. Months of violent anti-government protests, the US-China trade war, and the coronavirus outbreak have deteriorated Hong Kong’s economic outlook. In fact, Hong Kong’s economy shrank by 2.9 percent in October and December 2019.

“Pro-democracy protests and violence during the quarter affected economic sentiment as well as consumption- and tourism-related activities,” a government spokesperson said in a statement.

2019 Is Hong Kong’s Worst Economic Year In A Decade

The year 2019 was the worst for Hong Kong’s growth since 2009, as the global financial crash severely hit the commercial hub. The coronavirus menace is likely to compound the economic situation further. Tourism, which is a significant contributor to the Hong Kong economy, is expected to take a beating, as Hong Kong’s government takes measures to bar visitors from China.

According to experts, the slowdown in the economy will give strength to the pro-democracy movement, as they will paint it as a failure of the administration.

Hong Kong At Risk Of Brain Drain And Major Capital Outflow

Hong Kong is China’s prominent international business hub. It is an indispensable gateway for foreign funds to China. Hong Kong’s investments and financial transactions are facilitated throughout the world. In fact, the majority of direct investments in and out of China are transacted through Hong Kong. A lack of clear regulations and capital controls makes it much easier for investors to channel funds to or from China through Hong Kong.

The protests have already severely impacted the economy. The turmoil is keeping away business travelers and tourists, resulting in the first recession in 10 years. As per the Hong Kong government data, 1,530 multinational companies had established regional headquarters in the town in 2018. Of these, 290 were American companies. That’s been changing with evolving dynamics in global trade. More and more international businesses are opting to move their headquarters to China as its economic power has grown.

Protests Have Hurt Hong Kong’s Businesses And Job Market

Continuing protests have placed Hong Kong at risk of a loss of talent and a long-term outflow of capital, which are the two key ingredients to its economic success. The number of companies leaving Hong Kong, though currently minuscule⁠, may grow⁠ significantly if conditions do not improve—and with an exit of businesses there will also be an emigration of high-paying jobs.

Analysts are forecasting an even worse first quarter in 2020 for Hong Kong. If the protests continue disrupting the life of the city unabated it will undoubtedly affect Hong Kong’s status as an international business destination for companies seeking to do business in China or the region. Multinationals might move their operations and capital to places like Singapore and the economic outlook could become even worse. Much remains to be seen, but with protesters having a self-interest in portraying economic downturn as a result of poor government, Hong Kong’s future is concerning and the protests may well continue.