The inconvenient truth about Hong Kong's economy

August 07, 2019 10:32
Hong Kong's social unrest has cast a cloud on the prospects of the retail and tourism businesses, as well as other sectors such as finance. Photo: Bloomberg

Hong Kong's leader Carrie Lam Cheng Yuet-ngor made her first public appearance in two weeks on Monday, together with her top aides. But the press conference offered nothing new.

Lam simply said that the massive protests that have rocked Hong Kong over the past two months are jeopardizing the city’s economy and the livelihood of 7 million people.

Retail and tourism, the two sectors directly affected, together represent about 10 percent of Hong Kong’s GDP. While the weighting is not that high, both sectors are labor-intensive and hire a large number of workers.

That means it would have a big impact on the job market if the street demonstrations, which were initially sparked off by the government's extradition bill but have now morphed into a broader movement against the establishment, continue to disrupt business operations.

Lackluster growth in the two key sectors may soon ripple into other parts of the economy, it is feared.

But even more worrisome is the future of the city's economic pillars. Finance, trade and professional services contribute half of Hong Kong's economic output.

To flourish, these sectors rely on the rule of law and clean government, aspects that Hong Kong had been known for. It is precisely these elements that attract businesses to the city and fuel demand for our services.

For example, mainland Chinese and foreign companies prefer to sign contracts in Hong Kong and set up their operational headquarters here, because if there is any dispute, they know they can rely on Hong Kong's legal system to resolve it.

Billionaires tend to park a substantial portion of their assets in Hong Kong, which had long been considered one of the safest cities in Asia.

But the city is now gradually losing the rule of law edge, and the administration team is losing control.

Chief Executive Lam has stubbornly refused to fully withdraw the extradition bill, opting merely to suspend it, despite all the chaos her proposed legislative action has created. That will keep corporations and billionaires in the city fretting about the prospect of revival of the bill some day in future.

More importantly, a recent poll showed that nearly 70 percent of the people believe that Hong Kong police had used excessive force against protesters and violated procedures during the ongoing social unrest.

The police were also accused of colluding with thugs who attacked passengers and protesters in Yuen Long MTR station on July 21.

The government has yet to offer any proper explanation, and it continues to resist calls for an independent investigation into the recent events.

If Hong Kong is to be put back on the right track, authorities need to take some quick action. Burying the extradition bill and restoring confidence in the police should be among the top priorities.

This article appeared in the Hong Kong Economic Journal on Aug 6

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist