As one of the world’s most important trade and business hubs, Hong Kong was always going to struggle this year because of the escalating US-China tariff war.
But after three months of anti-government protests, the semi-autonomous Chinese city is facing an existential as well as an economic crisis.
The world’s biggest equity deal this year was to unfold in Hong Kong later this month but has been put on hold. Banks are issuing unprecedented profit warnings, while hotels and restaurants are half-empty. Several global events have been postponed and economists say retail sales could drop by 20-30 percent this year.
Hong Kong is facing its first recession in a decade, with all its growth pillars under significant stress.
While protesters are disrupting daily activities, Beijing has displayed its paramilitary might near the border.
In the April-June quarter, when the impact of the protests was mild, the economy shrank 0.4 percent from the previous quarter. Since then, demonstrations have spread across the territory.
The third quarter is bound to confirm the recession by its technical definition of two consecutive quarters of economic contraction.
For the whole year, the government expects growth at 0-1 percent, but some analysts expect it to shrink.
Citing political unrest, China’s biggest e-commerce company Alibaba Group Holding Ltd has delayed its up to $15 billion listing in Hong Kong.
Bank of East Asia warned on Wednesday about the impact further protests could have on small and medium enterprises.
More than 20 other companies, including developer Henderson Land, hotel group Shangri-La Asia, Emperor Watch & Jewellery, department store operator Lifestyle International and rail operator MTR Corp, said in recent earnings reports the protests have been damaging.
Organisers of several conferences and exhibitions are scrambling to postpone events.
Trade representatives of the world’s largest diamond trading centres have asked the organiser of the Hong Kong Jewellery and Gem Fair to postpone the
high-profile event. The fair is due to be held in September.
BlackRock Inc, the world’s largest asset manager, has postponed a two-day September conference at the Four Seasons Hotel until February “so that as many partners as possible from across Asia are able to join”.
On Thursday, the Hong Kong Retail Management Association urged all landlords to halve rents for six months and warned if the situation continued “many retailers may have to sack staff”.
Hong Kong leader Carrie Lam has repeatedly warned that protests are hurting the economy. She has consistently declined to meet any of the protesters’ core demands.
Instead, she announced stimulus measures worth $2.4 billion.
But analysts warn that in the current climate, handouts are ineffective as firms and consumers are in no mood to spend.
With no obvious infrastructure upgrades needed, and with the government having a long track record of failing to adequately boost housing supply, analysts only expect announcements of more handouts and tax breaks at Lam’s annual policy address in October.
Rating agencies have raised long-term questions over the quality of Hong Kong’s governance.
But an increasingly assertive Beijing is fuelling larger concerns. Mainland regulatory scrutiny on airline Cathay Pacific over the involvement of some of its employees in the protests will affect Hong Kong’s image as a safe place for business. – Reuters
