On 3 October, we held a talk with Ms. Li Xueying, Enterprise Editor, The Straits Times and Dr. Steven Cochrane, Chief APAC Economist, Moody’s Analytics, examining the implications of the protests in Hong Kong. The session was moderated by SIIA Chairman Simon Tay.
In 2014, the Umbrella Movement protests barely had an impact on Hong Kong’s economy. The situation in 2019 is different. According to a survey of SMEs by Hong Kong’s Census and Statistics Department, business sentiment in Hong Kong has hit new record lows, and companies are not confident that the situation will improve anytime soon.
Beyond the Protests: Deeper Economic Issues
Unfortunately for Hong Kong, the city’s economy is not only suffering from the protests, but also China’s economic slowdown. GDP growth in Hong Kong is closely linked to the mainland’s own economic growth figures. China’s growth is continuing to slow, partially due to the ongoing US-China trade war, but also due to China’s efforts to deleverage and reduce debt.
Even if the US and China reach an agreement to end the trade war and China’s growth stabilises, Hong Kong still faces deeper economic concerns. There has been a hollowing-out of the Hong Kong economy. Manufacturing has long since moved out of Hong Kong to the mainland. Trade-related and transport sectors are now accounting for an increasingly smaller share of the economy.
New graduates are also facing poorer job prospects. Fresh university graduates are taking home less pay than their counterparts 30 years ago, according to a study by the New Century Forum, with one in six university graduates forced to take on low-paid, unskilled work. There are some sectors which may be new growth areas for Hong Kong, such as technology and information services, but Hong Kong can expect to see a period of restructuring as it adjusts to these new economic realities.
There are also indications that Hong Kong’s position as a financial centre is at risk. Even prior to the demonstrations, Hong Kong was already seeing a diminished share of initial public offerings (IPOs) from China, versus Shenzhen and Shanghai. That trend may be further exacerbated by the protests. In August 2019, reports emerged that Chinese e-commerce giant Alibaba postponed a US$15 billion listing in Hong Kong amidst the current unrest.
The Blame Game: Hong Kong’s Tycoons in the Spotlight
Chinese media is now criticising Hong Kong’s property tycoons for either tacitly supporting the protests, or causing them in the first place – by fuelling inequality and driving up the increase in housing prices. According to a report by CBRE, the average price of a home in Hong Kong is now US$1.2 million, making Hong Kong the world’s most expensive city for property buyers.
Some companies are already responding to the criticism. In late September 2019, New World Development announced that it would donate three million square feet of its farmland reserves for the construction of social housing.
Given that Hong Kong’s government earns a great deal of revenue from land sales and stamp duties, there may be reluctance among the political establishment to bring down property prices too much. In this regard, there may be some silver lining to the protests. The demonstrations are forcing policymakers to tackle bread and butter issues.
Driving Change in Hong Kong
That said, China’s focus on the economic aspect of the unrest in Hong Kong ignores the fact that much of the crisis is political in nature. Of course, housing prices and job opportunities are easier to discuss than changes to the political order.
With many taking to the streets to fight for Hong Kong’s identity, values, and way of life, Beijing and Hong Kong’s leaders cannot simply “buy off” the protestors. Yet, at the same time, a political settlement without addressing the underlying economic inequality in Hong Kong is equally unsustainable. Arguably, efforts by the Chinese authorities and the media to frame Hong Kong’s troubles in economic terms are also being done in good faith. China’s social compact is based on the government promising economic prosperity to its citizens, in exchange for loyalty and social stability. The problem is that disgruntled protestors in Hong Kong may not be willing to accept such a deal.
Into Uncharted Territory
Hong Kong has seen periodic protests since the handover, but previous demonstrations have been relatively orderly and peaceful. The Umbrella Movement protests in 2014 did see the use of tear gas, but the situation did not escalate further. But with the present “be like water” protests expected to continue for the foreseeable future, Hong Kong is rapidly entering uncharted territory.
Some photos from the event:
