The disruptive demonstrations in the Hong Kong Special Administrative Region that are now in their 10th week are taking a heavy toll on its economy.
In the second quarter the SAR’s economy grew only 0.6 percent, compared with the 4.6 percent increase in the same period last year. That the SAR’s Purchasing Manager’s Index, an indicator of the vitality of the economy, plummeted to a decade low of 43.8 in July means the impacts are structural.
The turmoil has also severely shaken investor confidence. The Hong Kong stock market fell by 2.68 percent in June and 8.8 percent in July, with the latter the biggest fall in seven months.
Although Hong Kong’s economy has been trending downward since the first quarter of last year, when it grew by 4.6 percent, the unrest has magnified the SAR’s economic troubles. At the beginning of this year, the government predicted GDP growth for 2019 would be 3.5 percent. In May, it cut the forecast to 2-3 percent. It has now cut the forecast again to between 0 and 1 percent.
As the rioters have targeted the shopping thoroughfares, public transportation and the airport, the tourism, retail, logistics and reception industries are bearing the brunt of their actions. The number of inbound tourists has fallen about 30-40 percent so far this month, and 28 countries have issued travel alerts, which will further hit visitor numbers. About
1 million jobs in these industries have been affected, one-seventh of the SAR population.
The disturbances could have a bigger impact on the SAR’s economy than the 2008 global financial crisis, as SAR government leader Carrie Lam Cheng Yuet-ngor has warned, and the impact might drive more at the lower end of the social ladder to either join the demonstrators or collide with them, creating a vicious cycle.
Worse, with Hong Kong as the most important pathway for its inbound and outbound investments and goods, the Chinese mainland is unavoidably vulnerable to spillover effects from the battering Hong Kong’s reputation for stability is taking. Not to mention that about 50 percent of the listed companies in the Hong Kong stock market are from the mainland, accounting for about 68 percent of its value. The effect on the mainland market will unavoidably send ripples around the world, meaning the street violence in the SAR threatens to be a black swan event.
Freedom has its price, and it is paid in different ways. It is ironic that actions of the demonstrators — which for all the talk of freedom of expression have been fundamentally fueled by economic concerns and an attendant loss of status — are now a prime factor behind the SAR’s faltering economy. It is also ironic that the demonstrators’ ire should be directed at the central government, which is extending a helping hand to the SAR by positioning it as one of the key pillars in its plan to develop the Pearl River Delta region. The establishment of the Guangdong-Hong Kong- Macao Greater Bay Area promises to give a significant boost to the SAR economy.
But putting an end to the violence is the prerequisite for this, as stability needs to be restored to put Hong Kong on the right track for the future.