Opinion | Still too soon for Hong Kong to declare its economy out of the woods
July 6, 2024
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For an administration that craves good news to contradict the naysayers seeking to write off Hong Kong as one of the world’s most competitive economies, this evidence of “green shoots” has brought comfort. The mood has been buoyed by the reminder that no one over the past four decades has bet against Hong Kong and won.
But the flow of bad news remains frustratingly persistent. Much of this is beyond our control and the road to a confident recovery remains long and probably arduous.
For an economy used to the swagger that goes with ranking among the top-performing economies worldwide, it has been humbling and bruising to tumble so sharply out of favour, to be told we have been overtaken by economies that Hong Kong can still out-compete.
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Perhaps the most dangerous claim to victory is the “peace” brought back to Hong Kong’s streets after the terrible conflicts of 2019. Overt violence has been purged but our administration is probably mistaken if it believes the combination of a national security law and the passing of Article 23 legislation has restored sustainable calm to our community.
We have lost around 140,000 people to migration since 2020, many taking important skills and experience with them. Many still here remain sullenly cowed rather than in a celebratory mood. A recent poll by the Hong Kong Public Opinion Research Institute found that over 38 per cent lack trust in our government.
While there is growing confidence that our economy may grow by 3.5 per cent this year after several years of contraction, other local indicators remain poor. Business receipts remain sharply down in the accommodation, retail and food services sectors (but up in insurance and banking). Many companies are still looking to cut office space as business remains sluggish.
While official bankruptcies remain low, there is evidence many companies have become “zombies”. About HK$19 billion (US$2.43 billion) has been loaned to local companies as life support since 2020 but there is no clarity that they will be able to repay.
Counterbalancing positive news about new companies investing in Hong Kong (in particular from the mainland) is evidence that Hong Kong has slipped far behind Singapore as a regional headquarters hub. Bloomberg research revealed earlier this year found that Singapore was home to the regional headquarters of 4,200 multinational companies last year, compared with just 1,336 in Hong Kong.
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Hong Kong’s Census and Statistics Department shows a 24 per cent fall in US companies headquartering in Hong Kong from 2020, only partly counterbalanced by a 3.8 per cent increase in mainland companies. This fall is also reflected in the falling number of non-local children attending Hong Kong’s international schools.
Since it is headquarters operations that drive wealth-generating growth in the high-value-adding legal, accounting, insurance and financial services that have in recent decades been our most powerful economic drivers, this is an important loss.
While our administration has been focusing hard on restoring our tourism economy, it is important to remember that jobs driven by tourism – in hotels, retail and food services – may be numerous but are notoriously low-skill and low-value-adding, and so, hardly the strongest foundations for growth and prosperity.
Hong Kong’s critically important trade fair and exhibitions business has been improving strongly but yet to return to 2019 levels – an important reflection that Hong Kong’s important role in trade and logistics has far from recovered.
Hong Kong’s all-important property economy also appears to still be very fragile, in spite of efforts in the last budget to reverse recent large declines. Residential transactions fell by 30.5 per cent between May and June as mortgage interest rates remain high with the Hong Kong dollar pegged to the strong US dollar.
There is talk of an economic recovery in the second half of the year, but that talk is not yet matched by either a rise in property values or a recovery in transaction volumes. Hongkong Land, which dominates office space in Central, buoyed the market last week by unveiling major refurbishment plans for its prime Landmark property, but this alone will not contradict the narrative driven by street upon street of closed retail outlets and restaurants.
There remains plenty of evidence that no one has ever bet against Hong Kong and won, but recovery remains far off and green shoots remain fragile. It would be a foolhardy administration that underestimates the challenges we still face.
David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades
