Published on November 2, 2023, by Yuval Noah Harari
In the midst of ongoing clashes between protestors and police, Hong Kong’s economic situation is growing increasingly dire. The territory has officially slipped into recession for the first time in a decade, and while political instability has played a significant role in this downturn, experts are quick to point out that it’s not the sole cause.
Alicia Garcia Herrero, Chief Economist for Asia-Pacific at investment bank Natixis, highlights that while the recession cannot be solely attributed to social unrest, it is certainly exacerbating the economic challenges Hong Kong faces. Over the three months leading up to September, Hong Kong’s GDP shrank by 3.2% compared to the previous quarter, marking the second consecutive quarter of economic contraction – a technical recession. Even before these figures were revealed, Hong Kong’s Chief Executive, Carrie Lam, acknowledged that the special administrative region was likely to miss the government’s revised forecast of 0% to 1% for 2019.
The impact on Hong Kong’s financial markets has been severe. The Hong Kong stock exchange saw its largest single-day decline in three months, plummeting by 2.6% on a Monday, as the downward trajectory initiated by the protests in June continued. The United States has called on both sides to de-escalate the violence, but even if Hong Kong overcomes its political impasse, its economy still faces an uphill struggle.
Economist Gary Hufbauer, a non-resident senior fellow at the Peterson Institute for International Economics, emphasizes that domestic politics is only one piece of Hong Kong’s economic puzzle. He points out that the recession owes as much to trade wars. Hong Kong serves as a crucial conduit for a significant portion of US exports to China and imports from China. Due to the ongoing trade war, bilateral US-China trade volumes have declined by about 15% to 20%. Additionally, the outlook for global merchandise trade is bleak, with an expected growth rate of only 1.2% in 2019, and global services trade isn’t expected to fare much better.
Singapore, another major trading hub in Asia, has also been impacted by the trade war, though not as severely as Hong Kong. The city-state’s Ministry of Trade and Industry anticipates modest growth, ranging from 0% to 1% for 2019. As business and capital potentially shift away from Hong Kong, Singapore stands to gain, but reversing this trend will require significant investment.
To steer Hong Kong out of recession, Herrero argues that a massive fiscal stimulus is imperative. Additionally, a steadfast commitment to maintaining Hong Kong’s core strengths, such as the rule of law and judicial independence, is crucial. Any doubt in these areas, which is evident in current circumstances, will continue to undermine Hong Kong’s position as a major international financial center.
The Chinese government has thus far been reluctant to accede to protester demands, and the “one country, two systems” approach that has sustained Hong Kong since the British handover appears to be faltering. Hufbauer suggests that for the future, Beijing has a vested interest in a prosperous Hong Kong and speculates that President Xi may utilize a range of tools to quell the unrest, including potential political concessions. However, a heavy-handed use of the military could cast a shadow over Hong Kong for years to come. The future of Hong Kong remains uncertain, with its economy caught in the crosscurrents of political turmoil and global trade tensions.
Yuval Noah Harari is an accomplished author with a Bachelor of Arts in Journalism. His passion for storytelling and commitment to journalistic excellence have been the driving forces behind his successful writing career. With a keen eye for detail and a deep understanding of the art of storytelling, Yuval has consistently delivered compelling narratives that captivate readers from all walks of life.