Today, Hong Kong faces great economic uncertainty and unprecedented market volatility.
Recently, Hong Kong’s financial secretary John Tsang Chun-wah warned that the city’s economy is facing its “worst time in 20 years”. In the past half a decade, growth has more than halved close to 2.5 percent. With Brexit chills, analysts expect a contraction.
However, the writing has been on the wall since the global financial crisis. Yet, critical decisions have been delayed.
Growth Engines Fading
Hong Kong’s old growth drivers remain necessary but are no longer enough. In the past, export-led growth fuelled Asia’s tigers, including Hong Kong. Today, advanced West can no longer absorb Asian imports, and China’s growth is decelerating.
Last spring, concerns about Hong Kong’s economy led some ratings agencies to downgrade their outlook to negative, after same action on China. But while the mainland can still rely on catch-up growth and rising living standards, Hong Kong’s aging economy must do with slower growth, stagnant living standards and income polarisation.
In the past, Hong Kong’s property developers reduced risks by relying on prudent financial policies, funding flexibility and recurring income streams. Today, those positives have been offset by rising supply, slower growth, and the Fed’s future rate hikes. However, developers’ presence in China’s urban growth centres has protected margins.
Similarly, retail sales can contribute to Hong Kong’s growth but not without the mainlanders’ role in the economy. The same goes for logistics and Chinese firms. Moreover, the city’s thriving tourism is not viable without mainlanders who account for more than three of total arrivals.
Without China, Hong Kong would be left with only half its trade and a quarter of its foreign investment.
About the Author
Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See http://www.differencegroup.net/