Why economic recovery is a clouded prospect for HK

PUBLISHED : Wednesday, 23 September, 2009, 12:00am
UPDATED : Wednesday, 23 September, 2009, 12:00am

As silver linings go, it came with a mighty big cloud. Last year, just as the world's economy went into a tailspin following the implosion of United States investment bank Lehman Brothers, the skies over Hong Kong miraculously cleared.

It was thin cheer to our newly jobless legions of bankers, supply-chain managers and construction workers, but after years of barely being able to see the other side of the harbour through the foul murk hanging over the city, suddenly Hong Kong was enjoying bright sunshine, crystal blue skies and unimpeded views of distant hills.

The old-timers among us said it was like days gone by, before the thick grey blanket of pollution settled over the Pearl River Delta, when cool dry northeasterly breezes brought relief from the summer's mugginess, and crisp autumn was everyone's favourite season.

Explanations for the phenomenon varied. The weathermen muttered something about abnormal ridges of high pressure and unseasonal monsoon winds. Meanwhile, government officials were quick to claim the credit, declaring that the unwonted clarity of the air proved their pollution policies were finally working.

Few were convinced. Although there was little hard evidence, most of Hong Kong's inhabitants assumed the clearing of our air had more to do with the economic crunch forcing factory closures in Guangdong than anything ever likely to be achieved by the government's Environment Bureau.

The data shows they had a point. The first chart below plots atmospheric pollution in Hong Kong against economic activity. The measure taken for pollution is the Air Pollution Index compiled by the Environmental Protection Department from the hourly concentrations of six major pollutants measured by its 14 monitoring stations around the city.

In this case, because it is overall visibility we are interested in, we have omitted readings from the three street-level monitoring stations in Central, Causeway Bay and Mong Kok. We have then taken the readings from the remaining 11 'ambient stations' and aggregated them to produce average pollution levels for each three-month period over the past three years.

Finally, we have plotted these average pollution levels against Hong Kong's quarterly gross domestic product over the same interval. As you can see, the correlation is remarkably tight.

The sceptically inclined might claim that this correlation is an illusion created by unrelated seasonal variations that just happen to coincide.

But they would be wrong, The second chart plots year-on-year changes in pollution levels against gross domestic product. When Hong Kong's economy fell off a cliff in the last quarter of last year, pollution levels dived, too.

That makes sense. As export orders dried up, industrial production in southern China dropped steeply. That meant fewer pollutants belching from factory smokestacks into the skies above the delta region. It also meant less demand for electricity as production lines shut down, which allowed generating companies to reduce output from their less efficient, more heavily polluting power plants.

Meanwhile, falling export shipments meant fewer diesel trucks barrelling south towards Hong Kong and fewer heavy bunker fuel-burning container ships plying Hong Kong's waters.

As a result, the third chart below should come as no surprise. As Hong Kong's goods' exports slumped, the air cleared.

Of course, the reverse is likely to prove true as well. Yesterday, the Asian Development Bank forecast Hong Kong's economy would bounce back next year, growing 3 per cent after a 4 per cent contraction this year.

That will still leave overall output slightly below last year's level. Even so, as the recovery picks up steam, we can expect the pollutants to gather again in our skies. Whether that is a price worth paying, you can decide.