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Hong Kong economy

Hong Kong losing competitive edge to Singapore, Shanghai and has yet to face worst of trade war impact, poll finds

  • City ranks higher than Beijing and Guangzhou, according to CPA Australia survey
PUBLISHED : Tuesday, 20 November, 2018, 8:48pm
UPDATED : Tuesday, 20 November, 2018, 8:48pm

Hong Kong is losing out to Singapore, Shanghai, Shenzhen and Tokyo in terms of competitiveness, according to a survey conducted by accounting body CPA Australia. Its economy is likely to be hit hard by the US-China trade war next year, according to the poll.

About half of the respondents said they expected the city’s competitiveness to drop, with only 12 per cent viewing it as the most globally competitive city in Asia. Hong Kong, however, did rank higher than Seoul, Beijing and Guangzhou, among others.

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“The deteriorating trade relationship between the US and China, anticipated lower economic growth in mainland China and high property prices are factors most likely to drag on the Hong Kong economy in 2019,” said Paul Ho, president for Greater China at CPA Australia.

Half of the respondents also said they believed the worst had not yet been witnessed, and expected property prices in Hong Kong to fall further as its economic outlook got gloomier in 2019. More than a third said companies in the city had not taken any measures to mitigate the risk of the trade war, which was adding to the gloomy outlook for Hong Kong’s economy and, hence, hurting its competitiveness.

Ho said the impact of the trade war may not yet be visible to small and medium enterprises.

While the CPA Australia study may have interviewed only 178 of its members in October, it was in line with another survey, whose findings the International Institute for Management Development released on Tuesday. According to this poll, Hong Kong was lagging behind its Southeast Asian peers in terms of attracting and retaining talent.

The deteriorating trade relationship between the US and China, anticipated lower economic growth in mainland China and high property prices are factors most likely to drag on the Hong Kong economy
Paul Ho, president for Greater China, CPA Australia

But it is not all doom and gloom for the city. Gordon Tsui Luen-on, managing director of Hong Kong brokerage firm Hantec Pacific, said that while Hong Kong has been lagging behind in technology and innovation, which made the city seemingly worse off than other cities, it was still strong in infrastructure and legal services.

CPA Australia’s Ho said: “Hong Kong is a mature market, while economic activity in Shanghai and Shenzhen has only picked up significantly in recent years, creating a perception among our respondents that they have surpassed Hong Kong.”

He added that Hong Kong could catch up by supporting technology-focused Shenzhen with finding talent and raising funds.

About 34 per cent of respondents also thought high property prices would dampen the economy next year, and a third said they expected home prices to fall by less than 10 per cent, with office rents remaining unchanged.

“Higher property prices will increase costs for businesses and curb productivity in the long run. A 10 per cent drop from a sky-high price may not make a big difference to the economy,” said Hantec Pacific’s Tsui.

Office rents in Hong Kong’s Central district may drop for first time since 2013, says Colliers

These expectations of a less than 10 per cent drop were in the same ballpark as a report released by global property consultancy Knight Frank on Monday, which forecast a 10 per cent drop in home prices in Hong Kong next year.

And along with home prices, rents in Hong Kong’s Central district may also fall as a result of some big players move out. Citibank, Standard Chartered Bank and Bank of East Asia have relocated part of their offices from Central, the world’s most expensive office address, to Kowloon, with JPMorgan joining them there next year.

“The global economy is full of uncertainties, which have already been reflected in the stock market, the slow down in company expansion and a reluctance to pay sky-high rent, especially in Central,” said Wendy Lau, senior director of Hong Kong office services at Knight Frank.