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Macroscope
Opinion
Neal Kimberley
Neal Kimberley

Fear not, Hong Kong: trade talks, monetary loosening and the Greater Bay Area point to better times for the economy

  • Despite the worst quarterly results in 10 years, the Hong Kong economy is well positioned for a rebound, especially if the trade war ends soon

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People walk along a footbridge at West Kowloon with the skyline of Hong Kong Island in the background. On May 2, the city revealed a growth rate of just 0.5 per cent. Photo: AFP
Neal Kimberley
Hong Kong may only have managed an expansion of 0.5 per cent in the first quarter, the smallest increase since 2009, but markets shouldn’t necessarily overreact. There remains every possibility Beijing and Washington could resolve their trade differences while potential developments in US monetary policy may work to Hong Kong’s advantage. 
Last Friday, meeting Slovakian Prime Minister Peter Pellegrini at the White House, US President Donald Trump nevertheless felt the need to reference US trade talks with China. “The deal itself is going along pretty well. I would even say very well,” Trump said. “We’ll see what happens over the next couple of weeks”. Admittedly, Trump’s weekend tweets, about raising tariffs on imported goods from China, soured the market mood but a trade deal is still very possible.

Clearly, a resolution of the trade war would be beneficial to Hong Kong, but it is also worth bearing in mind that Hong Kong-US economic arrangements are primarily delineated by the US Hong Kong Policy Act.

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Pursuant to that act, a report on March 21 from the US State Department’s Bureau of East Asian and Pacific Affairs argued that, for the period covered by the report, namely May 2018 to March 2019, there had been an increase in “the tempo of mainland central government intervention in Hong Kong affairs” and “actions by the Hong Kong government consistent with mainland direction”.

Yet, the report concluded: “As a general matter, Hong Kong maintains a sufficient – although diminished – degree of autonomy under the ‘one country, two systems’ framework to justify continued special treatment by the United States for bilateral agreements and programmes per the Act.”

Nor should Hong Kong’s importance to the US as an economic partner be underestimated. “In 2018, the United States' largest worldwide bilateral trade-in-goods surplus was with Hong Kong, at US$31.1 billion,” according to the Bureau of East Asian and Pacific Affairs report. “Exports totalled US$37.4 billion and imports were US$6.3 billion.”

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