Hong Kong must brace for long slog of economic recovery with patience and a brave face

Data suggests Hong Kong is starting to recover, with tourism, service exports and population numbers coming back up
But challenges remain, the worst of which is probably the eagerness of many in the West to write Hong Kong off

David Dodwell

Published: 6:15am, 4 Sep 2023

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As we emerge from Typhoon Saola’s battering and count the damage, disruption and economic cost, there can be no quality more important than patience and a brave face.

All the more so for Financial Secretary Paul Chan Mo-po as Saola adds to the mountain of challenges hampering Hong Kong’s recovery from 2019’s street riots and three years of Covid-19 trauma.

The latest economic numbers suggest we are at last beginning to recover from the most difficult period in more than four decades. Data released for the first half of 2023 has lifted the growth forecast to 4-5 per cent for the year.

While goods exports are sharply down (15.2 per cent year on year) as China’s imports continue to contract, our service exports have leapt by almost 23 per cent. Earnings from tourists – which crashed to near zero for 30 months – have jumped eight-fold since the start of the year.

While there is still a lot of media chatter about Hong Kong families fleeing the national security law to more secure pastures, and about international companies resettling in Singapore, the data suggests this has begun to reverse.

After the loss of around 113,000 residents between mid-2021 and mid-2022, which trimmed Hong Kong’s population to around 7.3 million, the Census and Statistics Department says our population has rallied back to 7.5 million.

And the community of foreign-owned companies in Hong Kong (including those with mainland parents) has grown to 8,978 last year, 224 more than in 2018.

But there is still much to be gloomy about, as any stroll past the shuttered shops in Causeway Bay or SoHo quickly makes clear. Latest statistics show that food service outlets, for example, have shrunk by over 8 per cent since 2018 (from 15,660 to 14,318 in 2021), with food service jobs down by 20 per cent (to 217,000). Retail employment is also down by about 10 per cent.

Such contractions go a long way to explaining Hong Kong’s sluggish consumer recovery and the acute livelihood challenges faced by many, despite massive government investment in consumption vouchers over the past two years.

Last year, Oxfam reported that Hong Kong’s richest 10 per cent earned 47 times more than the poorest 10 per cent – compared with 34 times more in 2019 – making this one of the world’s most unequal societies. Even the middle classes are seeing the value of their homes decline, and equity investments are down sharply since the beginning of the year.

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Underprivileged class bearing the brunt of Hong Kong’s rising inflation

Yet, in many ways, Hong Kong also remains among the world’s most fortunate. Unemployment remains low, at 2.8 per cent, and inflation sits comfortably below 2 per cent. That our government has negligible debt also provides huge flexibility to introduce economic stimulus – a luxury not enjoyed by many others.

Chan has made clear, however, that recovery will be long and slow. And while he celebrated the return of tourists and predicted that mainland arrivals were likely to be a key driver of recovery, the reality is that tourist arrivals in the first half of this year reached just 13 million – barely a third of that in the first half of 2019.

Given the brazen hostility in 2019 of many Hongkongers to mainland Chinese, it is moot whether we will see a quick tourist recovery.

Perhaps the worst of the government’s economic challenges is the eagerness of so many in the West to write Hong Kong off.

The blunt truth is that, since the 1970s, Hong Kong has largely been ignored or disdained. One view of those in London’s financial markets was that anyone leaving to work in Hong Kong was “filth”, an acronym for “failed in London, try Hong Kong”. That disdain is perhaps worse than ever, with the US-China conflict showing no signs of abating, and Hong Kong dismissed as a pariah in many parts.

Despite Chan’s best efforts to sell Hong Kong – and our Greater Bay Area hinterland – as a leading global hub for headquarter services, professional and financial services, and fast-evolving technology, the uncomfortable reality is that we remain out of favour. Other international hubs, predominantly Singapore and the United Arab Emirates, have capitalised on this, at Hong Kong’s expense.

A quick comparison shows just how far Hong Kong has slipped behind. In 2000, Singapore’s economy was just over 55 per cent of Hong Kong’s, and the UAE’s was at 60 per cent, according to World Bank gross domestic product data at current prices. Last year, Singapore’s GDP was 30 per cent larger than Hong Kong’s, while the UAE’s was 41 per cent larger.

More importantly, they have recovered much more rapidly from the pandemic than Hong Kong, and there is little evidence we are well placed to catch up.

Most global rankings, in which Hong Kong used to impress the world, now tell a forlorn tale. Take Kearney’s Global Cities report, for example, in which Hong Kong has tumbled since 2019 from 5th to 10th place. Or the Mori Memorial Foundation’s Power City Index: Hong Kong largely sat in the top 10 up to 2020, but has now collapsed to 23rd, while Dubai is up to 11th from 23rd in 2017.

Whatever our views about the biases and gross simplifications of such global polls, they feed Western prejudices and will be tough to reverse. For Chan, that means patience and a brave face.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades