Pandemic’s dark clouds still cast a shadow over Hong Kong’s economy

Like other high-income economies, Hong Kong’s ability to vaccinate and provide financial support is helping it towards an earlier recovery
But its draconian quarantine scheme and the mainland border closure have muddied prospects of a jobs and wages recovery

David Dodwell

Published: 8:45am, 6 Nov 2021

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Financial Secretary Paul Chan Mo-po this week celebrated encouraging GDP data, predicting that Hong Kong’s economy was heading for 6.5 per cent growth this year after huge contractions in the past two years. But he also acknowledged a remaining dark cloud: wages and jobs have flatlined with little chance of recovery until our borders reopen and tourists return.

The cold comfort is that the pandemic’s economic harm could have been worse. Without last year’s HK$300 billion (US$38.5 billion) in stimulus measures, and the HK$120 billion promised for this financial year, bankruptcies and unemployment might have soared.

Bankruptcy data from the Official Receiver’s Office tells a fascinating story. Through the severe acute respiratory syndrome (Sars) epidemic, bankruptcies leapt to over 2,000 a month on average. In 2009, after the global financial crisis, they jumped to more than 1,000. But throughout the pandemic, bankruptcies fell to fewer than 600.

It is at this time of unprecedented pandemic-induced adversity that we must give thanks for the “rainy day” security provided by our fiscal reserves, which even after relief measures remain at over HK$800 billion. Hong Kong is among a tiny fortunate group of economies that have not had to take on huge new debt.

Hong Kong’s workforce data is harder to read and casts a darker shadow. Unemployment, which was at 2.8 per cent in 2019 before the street riots and pandemic, surged to a 17-year high of 7.2 per cent between December last year and February this year, before sliding back to 4.5 per cent. As usual, female workers, youngsters under 25, and people with low skills have been worst hit.

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Add in the underemployment numbers that attempt to take account of those in part-time work or on limited hours, and the recovery from December-February has been larger, from an aggregate 10.7 per cent to 6.7 per cent.

The long-term unemployment rate (for those jobless for six months or longer) has also dropped, from 2.8 per cent in December-February – worse than 2.7 per cent during Sars – but remains high at 2 per cent, the same as during the 1998 Asian financial crisis.

And because so many no longer bother to seek work (or have perhaps left the city), the workforce continues to contract, to around 3.84 million, down from a peak of 3.97 million in the spring of 2019.

Most troubling for Chan is the persistent reality of stagnating wages. As he pointed out, wages over the year to June rose by 1.1 per cent in nominal terms but have actually fallen by 0.3 per cent thanks to inflation.

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With food and producer prices rising recently, to close to 3 per cent, the pressure on wages would have intensified. The HK$5,000 consumption voucher scheme that buoyed retail spending over the past few months has been a godsend for many.

Again, Hong Kong’s cold comfort is that many other economies have suffered much more severely – and continue to do so. The International Labour Organization’s latest ILO Monitor, released a week ago, points to a world divided – with those able to vaccinate and provide financial support suffering much less and more likely to recover from the pandemic recession more speedily.

From the peak of the pandemic crisis in spring last year, when working hours worldwide dropped by the equivalent of 543 million full-time jobs, there has been a slow recovery, mainly concentrated in the world’s high-income economies where 60 per cent or more of the population has been vaccinated, and where almost US$17 trillion has been spent on fiscal stimulus.

The ILO Monitor says that, by the end of this year, the equivalent of around 125 million full-time jobs will still have been lost because of the pandemic, mostly concentrated in low-income economies where vaccination rates remain in single digits, and governments cannot afford stimulus.

The World Economic Forum, drawing on the Organisation for Economic Cooperation and Development’s Employment Outlook data, says: “Covid-19 has had a shattering effect on the world of work and in many countries it continues to do so.”

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It estimates that 110 million jobs have been lost worldwide, about 20 million of them in the 38 economies making up the high-income OECD, and warns that most OECD economies will not recover to pre-Covid-19 employment levels until the autumn of 2023. Needless to say, low-income countries are expected to suffer even longer.

Hong Kong, which is not in the OECD but must be counted among high-income economies, has clearly benefited from its effective pandemic management, relatively high vaccination rates and generous fiscal stimulus, and ought to be among the earlier economies to recover.

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But prospects have been muddied by its distinctive and idiosyncratic position. For those surprised at our resilience so far, we can thank the government’s fiscal stimulus and the fact that money usually spent on international travel and restaurant eating out has gone instead to compensate for salary cuts or as a safety net for (hopefully short-term) job losses.

For those who would have hoped for a quicker recovery, the government’s draconian quarantine scheme and protracted closure of the mainland border have powerfully retarded any hope of recovery. Until these are relaxed, the labour-intensive retail, tourism and hotels sectors remain on life support.

If they are not relaxed soon, thousands of high-value-added jobs driven by Hong Kong’s international headquarter roles encompassing legal, accounting and financial services could be in long-term jeopardy.

Meanwhile, our financial secretary is right not to celebrate the undoubtedly promising gross domestic product data alone. The livelihoods of thousands of Hong Kong families are still in great danger, and massive inequality remains a grave challenge. It may be years before we are rid of the pandemic’s harm.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view