Coronavirus has left Hong Kong’s economy looking critically ill

Daily local coronavirus infections are close to zero, but social distancing measures remain in force, holding back a much needed economic recovery
The business pillars of Hong Kong’s identity are fast shedding assets and staff as revenues collapse. Before it is too late, the SAR needs to be set mask free

Neil Newman

Published: 8:00am, 2 Nov 2020

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LET IT RIP

The recent long weekend was beautiful. It was great to be out in the open air, with some of the best weather Hong Kong can offer. On the flip side, it was also the last long weekend before Christmas and could, if not for social-distancing restrictions, have been another earner for Hong Kong businesses which desperately need to get back on their feet following the devastating impact of the coronavirus this year.

Although the main areas of Hong Kong are bustling during the week and public transit is back at “crush” capacity, we were unable to frolic on a public beach or have a BBQ in the perfect weather due to the continued closure of such facilities. According to the Centre for Health Protection’s latest broadcast message, the average daily number of locally transmitted cases of Covid-19 over the previous seven days was substantially less than one.

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Our government’s timid reaction to these very low numbers has been to ease up slightly on social distancing. From the Friday before last we were allowed to drink in fours and eat in sixes until 1:59am, but wear a mask when going to use the lavatory. Were we to step outside the restaurant with our five friends, we’d need to get rid of two immediately or risk being fined. There are widespread reports of people largely ignoring these rules, and businesses struggle to enforce them. Is it any wonder? Perhaps the infection risk people perceive and the political risk Carrie Lam’s administration sees are somewhat asymmetric?

Not everybody is impressed with the decision to close Hong Kong's beaches. Photo: Henk Jan Pomstra of the Cathay Camera Club

HARD OFFICIAL DATA

What conclusion to draw from the data that’s reported to us daily? With between zero to one new local infection per day, I can’t see a case for supporting continued draconian social-distancing rules. After the tightening-up of exemptions for visiting ships, effective airport tests, and 14-day quarantines for people entering the city, it appears nearly impossible to catch the virus now.

With that in mind, I personally think the Hong Kong government should ease the social-distancing rules and allow us to get back to some sort of normality, and get the local economy back on its feet while we still have one.

So it is time to let rip. Is it a risk worth taking?

NO QUICK CURE, NO VACCINE, BUT QUICK COVID-19 TESTS ARE COMING

I do not believe a vaccine will be with us any time soon and the latest assessment of the trials according to the BMJ Medical Journal is that they are currently focused on very mild cases and not on reducing hospital admissions.

Therefore, I am thinking along different lines; where there is such a thing as an acceptable level of risk in our daily lives. The important thing is protecting the “at-risk” groups like the elderly and the sick, which Hong Kong’s old people’s institutions and hospitals appear to have a good grip on. After all, if social-distancing measures are lifted, anyone can choose to socialise or not, but the old and infirm do not have that option.

Even in the event that a vaccine is proven safe within the next six months, ramping up manufacturing and distribution to make it generally available may take considerable time. And according to surveys there is a general reluctance among people to take it. Furthermore, the vaccine’s effectiveness may diminish over time due to viral mutations and the apparent rapid loss of antibodies after the body has had a run-in with the virus naturally – there is no indication vaccines will suffer the same fate, but nothing on the contrary either.

Hong Kong's beaches have been closed for much of the summer. Photo: Neil Newman

Rapid and cheap testing, on the other hand, is likely going to become a reality very soon, along with better treatments when people are ill. Cathay Pacific have been testing a new 15-minute screening process developed by Hong Kong-based Prenetics which, in conjunction with a digital health pass, would eliminate the need for quarantine by identifying the threat on arrival.

If the virus persists, a longer-term approach may be to kill it on the surfaces where it is transmitted, using copper and copper alloys. Perhaps this is one of the reasons the price of the commodity remains high, with Chinese buyers aggressively stocking up. Still, the most important and effective measures we have are self-isolation for those infected and preventing the virus’s spread with soap and alcohol.

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THE NASTY SIDE

Aside from the economic impact, Covid-19 rules are bringing out the worst in people. A British newspaper recently ran a letter penned by a restaurant waitress in Manchester who said that the social-distancing rules they needed to follow had irritated customers to the point where they were rude, aggressive and threatening. Unfortunately, this is happening here too.

Staff at one of my favourite restaurants recently were harassed by a group of diners because they could not take a credit card. A leisurely beachside lunch had been ruined by an extreme overreaction on the diners’ part after they had been separated into groups of four, resulting in crying kids, screaming husbands and wives, and a restaurateur who just wanted to be paid and will never let those customers back in again.

01:20

Cathay Dragon staff strongly dissatisfied over Cathay’s decision to axe regional brand

WE MUST EASE UP BEFORE IT IS TOO LATE

Hong Kong’s economy is in an extremely fragile state: the food and beverage sector has been decimated, live music was buried without a funeral, and now the big employers are cutting staff. Soon there will be no more revenue to pay those who remain employed. Big firms are firing staff and selling up. Cathay and Swire have been joined in cutting staff and disposing of assets by City Plaza One after its interim core profit fell -80 per cent. Swire principally gets its income from rent from offices, hotels and malls; retail outlets and restaurants in their vast shopping complexes, and that is why they are particularly vulnerable to their restaurant and shop tenants’ fortunes and missing rent payments.

Around the world, weak economic performance, coupled with job losses and the ever-present risk of renewed lockdown measures, is leading to a surge in social unrest. At the moment the national security law has put a lid on political turmoil in Hong Kong, rendering the city relatively calm. But renewed anger and protest triggered by economic desperation is the last thing we need.

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While tourism is unlikely to recover to anything near normal for quite some time, there are promising developments. The travel bubble with Singapore is a positive first step, perhaps to be followed by a new look on ultra-clean Japan where the infection rate is very low. This would open the window for cooped-up salarymen desperate for a holiday and provide a sorely needed lifeline for Cathay Pacific, local hotels, restaurants and bars in Hong Kong. With a reliable 15-minute test at the airport, and sensible behaviour, we could once again welcome visitors while remaining safe.

Keeping Hong Kong locked down, to any degree, when the risk of infection is obviously so low is socio-economic madness. And the excruciatingly slow rate at which the government is easing restrictions – perhaps why Carrie Lam would rather be seen as overly cautious on the virus than risk a spike to make her look bad – may turn out to carry an unacceptable long-term cost for the economy.

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets

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