As the world’s post-Covid recovery takes off, a closed Hong Kong is poorer than it thinks
- The city’s economy relies on four business pillars. Finance and property have proved Covid-resilient; tourism and logistics have been severely damaged
- The city is rich, and its reserves mean it can ride things out by giving away free money to puff up GDP. But it is becoming poor as a place to work, study, or shop – and its zero-Covid approach means it risks missing out as the rest of the world speeds past
To mark the event, frenemies British Airways and Virgin Atlantic celebrated with a “synchronised departure on parallel runways at Heathrow”. At 8.30am on November 8, BA001 – the old Concorde flight – and VS003 took flight for the US. It was a little like watching the Red Arrows, but much slower and less exciting – yet it still brought a tear to my eye.
Thanks to the generosity of the US and UK governments’ stimulus packages, and being tired of shopping on Amazon, these travellers are loaded and the hotels are pricing accordingly. No wonder Heathrow did not miss a trick and introduced hefty new passenger fees, installing high-speed Covid-19 testing at up to £119 (US$160) for outbound and £189 for inbound travellers in all the terminals, with a drive-through option too. And then they nick five quid from drivers just to drop off passengers.
There are mixed views on when the airline industry will recover to pre-pandemic levels of activity, but as travellers return to the skies for non-essential journeys, the general expectation is that we won’t see load levels near “normal” until at least 2023, as some consumers remain hesitant. But fast-moving businesses, such as Heathrow Airport, can cash in alongside the airlines to catch the surge in demand coming off a very low base.
Some shipping industry analysts are thinking much along the same lines as the airline industry, expecting a global return to normal around 2023-2024, although in the short term the recovery could be more swift. The electronics industry, and the automotive industry which relies on it, is also talking about another two years of disruption. Electronics, particularly internet-connected devices such as computers, tablets and smartphones along with all of the infrastructure that supports them, is not likely to see demand drop off even beyond that, as working from home will continue to be a global trend as future outbreaks keep this region and that away from the office.
MOVING THE ECONOMY
Certainly, Hong Kong is rich in terms of reserves. There is no doubt it can ride out Covid-19 for a long time and keep puffing up GDP by giving away free money. But our city is becoming poor in terms of its international standing as a place to work, study, or shop.
The fact that Hong Kong doesn’t make much of anything, does not rely on car or computer manufacturing, and progressively relies less on logistics has worked to its advantage in this crisis. But the recovery will be hampered as long as Hong Kong’s borders remain this tightly closed, causing the city to miss out on revenue that comes from its connection with the rest of the world, particularly in trading and tourism. The bottom line is Hong Kong relies on the flow through of money, goods and services.
November is turning out to be a pivotal time for the world’s largest economies and trading partners, one in which they start doing new business while at the same time facilitating tourism. They are willing to take a risk based on the assessment of that risk and about their ability to deal with a Covid-19 outbreak. Hong Kong should be able to do this too, given its history with SARS and the people’s willingness to strictly adhere to personal hygiene measures. The fast-moving businesses that can tap the surge in spending through the relaxation of quarantines and Covid-19 restrictions will do well, which puts the HKSAR Government in a difficult position. It can stick with a zero-Covid policy and 21-day quarantines, in which case Asia’s World City effectively remains closed while the rest of the world speeds past; or it can take a risk, open up now and benefit from the global reopening.
Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets