Hong Kong as financial center over?
The anti-government demonstrations in Hong Kong are now in their 11th week and showing no signs of abating. In has even spread to more areas and involved more sectors including civil workers, lawyers, and airline workers.
No one knows how all these will play out, but no matter who will eventually prevail, economic and financial damage and repercussions are already done. There have been more than a thousand flight cancellations from all over the world, and many governments have issued travel advisories to their citizens to avoid travel to HK.
It gets 60 million tourists a year so they have lost 15 million tourists since June this year. Retailers have already reported a 10% to 20% drop in sales in June, so if the civil unrest continues, a 50% drop in retail sales is expected. These are all reported in the international news media and social media.
Beijing and the HK authorities are really in a “Catch 22” situation. If they crack down on the protesters and media coverage, it will show the world the authoritarian hand of Beijing and the communist government, and severely damage its international reputation.
It will then affect trade and investment relations with many countries at a time when it is promoting and projecting its economic influence. With the current trade/tariff war with the US, a Tiananmen-style crackdown will have enormous social, political, and economic repercussions. On the other hand, allowing HK protests to continue and/or conceding on some of the demands of the protesters may embolden other dissidents in Taiwan, the Uighurs in North China, Macau, and in other areas in China to push for more freedom and autonomy.
HK’s GDP in 2018 at $368 billion is about the same as the Philippines, but as they have only seven million people their per capita GDP is at $48,517 which is 10 times ours. They have more than $400 billion in international reserves, an annual Foreign Direct Investment of over $100 billion, $800 billion in exports and tourism revenues also in the hundreds of billions. These figures attract all the international banks to HK for onshore and offshore transactions.
And low taxation, an almost free port, a high degree of economic freedom, and a strong legal system. These statistics and conditions are of 2018 and are now the subject of a 50% reduction because of the continuing protests and demonstrations. The proposed extradition law was/is an assault on economic freedom, the arrest and detentions, the police action and the Triad interventions are diminishing the integrity of the legal system.
There are big stakes on the outcome of these HK protest movements and the whole world is watching and hoping for the best outcome. There are no templates to guide us about protests as there are just too many dynamic variables.
The success and failure of protest movements like in the Philippines, Egypt, Africa, Eastern Europe, and other areas may give inputs but not outcomes. I am sure some think tanks are doing large data analytics and crunching variables about protest movements, but I am inclined to believe it would not get more than a 65% probability of success with plenty of “caveats”.
In the past few months, there is anecdotal evidence that even the HK property market is softening in terms of occupancy and rental rates. The high-end properties occupied by multinational expats are now taken over by lower-level executives of the service industries rather than bankers and investment companies.
The tech companies, including the fintech and software start-ups, are slowing down as the millennials, which are the potential workers, are protesting and/or are moving to other countries. While HK as a financial center may not be over, its future growth is already capped and limited. Singapore, which is now experiencing an economic slowdown, will just be too happy to welcome the drift of the financial markets to their territory.
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