Commentary: How Hong Kong’s protests are affecting its economy

Commentary: How Hong Kong’s protests are affecting its economy

There's evidence the turmoil is keeping tourists and businesses away, says Arizona State University's Allen Morrison.

People take part in a protest in Tsuen Wan district of Hong Kong on Aug 25, 2019.
People take part in a protest in Tsuen Wan district of Hong Kong on Aug 25, 2019. (Photo: AFP/Philip Fong)

HONG KONG: After nearly three months of unrest, the demonstrations in Hong Kong show no signs of slowing down.

What began as opposition to a controversial extradition bill has morphed into a broader movement to defend Hong Kong’s wider social and political freedoms. 

As a business professor who has worked, taught and travelled in Hong Kong extensively over my career, I have watched the demonstrations unfold with great interest. I was personally caught up in the 1989 Tiananmen Square protests and have tracked their fallout over the past 30 years.

Today’s protests in Hong Kong will have lasting consequences. While most of them are difficult to anticipate, some of the economic impacts are already being felt and add up to long-term challenges to the city’s prosperity.

BROAD AND DEEP

What is exceptional about the Hong Kong protest is its breadth and depth.

The demonstrators in Hong Kong include both young and old, with a large mix of families. A survey of the crowds by three scholars showed that while about 60 per cent were under 30, almost one-fifth were 45 or older. Journalists have reported that many shopkeepers, motorists and others have supported the protesters with handouts of water and even offers of financial assistance.

READ: Banks in Hong Kong condemn violence, urge restoration of 'harmony

READ: Our coverage of the Hong Kong protests

On Aug 18, protest organisers estimated that 1.7 million people turned out in the pouring rain to demonstrate. This would represent almost one-quarter of Hong Kong’s population.

There have been occasional flareups of violence, such as when demonstrators vandalised the Legislative Council or disrupted airport operations. 

SHORT-TERM IMPACT

While the protests grind on, the short-term economic consequences for the people of Hong Kong are beginning to mount.

A drop in consumer spending on non-essential goods is one of the most visible signs of its impact. Summer retail sales from July to August are expected to be down by more than 10 per cent from a year earlier.

hong kong demo tourist hkia departure gate Aug 13
A tourist gives her luggage to security guards as she tries to enter the departures gate during another demonstration by protesters at Hong Kong's international airport on August 13, 2019. (Photo: AFP/Philip Wong)

The protests that shut down Hong Kong International Airport for about two days have also taken a toll. Aviation experts estimate that Hong Kong suffered a US$76 million hit from flight cancellations.

READ: Hong Kong protesters plan airport 'stress test' to disrupt operations

READ: Hong Kong airport protesters 'overstepped bottom line of a civilised society': Government

Since the airport contributes around 5 per cent to Hong Kong’s GDP, any disruptions are bound to reduce the special administrative region’s economic growth for the year – which has already suffered due to the ongoing US-China trade war.

More broadly, there’s other evidence the turmoil is keeping away tourists and business travellers, thanks in part to travel advisories from at least 22 countries. And visitors from mainland China – typically responsible for over three-quarters of all arrivals to Hong Kong – have slowed to a trickle.

READ: Commentary: The deepening crisis over the Hong Kong protests

LISTEN: The Pulse: The Hong Kong protests - what next?

LONGER-TERM COSTS

The long-term costs of the protests – and China’s reaction to them – are much harder to quantify.

One of them involves Hong Kong’s status as a hub for international companies seeking to do business in China or the region. In 2018, the Hong Kong government found that 1,530 multinational companies had established regional headquarters in the city. Of these, 290 were American.

READ: Ongoing protests could drag down economies in both Hong Kong and China: Bank of East Asia

READ: Hong Kong protests: Businesses dependent on tourism reel from massive income loss

Companies have historically chosen to set up shop in Hong Kong both because of its desirable location and its perception as a haven where the rule of law is strong, particularly compared with China.

That’s been changing as more international businesses opt to move their headquarters to the mainland as its economic power has grown. If China seeks to resolve the protests by taking more control over Hong Kong – which would likely erode its attractive legal environment – multinational companies would have one less reason to keep the city as their regional foothold.

Police fire tear gas at protesters in Tsuen Wan, Hong Kong
Police fire tear gas during a protest in Tsuen Wan district of Hong Kong on Aug 25, 2019. (Photo: AFP / Philip FONG)

What had been a trickle of companies leaving Hong Kong may well turn into a flood – and with it an exodus of high-paying jobs.

Another long-term concern is how the Hong Kong demonstrations will affect China’s relations with the rest of the world. US President Donald Trump warned China it must deal with the protests “humanely” if it wants to seal an agreement to end the trade war. And other world leaders may change the way they deal with China – and Hong Kong – if Beijing takes a heavy-handed approach.

THE SHAPE OF A PROTEST

Protest movements take many shapes and forms.

The Occupy Wall Street movement in lower Manhattan lasted only two months but became a broader anti-establishment movement. Its economic impact, however, was negligible.

France’s recent yellow vest movement, initially intended to combat rising fuel taxes, has morphed into a broader protest against French President Emmanuel Macron. At its peak, it included about 300,000 protesters. While protests continue after nearly 40 weeks, they have largely run out of steam. One estimate put the economic costs of the demonstration at about 5 billion euros, the equivalent of about US$5.5 billion.

The protests in Hong Kong are much larger than those in both France and New York, yet it’s too early to tell what shape they will ultimately take or what their economic impact will be, not only locally but far beyond its borders.

No matter the outcome, Hong Kong is at risk of a long-term outflow of capital and loss of talent, two key ingredients to its economic success.

Allen Morrison is Professor of Global Management at Thunderbird School of Global Management in Arizona State University. This commentary first appeared in the Conversation. 


Source: CNA/ga

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