Hong Kong: Occupy and the economy – report dated 6 October
Published 6 October 2014
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This publication was archived on 4 July 2016
This article is no longer current. Please refer to Overseas Business Risk – Hong Kong
Summary
Confidence in Hong Kong’s economy holding up. Slight fall in Hang Seng Index; few signs of capital flight. Financial services and logistics industries continue normally. Sharp short-term impacts for retail and tourism. But absent unexpected escalation, business consensus that protests will have few long-term economic effects.
Aside Tourism and retail, “More or Less Business as Usual”
“Golden Week” – around 1 October People’s Republic of China National Day - usually generate bumper returns for Hong Kong’s tourism and retail industries from around 1 million visitors from mainland China (2013 figures). Protestors in major shopping areas and Beijing’s decision to suspend visas for tourist groups, 30% of mainland visitors, decreased footfall by 7% compared with last year. One bank’s preliminary analysis suggests losses of up to 0.3% of GDP (around £540m), if protests continue for a month; another suggests this week alone will cost £173m.
Other sectors are operating as usual. Logistics and trade – worth 26 per cent of GDP – operate away from protest zones. The Hong Kong Monetary Authority (HKMA) has confirmed that the financial markets – 15 per cent of GDP – are working as normal. UK banks tell us it is “more or less business as usual”. Just two UK bank branches were closed onFriday October 3rd.
Should Protests Occupy Economists Longer Term?
Indicators of longer-term confidence are promising. The Hang Seng Index has fallen 3 per cent (as of 4pm, Friday October 3rd) since opening on Monday; as compared with the 2008 financial crisis crash of 50%. Slight increases to the interbank lending rate suggests limited capital flight, but HKMA has not flagged concerns and banking analysts predict the trend will not last. . The HKMA has not had to step in to defend the Hong Kong dollar’s “peg” to the US dollar, whose value has shifted only marginally from 7.77HKD/1US$ to 7.762HKD/1US$. HKMA has stressed that “there is ample liquidity in the banking system”.
Credit agency Fitch have captured the wider mood: “We don’t expect the protests to have a ratings impact in the short term. It would be negative if the protests…last long enough to have a material effect on financial stability, but we don’t…see this as likely”. In a statement on 30 September the British Chamber of Commerce predicted impacts on business would be “a passing phase”. Markets have not revised down their GDP growth estimates of c.2.5% this year.
Beyond the Barricades?
Short term positivity aside, there are other risks to Hong Kong’s consumption-driven growth, distinct from this week’s protests.
*Shifting consumption patterns of Mainland tourists towards mid to-low end consumer goods have reduced high-end goods sales’ dramatically: in July 2014 jewellery sales fell 22.2 % year-on-year.
*The suspension of group mainland visas may compound this drop further – there has been no indication from Beijing that this is temporary for the duration of protests.
Comment
Hong Kong is the world’s third global international financial centre. Its international character reduces the impact of Occupy Central on the Hong Kong economy. Slow sales in local jewellery shops – painful as this will be for retailers - will have minimal influence over the strategic choices made by the 1300 international firms who use Hong Kong as a regional base for Asia-Pacific – a region projected to grow at over 5 per cent this year.
Disclaimer
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