Economy

Hong Kong's economic crisis just keeps getting worse

HONG KONG • On the ninth floor of a building near Hong Kong’s old Kai Tak airport, gongfu master Lam Shu-shing teaches the Wing Chun technique to students, something he has been doing since 1978. A banner on the wall is a nod to a legacy that traces back to his teacher’s master, who also trained Bruce Lee.

Passing on this cultural touchstone to the next generation is proving to be Mr Lam’s biggest challenge yet as the number of students has dwindled to a handful.

“This is the toughest moment in the past 40 years that I am teaching gongfu,” said Mr Lam, who at almost 70 had to give up his gym when he could not afford the rent. “I don’t see any improvement in Hong Kong any time soon.”

First came months of protests last year, and then the coronavirus outbreak, sending Hong Kong spiralling. Now, just as other economies around the world look to a recovery as their virus restrictions ease, Hong Kong’s reprieve appears fleeting: Clashes between the police and protesters are resuming and worries about another virus wave remain.

It is a dual threat that has businesses and shoppers on edge and raises fundamental questions about how – or if – one of the world’s most storied finance hubs will regain its past prominence.

Financial Secretary Paul Chan has described Hong Kong’s economic challenges as unprecedented. In the first quarter, the city had its worst slump on record.

Even pillars of the economy that had been holding up, such as finance and real estate, are showing signs of softening.

In the property market – the world’s priciest – the political deadlock is eroding demand from buyers based in China, according to Mr Simon Smith, head of research and consultancy at Savills Plc.

“Obviously, the outbreak really reduced mainland visitors to almost nothing and the return of the unrest will continue to keep them away,” he said.

Wealthy individuals from China had dominated the high-end home market, with about 60 per cent of international buyers hailing from the mainland over the past 10 years, according to Savills.

In a sign of weakness, a plot of land near the former Kai Tak airport failed to sell at auction.

Banks are feeling the strain, too. Loan risks loom for lenders including HSBC Holdings as the city’s recession grinds on, according to Bloomberg Intelligence senior analyst Francis Chan. Insurance agents and private bankers have been hurt by the virus outbreak as travel curbs blocked potential customers from the mainland.

HK$287.5b

Virus-related aid of about S$52.8 billion extended by the Hong Kong government this year, or about 10 per cent of GDP, including a wage subsidy programme. 

HK$10K

Cash handout of about S$1,840 given to all permanent residents aged 18 or older.

At the same time, deteriorating relations between the United States and China will squeeze the city’s port if trade tensions resume. US lawmakers routinely threaten to punish China for its actions against Hong Kong’s democracy protesters.

The biggest strain so far has been on retailers, hotels, bars and restaurants. Tourism to Hong Kong has dried up amid virus-related travel restrictions, and for months before that, mainland visitors stayed away because of the political unrest. Retail sales by value slumped by more than 40 per cent for an unprecedented second straight month in March as inbound visitors sank by 99 per cent.

To ease the pain, Hong Kong’s government has announced about HK$287.5 billion (S$52.8 billion) of direct virus-related aid this year, or about 10 per cent of gross domestic product, including a wage subsidy programme and a cash handout of HK$10,000 to all permanent residents aged 18 or older.

Ms Elaine Cheung recently reopened her beauty salon after a 28-day compulsory shutdown to contain the virus. She is racing to make the most of pent-up demand.

“My WhatsApp just kept popping up messages from clients. I’m rushing to serve as many customers as possible when the situation is relatively safe,” she said. “Who knows what will happen next?”

Government officials warn the city may see its worst full-year economic performance on record, with a contraction of as much as 7 per cent. It is an outlook overshadowing Hong Kong’s success in containing the virus.The city has confirmed just 1,051 cases and four deaths, and has not recorded a virus-related death since March.

Last Friday, in Hong Kong’s popular bar district, the mask-wearing staff at the Honi Honi Tiki Cocktail Lounge were hustling to prepare for reopening after the enforced shutdown. Just 30 minutes after the doors opened, customers began trickling in, adjusting to the temperature checks and rules on spacing as they ordered tropical cocktails in Polynesian tiki mugs.

Bar owner Max Traverse has had to reduce staff. A rental discount has helped tide him over. Conditions had been improving earlier this year before the outbreak hit, but now, like others, he is worried what will happen if either the protests or another outbreak returns. “If the city has to close again, it would be a ghost city,” he said.

BLOOMBERG

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