I take Professor Stephen Roach’s pessimistic remark that “Hong Kong is over” as a reminder that we should work together in solidarity and steer our way out of the quagmire smartly. The headwinds are indeed strong. Instead of despair, we will simply work harder and better, and take all necessary steps to fight the headwinds.

The Hong Kong stock market has indeed done extremely poorly. Our IPOs have come down. Bankruptcies have risen to a new high. Our restaurants and retailers are facing the harsh reality of falling business volumes. However, Hong Kong is ready to bounce back. The conditions for a rebound are there. All that we need to do is get our act together.

First of all, we accept it as a fact that Hong Kong’s economic growth has weakened significantly since the handover. Part of the problem is internal. One important factor is that with rising awareness for conservation, land development has met with opposition and even judicial reviews.  Another problem is that our housing policy has become more and more populist. Rejuvenating the economy by leveraging on the free market will help. Now that the infighting that was commonplace has been stopped by the National Security Law (NSL) for Hong Kong, we can get our act together, to prove to the world that Hong Kong is far from over. 

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Hong Kong might appear to be “over” because since 2019, the external environment has become extremely difficult. Hong Kong has been under siege. Not only did we have to deal with the COVID-19 pandemic, but the West has been hammering us.

In early 2019, the “Committee on the Present Danger: China” was launched in the United States as a bipartisan “independent” initiative to “defend America through public education and advocacy against the full array of conventional and non-conventional dangers posed by the People’s Republic of China”. It claims that “Communist China represents an existential and ideological threat to the United States and to the idea of freedom”.

This obviously is an act of fearmongering. But unlike the 2011 book Death by China, by Peter Navarro and Greg Autry, which was just rhetoric, the Committee on the Present Danger has political clout and drew bipartisan support to suppress China using all the dirty tricks that it can.

According to a report in the Financial Times: “Nearly nine-tenths of the foreign money that flowed into China’s stock market in 2023 has already left, spurred by mounting doubts about Beijing’s willingness to take serious action to boost flagging growth.” But this has to do at least in part with a deliberate “financial decoupling” that was engineered in Washington. Washington has issued travel warnings for the Chinese mainland, Hong Kong, and Macao, designating the warning for both the mainland and Macao at “Level 3”, recommending that travelers should “reconsider travel” there; and a warning for Hong Kong at “Level 2”, meaning that visitors to the city should exercise caution “in view of arbitrary enforcement of local laws”. 

All that we need to do is to have the confidence and wisdom to steer our way smartly. We will show the world that we are an open, law-abiding society, still tolerant and liberal, and still happy to welcome visitors from around the world

Such warnings, plus the US secretary of state’s decision that “Hong Kong does not warrant treatment under US law in the same manner as US laws were applied to Hong Kong before July 1, 1997” proved to be successful. Not only do some international investors shun the Hong Kong market, but also many Hong Kong investors turned to invest overseas instead of locally.

To further undermine Hong Kong’s business climate, Washington has regularly imposed additional sanctions on Chinese companies in recent years, raising fear among investors about what will be the next target. Funds, instead of coming in, left for other markets, fueling other markets’ rise while depressing Hong Kong’s. The poor performance of the Hong Kong stock market and the mainland markets further undermined consumer and business confidence. Those not in the know may think this is all because of the NSL or because our listed companies failed to perform.

Our stock market’s low valuations seriously undermine IPOs. Hong Kong’s IPO ranking dropped to eighth in the world last year. Hong Kong’s P/E ratio (price/earnings ratio) fell below 8 late last year. In comparison, the S&P 500 P/E ratio is well above 30. Low P/E ratios mean that our enterprises are facing higher cost of capital. This will undermine our research and development efforts.

Not too long ago, thousands of luxury Volkswagen cars were seized by US customs officials over a part linked to allegations of “forced labor” in the Xinjiang Uygur autonomous region. This is notwithstanding the fact that various “independent” reports all failed to find any evidence of “forced labor” in Xinjiang.

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Another headline that caught the attention of China watchers was: Foreign Direct Investment in China Falls to 30-Year Low (Nikkei Asia, Feb 19). But this is entirely misleading. A sharp decline in “net FDI” is not necessarily a decline in FDI. So-called net FDI is rarely used in economic parlance and refers to inward FDI minus outgoing ODI. According to the Global Investment Trends Monitor, China’s FDI inflows only fell 6 percent in 2023. In comparison, India “saw a 47 percent drop in FDI inflows.” Moreover, US FDI also fell by 3 percent. China’s greenfield FDI announcements rose 8 percent. US greenfield FDI fell 2 percent. 

All this is to point out the fact that China is still doing relatively well in attracting FDI, and we can take heart that Hong Kong is ready to rebound. All that we need to do is to have the confidence and wisdom to steer our way smartly. We will show the world that we are an open, law-abiding society, still tolerant and liberal, and still happy to welcome visitors from around the world.

The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.