The global pandemic caused by the novel coronavirus has taken a turn for the worse, affecting more than 200 countries. The managing director of the International Monetary Fund, Kristalina Georgieva, warned that a global economic recession will occur this year. An economic downturn has evidently beset Hong Kong since the second quarter of last year, and it is set to continue throughout 2020. If the global economic slump further deteriorates into a great depression similar to that in the 1930s, Hong Kong’s economy will hover near a trough for two years.
To cope with a surge in imported COVID-19 cases in mid-March, the SAR government imposed a lockdown barring the entry of almost all foreign nationals, together with unprecedentedly stringent restrictions on local consumer activities. The current dilemma is finding a delicate balance between fighting the pandemic and maintaining the stability of the economy and safeguarding people’s livelihoods. If we follow the advice of medical experts, taking the number of infections as the only consideration, Hong Kong’s economic activities, which are highly dependent on external economies and mobility of talent, may be brought to a standstill. If that happens, the impact on the livelihoods of local residents would be inestimable. On the contrary, if crowd control measures are eased for the sake of stabilizing the economy and employment, a community outbreak may ensue. In any case, with the current anti-epidemic measures in place, Hong Kong has already been hit by an upsurge of corporate and retail closures, unemployment and salary cuts.
In addition to the short-term quandary, Hong Kong’s economy is also subject to a number of predicaments in the long run. To start with, experts across the globe have agreed that the pandemic will last for 18 months or even longer. Moreover, as former US secretary of state Henry Kissinger wrote in his article “The coronavirus pandemic will forever alter the world order” published in The Wall Street Journal on April 3, “While the assault on human health will — hopefully — be temporary, the political and economic upheaval it has unleashed could last for generations.” The pandemic will accelerate changes in the world order. Global industry and supply chains will be fundamentally altered as an important part of the changes.
The vast majority of Hong Kong’s economic activities take place in the services sector, which is closely linked to industries on the mainland. The change in the role of mainland industries in global industry and supply chains will surely affect the investment and operation of Hong Kong businesses on the mainland
Even though the global pandemic has been declared for only slightly more than a month, the existing industry and supply chains in China — the world’s second-largest economy — are already feeling the pressure to adjust. A principal official from the Ministry of Commerce stated during a recent press conference that the rapid spread of the coronavirus across the globe negatively impacted China’s appeal to foreign capital as well as the resumption of operations of foreign businesses in the country. First of all, although their Chinese staff can quickly return to work, more stringent restrictions have been imposed on foreign executives and technicians who wish to return to China to resume work. Secondly, shipping chokepoints have expanded from China to international ports — many in Europe and in the United States have shut down. Moreover, flights have been suspended and air cargo capacity slashed by half, which will lead to a sharp increase in freight charges. Thirdly, the suspension of supply chains has proceeded from the Chinese mainland to overseas markets. While the domestic industry and supply chains have accelerated the pace of recovery, many factories located in Europe and the US have suspended their operations. Certain high-tech middleware and new materials required by foreign enterprises are also in short supply. Fourthly, the pain point of export orders has shifted from insufficient production capacity to shrinking external demand. While Chinese enterprises gradually resumed their production capacity, the decline in overseas demand and the cancellation or delays of purchase orders are having a further impact on their operations and development.
Hong Kong businesses are deeply engaged in manufacturing and related industries on the mainland. The vast majority of Hong Kong’s economic activities take place in the services sector, which is closely linked to industries on the mainland. The change in the role of mainland industries in global industry and supply chains will surely affect the investment and operation of Hong Kong businesses on the mainland. It will also have repercussions on Hong Kong’s services industry and overall economy, which not only focuses on the mainland market, but also gradually integrates itself into the mainland economy.
In the long run, economic uncertainty is not limited to the dark cloud over Hong Kong businesses that operate locally or on the mainland. Another concern that needs to be addressed is: Who owns Hong Kong’s economy?
On April 1, HSBC announced that, as a result of an order given by the United Kingdom’s central bank, it had to suspend the fourth dividend payments for 2019, which was scheduled on April 14, at 21 US cents per share, and that no dividends will be paid in 2020. Almost at the same time, another UK-based bank, Standard Chartered, announced that no dividend will be paid for the same reason.
As we all know, HSBC and Standard Chartered are both note-issuing banks in Hong Kong. Nonetheless, they prioritize the UK’s interests over Hong Kong people’s at this critical time. In the past, people have already questioned the appropriateness of the note-issuing banks in Hong Kong taking orders from the UK’s central bank; now they feel stronger about the absurdity of such a practice.
Minority HSBC shareholders in Hong Kong expressed their strong discontent with the company’s decision, as it has reneged on its promise to issue the fourth dividend payments for 2019. Reneging on the dividend promise is unreasonable and unacceptable. Nevertheless, the minority shareholders’ opposition can hardly alter HSBC’s final decision. In view of HSBC’s decision, former Hong Kong chief executive Leung Chun-ying proposed setting up a genuine “Hong Kong Bank” with public funds.
Whether the SAR government will adopt this proposal is another matter. It nonetheless raised the question of who should take charge of the financial lifeline of Hong Kong. If HSBC and Standard Chartered prioritize the interests of Hong Kong, they can still retain their special status in the city. Otherwise, Hong Kong should come up with a Plan B.
The author is a senior research fellow of China Everbright Holdings.
The views do not necessarily reflect those of China Daily.
