Published: 19:43, February 23, 2024 | Updated: 09:34, February 26, 2024
Hong Kong's economy remains resilient
By Oriol Caudevilla

Hong Kong went through the Asian financial crisis, severe acute respiratory syndrome (SARS), the global financial crisis and the COVID-19 pandemic without surrendering its role as one of the world’s most important financial centers. And this was so not only because of Hong Kong’s strength, because of its resilient nature, but also because of how stable the city has been economically throughout the years.

I recently read an article in a reputable business daily newspaper, in which the author, a well-known globally respected figure, explained how, in his opinion, “Hong Kong is now over”, given that the Hang Seng Index, which for so long has been emblematic of the city’s success, has returned to the level it was at in 1997, when Hong Kong returned to China. Over the same period, the S&P 500 has surged more than fourfold.

The author could have added that Hong Kong’s property prices remain depressed amid  a chronic supply shortage and falling demand because of unaffordability and surging interest rates.

Even though all the data he mentions about Hong Kong’s stock markets are negative, in my opinion, Hong Kong is much more than its stock market. Even if Hong Kong is in a period where its stock markets are not performing well, the economy is resilient enough to withstand the negative impact of a poor stock market performance and continue to thrive. The past few years have been tough because of unusual circumstances that should be taken into account when assessing how the city has fared.

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Indeed, in 2019 and early 2020, the city faced unprecedented challenges, socially and economically, because of the months-long social unrest and then, from early 2020 until almost 2023, because of the COVID-19 pandemic, which hit Hong Kong harder economically than other cities because of Hong Kong’s “zero-COVID” approach and its lateness in reopening to the world compared with other major financial centers.

September, but increased by 1.4 percent in October, marking an end to a 17-month contraction, and the decline in exports narrowed to 11 percent year-on-year for the first 10 months of 2023

While Hong Kong has been through some rough years, its attractiveness has not diminished; it remains one of the world’s most important financial centers. Furthermore, while many people nowadays associate the city with finance, the truth is, Hong Kong excels in areas such as arts and leisure, culture, excellent facilities, infrastructure, and low crime rates, which makes it an attractive location for living in and doing business.

Hong Kong still ranks highly in finance-related rankings. For example, Hong Kong maintained fourth place in the “Global Financial Centres Index” report, published in September by Z/Yen from the UK and the China Development Institute from Shenzhen, and the city is also an innovation hub, as was demonstrated by the “Global Innovation Index 2023”, published a few months ago by the World Intellectual Property Organization, which ranked the Shenzhen-Hong Kong-Guangzhou science and technology cluster second globally for four consecutive years. Hong Kong’s ranking remained fifth in Asia and 17th globally among 132 economies. Hong Kong continued to perform well in the Innovation Input subindex, at eighth globally. Its ranking in the Innovation Output subindex improved to 24th.

Hong Kong’s GDP is expected to expand 3.2 percent in 2024, with slower private consumption growth offset by faster growth in foreign trade and services exports. GDP growth is forecast to ease to an average 2.3 percent in 2025-28. Hong Kong’s GDP grew 4.1 percent year-on-year in real terms in the third quarter of 2023, having increased 2.9 percent in the first quarter and 1.5 percent in the second quarter. The labor market continued to improve between August and October as the economy maintained its recovery. The seasonally adjusted unemployment rate stayed 2.9 percent for the August-October period, higher than the July-September level of 2.8 percent. Also, merchandise exports decreased by 5.3 percent year-on-year in September, but increased by 1.4 percent in October, marking an end to a 17-month contraction, and the decline in exports narrowed to 11 percent year-on-year for the first 10 months of 2023.

Shortly afterward, Hong Kong Chief Executive John Lee Ka-chiu said that the city must “dare to become a leader” in Web3 innovation

Despite the negative external economic circumstances, Hong Kong has had a not-too-bad 2023 and is expected to have a better 2024, which will see the city consolidating its status as an international financial center.

Moreover, Hong Kong now is embracing opportunities from the Guangdong-Hong Kong-Macao Greater Bay Area development, and, by playing a proactive part in China’s 14th Five-Year Plan (2021-25), the Hong Kong Special Administrative Region is unleashing its potential thanks to unreserved support from the central authorities for advancing key strategies to upgrade its superconnector role, including the promotion of digital yuan, or digital renminbi, and environmental, social and governance.

In addition to the significant role that the GBA will play in Hong Kong’s future, we can also mention other opportunities such as fintech development in Hong Kong, the HKSAR’s anticipated entry into the Regional Comprehensive Economic Partnership, and the Connect Schemes.

Hong Kong and the rest of the GBA are increasing their role as fintech hubs. The Fintech 2025 blueprint aims at pivoting the HKSAR toward a friendlier regulatory regime for digital assets, proving that the city is positioning itself to become a virtual assets center/crypto hub.

READ MORE: Hong Kong cuts 2023 GDP forecast amid global headwinds

Hong Kong has stepped up efforts to develop itself into one of the world’s most important Web3 hubs. A few months ago, Financial Secretary Paul Chan Mo-po said that the time is ripe for Hong Kong to invest in the Web3 digital economy despite recent volatility, as competent market players who survived a “burst bubble” can focus on innovation and make significant strides. Shortly afterward, Hong Kong Chief Executive John Lee Ka-chiu said that the city must “dare to become a leader” in Web3 innovation.

To sum up, Hong Kong is constantly showing that it has the potential not only to maintain its role as one of the world’s most important financial centers but to enhance it, thanks to Hong Kong’s international role, expertise in the financial industry and related industries and also thanks to tapping into newer industries like Web3, all this in the midst of Hong Kong’s involvement in the GBA and other relevant projects. The long-term development of Hong Kong under the GBA development blueprint as well as under the national development strategy requires a multifaceted approach.

While Hong Kong’s stock exchange has not performed well in the past few years, the city is in a position to change this tendency thanks to all the projects I have just mentioned, to the point that, in my opinion, Hong Kong is not over. If anything, it is just adapting to different times.

The author is a fintech adviser and researcher. He holds a Master of Business Administration and a doctorate in Hong Kong real estate law and economics. He has worked as a business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.