Sun, Dec 01, 2019 - Page 7 News List

As Hong Kong suffers, China risks losing its financial window on the world

The territory’s recession is becoming worse and the US is threatening its special trading status, bringing serious consequences for Beijing

By Martin Farrer and Kalyeena Makortoff  /  The Guardian

Illustration: Louise Ting

Almost six months after the protest movement that has upended life in Hong Kong began, the region is facing serious questions about its future as Asia’s leading international business center.

The most recent violence in the territory have been the worst disturbances of the six-month long pro-democracy protests. US lawmakers have passed legislation threatening Hong Kong’s special trading status and the territory has slumped into its worst recession in 10 years.

With next year shaping up to be even tougher, the protesters appear to have achieved the ambition expressed in a poster on social media this week.

“Squeeze the economy to increase pressure,” it said.

Trade and commerce is the lifeblood of Hong Kong, but it is bleeding badly.

The economy is expected to shrink by 1.4 percent this year, and economists think growth could wither by as much as 3 percent next year without a big fiscal stimulus.

The retail and tourism industries, which have thrived in tandem with Chinese visitors spending freely in the territory’s shops, are suffering particularly badly.

Visitors through the airport are down 13 percent and retail sales figures showed that they fell 18 percent in September compared with a year earlier.

The numbers were made more tangible last week when Hong Kong-based airline Cathay Pacific issued a profit warning for the second time in a month, blaming the turmoil in Hong Kong for a 35 percent decline in the number of passengers arriving in the territory last month.

On the same day, British luxury clothing company Burberry said that its Hong Kong sales were down more than 10 percent and it had slashed £14 million (US$18 million) off the value of its 12 stores there.

Even an international golf tournament was called off.

Yet although the leisure sector may have landed in the rough, the decision by the US Congress to pass the Hong Kong Human Rights and Democracy Act could represent a more significant long-term threat to the territory’s economic fortunes.

The bill has infuriated Beijing as an “intervention” in its affairs, but despite the delicate stage of US-China trade talks, US President Donald Trump on Wednesday signed the legislation because of its near-unanimous backing in Congress.

The bill means that the US would make an annual check that Hong Kong has sufficient autonomy from Beijing to qualify for the special US trading consideration that bolsters its status as a world financial center.

It also gives officials the power to levy sanctions against officials responsible for human rights violations in Hong Kong.

A second bill, which the US Senate also approved unanimously on Tuesday, would ban the export of certain crowd-control munitions to Hong Kong authorities.

George Magnus, former chief economist of investment bank UBS and now an associate of the London School of Economics’ IDEAS think tank, said that the legislation is potentially damaging for China.

“Hong Kong is China’s financial window on the world, and vice versa. The territory lends China capital, clout and kudos,” he said. “All of this is now at risk.”

The bills highlighted a growing feeling that Hong Kong’s autonomy is “deteriorating” and could persuade some firms to look for new accommodation in east Asia, the consultancy Capital Economics said.

“The bill itself would not directly reduce the territory’s international status unless other countries follow suit, but it could lead the large number of foreign firms operating in the city to increasingly focus their energy on other Asian financial centers with less uncertain outlooks,” Capital said this week.

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