Hong Kong Protests: Economic and Financial troubles…

Excerpts from:

Could Hong Kong’s economy survive army intervention by Beijing?

With no end in sight to anti-government protests, companies and investors are becoming more nervous.

by

Hong Kong, China – The full-page advertisement in Australia’s national business news daily newspaper, the Financial Review, appeared to be aimed squarely at foreign investors in Hong Kong.

“You have read a lot, seen a lot, heard a lot about the events and protests in Hong Kong. But what you read, see, hear – or ‘share’ on social media – is just one piece of a complex social, economic and political jigsaw puzzle. It is a puzzle that we will solve on our own. And, it may take time,” the Hong Kong government’s advertisement on Thursday read.

“But we are determined to achieve a peaceful, rational and reasonable resolution.”

Hong Kong does not usually need to advertise the qualities that have made it the main gateway between mainland China and the rest of the world for multinational companies for decades: Political stability, the rule of law, low taxes, minimal regulation and freedom of speech.

But these are not normal times for the Hong Kong Special Administrative Region of China, a status that ensures its courts, civil service and media enjoy freedoms that do not exist on the mainland.
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So while even the faintest likelihood of a forceful intervention exists, companies and investors remain on edge.

“The problem is not PLA intervention so much as the risk of bloodshed that might accompany it,” Duncan Innes-Ker, regional director of Asia and Australasia for The Economist Intelligence Unit (The EIU), told Al Jazeera.

“If the PLA arrives on the streets of Hong Kong, it would unsettle local residents and the business community,” Innes-Ker said.

Those fears are already having an effect on Hong Kong’s economy.
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The view from abroad

So how would a forceful intervention by Beijing affect Hong Kong’s economy? Analysts say there are two main ways in which this might happen.

One is through changes in foreign policy.

Even if Beijing declares after a crackdown that the “one country, two systems” model that Hong Kong has operated under since being handed back by the United Kingdom in 1997 is still in force, foreign governments might disagree.

For instance, the Fitch Ratings agency has said that the possible termination of the US-Hong Kong Policy Act stands as a factor that could affect its assessment of Hong Kong’s risk of defaulting on its debts, also known as its credit rating.

The US Congress passed the act in 1992, five years before the handover, to treat Hong Kong as a “separate customs regime from China” based on it enjoying a high degree of autonomy. Newly proposed legislation would require annual certification of Hong Kong’s autonomy if Congress decides its status has been compromised.

On Friday, Fitch downgraded Hong Kong’s credit rating to AA from AA-plus and said its outlook for its rating is “negative”, meaning more downgrades could be on the way if the situation deteriorates.

“Months of persistent conflict and violence are testing the perimeters and pliability of the ‘one country, two systems’ framework that governs Hong Kong’s relationship with the mainland, underscored by mainland officials taking a more public stance on Hong Kong affairs than at any time since the 1997 handover,” Fitch said in a statement.

“Ongoing events have also inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong’s governance system and rule of law, and have called into question the stability and dynamism of its business environment,” it added.

Woodrow Wilson’s Davis said: “If foreign governments suspended the special status afforded Hong Kong, it is doubtful investors would remain confident in continued maintenance of the rule of law in Hong Kong. Under such circumstances there would surely be economic consequences.”

An independent judiciary

Another consequence of military action would be to erode the independence of Hong Kong’s judiciary, a crucial prerequisite for any capitalist economy to thrive.

“The courts would be put under extreme pressure to uphold the intervention as permitted, even if the justification is not sufficiently established. Damage to the judicial reputation of the courts would be a grave concern,” said Davis.

He says Beijing may try to present a military intervention as a necessary step to quell what they have called “riots”. According to Davis, the international business community and foreign governments may take a different view.

Analysts say Hong Kong’s reputation for having an economy based on the rule of law could be permanently damaged.

“Presumably those who lack confidence in the autonomy of Hong Kong will begin to treat Hong Kong like any other mainland city,” said Davis.

Tommy Wu, an economist for Oxford Economics, says the political turmoil has driven many foreign companies in Hong Kong to start viewing the territory with a degree of concern.

“Multinational companies may now be more cautious when making foreign direct investment decisions and expansion plans,” Wu told Al Jazeera.

The EIU’s Innes-Kerr says Article 14 of Hong Kong’s constitution, its so-called Basic Law, authorises the territory’s government to request military intervention, allowing both Hong Kong and Beijing to claim that the “one country, two systems” model could withstand such an event.

“The situation would be more complicated if China invoked Article 18, which essentially allows for the suspension of ‘one country two systems’,” said Innes-Kerr.

David Webb, a prominent shareholder, activist and market analyst who has lived in Hong Kong for decades, says negative international reaction to a crackdown, especially if lives were lost, could accelerate “the retirement of the Basic Law“. Large-scale capital flight is a likely possibility, Webb wrote.

So where would all that capital go?

“Singapore would be the likely beneficiary as Taiwan presents too many obstacles,” said Woodrow Wilson’s Davis.

Singapore’s hotel occupancy rates surged in July to their highest level in more than 10 years as business travellers and conference organisers switch meetings and events away from Hong Kong.

Bangkok and Kuala Lumpur could also emerge as alternative destinations, analysts say.

But none of these cities offers the proximity to China that Hong Kong does or, in most cases, Hong Kong’s robust financial sector. This would end up hurting China and Chinese companies that rely on the Hong Kong Stock Exchange to do international business.

“We also need to keep in mind that Hong Kong is still a valuable gateway between mainland China and the rest of the world,” said Wu.

SOURCE: AL JAZEERA NEWS

 

https://www.aljazeera.com/ajimpact/hong-kong-economy-survive-army-intervention-beijing-190906032540956.html

HONG KONG – Hong Kong visitor arrivals plunged nearly 40 percent in August from a year earlier, deepening from July’s 5 percent fall, the finance secretary said as sometimes violent anti-government protests take a rising toll on the city’s tourism, retail and hotel businesses.

Hotels in some locations had seen occupancy rates drop to about half, while room rates plunged 40 to 70 percent, Paul Chan said, citing industry sources.

“The most worrying thing is that it does not seem that the road ahead is easily going to turn any better,” Chan said in his blog on Sunday.

“The most worrying thing is that it does not seem that the road ahead is easily going to turn any better,” Chan said in his blog on Sunday.

July tourist arrivals fell 4.8 percent on the year, according to the Hong Kong Tourism Board, the first annual decline since January 2018 and the biggest percentage drop since August 2016.

Retail sales in July sank by the most since February 2016 amid the anti-government protests that have gripped the Chinese-ruled city for more than three months.

Chan said the social unrest had severely damaged the image of Hong Kong as a safe international city and a hub for trade, aviation and finance.

HK’s visitors plunge as protests take toll

Hong Kong has endured a string of increasingly violent protests and civil disobedience events over a now-shelved bill that would have enabled suspects to be transferred to mainland China, where critics say fair trials are not guaranteed.

https://www.todayonline.com/world/sales-watsons-stores-hong-kong-plummet-after-weeks-protests

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Excerpts from:

Hong Kong’s second-quarter GDP growth seen firmer, but trade war, protests to bite

FILE PHOTO: A general view of the financial Central district in Hong Kong, China July 25, 2019. REUTERS/Tyrone Siu /File Photo

 

Protests against the city’s government and China are erupting almost daily, disrupting business, scaring off tourists and threatening to tarnish Hong Kong’s international reputation as a stable financial hub.

While preliminary data on Wednesday (0830 GMT) is expected to show economic growth picked up in April-June, most market watchers do not expect it will last, with no quick resolution seen for either the bruising U.S.-China trade dispute or local political unrest.

The average forecast from five economists is for second-quarter gross domestic product to rise 1.6% from a year earlier, firming from 0.6% growth in the first quarter, which was the city’s slowest pace in nearly 10 years.

The expected improvement “is not reflecting better economic activity but resulting from a strong comparison base in Q1 in 2018 when the economy was strong,” said Paul Tang, chief economist from Bank of East Asia (0023.HK).

“Going forward, the Sino-U.S. trade war impact is expected to have a more material impact than that from protests.”

While the port of Hong Kong has lost some business to new Chinese ports, the territory remains a key middleman in global trade with China and finance.

Hong Kong’s total exports fell the most in nearly three and a half years in June, hurt by China’s economic slowdown and Sino-U.S. trade tensions.

Tang said his bank may cut its 2019 growth forecast again if the sharp decline in exports persists. It earlier lowered the forecast to 1.5% from 2%.

Washington and Beijing have levied billions of dollars of tariffs on each other’s imports, disrupting global supply chains and shaking financial markets.
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PROTESTS TAKING BIGGER TOLL

Domestic economic pressure is also growing, with mass demonstrations posing the greatest political challenge to the former British colony since it returned to Chinese rule in 1997.

What started three months ago as rallies against an extradition bill that would have allowed people in Hong Kong to be sent to mainland China for trial, has now morphed into a wider backlash against the city’s government and its political masters in Beijing.

Retailers saying they expect sales for July and August to drop by double-digits from a year earlier, while hoteliers are bracing for a wave of cancellations.

“Hong Kong is facing an unprecedented political crisis,” Kevin Lai, chief economist for Asia ex-Japan of Daiwa Capital, wrote in a research note.

Lai said a lot of “capital and talent may also exit Hong Kong” if martial law or an emergency state is implemented.

So far this month, the number of organized tours to the city has dropped 20% to 30% from the same period a year earlier, the Hong Kong Inbound Travel Association estimated.

https://www.reuters.com/article/us-hongkong-economy-gdp-idUSKCN1UP0T6?utm_campaign=trueAnthem%3A+Trending+Content&utm_content=5d403030595b5a0001c375a6&utm_medium=trueAnthem&utm_source=twitter

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Excerpts from:

Published 30 JULY, 2019 UPDATED 30 JULY, 2019
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HONG KONG — Seven weeks of unprecedented civil unrest have taken their toll on one of Hong Kong’s most instantly recognisable retail chains.

Health and beauty giant Watsons has seen sales plummet during the period the city’s streets have been frequently taken over by an army of angry protesters occasionally clashing violently with riot police, according to managing director Diane Cheung. She said other factors had also contributed to the decline, but the Watsons shops in districts at the centre of the massive rallies were among the worst affected.

“Month-to-date July our sales have fallen by a double-digit [percentage] from the same period last year,” she told reporters on Monday (July 29) after a product launch event.

“That said, last year’s comparison base was relatively high, and given we achieved favourable first-half sales and that we expect openings of new and renovated stores in the second-half, we believe we will fare better than the entire retail market for the full year.”

Watsons’ ubiquitous shops in Hong Kong are owned by AS Watson Group, a multinational retail giant itself a unit of tycoon Li Ka-shing’s conglomerate CK Hutchison. Sales declined year on year in June and July, according to Ms Cheung.

She expects Watsons to have 260 stores in the city by year-end, up from 240 currently.
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Hong Kong has endured a string of increasingly violent protests and civil disobedience events over a now-shelved bill that would have enabled suspects to be transferred to mainland China, where critics say fair trials are not guaranteed.

The Hong Kong Retail Management Association two weeks ago issued a forecast that the city’s total retail sales value would drop by a double-digit percentage for the whole of this year, replacing an original projection of single-digit growth.

It cited the ongoing summer protests, which have spread to different districts and seriously affected the city’s image as a safe, world-class tourist and shopping destination.

Read more at https://www.todayonline.com/world/sales-watsons-stores-hong-kong-plummet-after-weeks-protests

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Excerpts from:

‘We may lose Christmas’: escalating Hong Kong protests taking bigger toll on shops, economy

HONG KONG (Reuters) – Months of increasingly violent protests in Hong Kong are taking a growing toll on the city’s economy, weighing on confidence and scaring away tourists from one of the world’s most vibrant shopping destinations.

Economists say the impact of anti-government protests over the past eight weeks is already worse than in 2014, when a so-called “Umbrella revolution” paralyzed the city’s financial district for 79 days.

Demonstrations are more spread out across the city this time and violence has been more intense, prompting local and foreign shoppers to avoid certain areas. Stores and even bank branches have been forced to close for prolonged periods.

Many businesses in the port city on the southern Chinese coast are already facing strains from China’s economic slowdown and fallout from the year-long Sino-U.S. trade war.

Various strikes are planned in coming weeks, while disruptive civil disobedience actions are taking place almost daily and look set to continue for months. On Tuesday, hundreds of protesters blocked train services, causing commuter chaos.

The main retail association has warned members expect a double-digit drop in sales in July and August. The government will release June sales data on Thursday.

“Hong Kong’s retail industry will be affected both internally and externally,” said Angela Cheng, economist at CMB International Capital Corporation Limited, adding she had revised her 2019 retail sales forecast to as much as a 10% drop, twice as deep as her previous estimate.

Brokerage CLSA downgraded local jeweler Chow Tai Fook, one of the city’s most popular brands with mainland tourists, to ‘sell’ from ‘outperform’ on July 23, saying the protests could cause permanent long-term damage.

Luxury group Richemont warned in July that protests hurt its sales, while Swiss watchmaker Swatch said political turbulence contributed to a double-digit decline in sales in Hong Kong, one of its most important markets globally.

Around the Admiralty district, where much of the protests have centered, staff at several restaurants and shops told Reuters on Monday that patrons have dropped by a third from a month earlier.

https://www.reuters.com/article/us-hongkong-protests-retail/we-may-lose-christmas-escalating-hong-kong-protests-taking-bigger-toll-on-shops-economy-idUSKCN1UP0TK?il=0&utm_source=twitter&utm_medium=Social

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