Business

Hong Kong to unveil depth of recession amid protests and trade war

Reuters, AFP-JIJI, AP

Hong Kong confirmed on Friday its economy plunged into the first recession in a decade in the third quarter, weighed down by increasingly violent anti-government protests and the escalating U.S.-China trade war.

The economy shrank from the previous quarter by a seasonally adjusted 3.2 percent from July through September, in line with a preliminary reading, revised government data showed.

Gross domestic product contracted for the second consecutive quarter, meeting the technical definition of a recession.

From a year earlier, the economy contracted 2.9 percent, the same as the preliminary drop. The readings were the weakest since the global financial crisis in 2008 and 2009.

Months of confrontation between police and pro-democracy protesters have plunged the financial and trading center into its worst crisis since it reverted from British to Chinese rule in 1997.

Tourists are canceling bookings, retailers are reeling from a sharp drop in sales and the stock market is faltering, adding to pressure the city is feeling from China’s economic slowdown and the prolonged Sino-U.S. trade dispute.

The drop-off in tourists is especially deep among those from mainland China, who made up around 80 percent of the 65.1 million visitors to the city in 2018.

With no end in sight to the increasingly violent protests, analysts say the slump could be long and deep, with gross domestic product seen shrinking further this quarter and well into next year.

The financial and trade center was already under strong pressure from the prolonged tariff war between Washington and Beijing, but the increasingly violent demonstrations, which have gone on for more than five months, have delivered a decisive blow.

“We assume the violent protests will continue for the whole year in 2020 unless the Hong Kong government will do something really special (to end the conflict), which it seems to be avoiding,” said Iris Pang, a economist on greater China at ING.

August retail sales were the worst on record — down 23 percent from a year earlier — while September’s plunged 18.3 percent.

Shops, restaurants and other businesses across the Chinese-ruled city increasingly close early as protests spring up, at times daily, and often with little or no notice. Some smaller businesses have had to close for good.

Shopping malls near the heart of the financial center that house some of the world’s biggest luxury brands have shuttered early most days this week as the unrest escalated.

The protests have presented the city — one of the most important financial hubs, with total banking, fund and wealth management assets worth more than $6 trillion — with its biggest political crisis in decades.

Business activity in the private sector fell to its weakest in 21 years in October, according to IHS Markit, while demand from mainland China declined at the sharpest pace in the survey’s history, which started in July 1998. The government has rolled out stimulus measures since August, but since it is forced to keep a high level of reserves by its Hong Kong dollar peg to the U.S. greenback, the packages have been relatively small.

Analysts also doubt the effectiveness of handouts, since the uncertainty prevents businesses and consumers from spending and investing, and store closures will lead to job losses.

“Given how poor sentiment is, we do not expect the stimulus to have a meaningful impact until the political unrest comes to a halt,” said Tommy Wu, senior economist  at Oxford Economics, who predicts a 1.5 percent contraction in GDP for 2019 and “another decline” in 2020.

“But we do expect more stimulus to be rolled out in the future.”

On Friday, thousands of pro-democracy protesters again took to the streets, defying a warning by Chinese President Xi Jinping, as a campaign of mass disruption extended into a fifth straight day.

Black-clad protesters occupied university campuses, while office workers endured another day of transport chaos with suspensions on the vandalized train network and roads blocked by barricades.

Hong Kong has seen relentless protests since June as many in the city of 7.5 million people have vented fury at eroding freedoms under Chinese rule.

Those protests had been mainly in the evenings and on weekends, allowing the financial hub to still function relatively smoothly during the week, albeit with its economy dragged into recession.

With China offering no concessions, protesters switched tactics on Monday, launching a “blossom everywhere” campaign to cause as much disruption as possible across Hong Kong and overwhelm the police force.

Their actions through the week have caused chaos across Hong Kong and been accompanied by intensifying violence from both sides — two people have died in a week in incidents linked to the protests.

The five-day “strike” has also seen major universities become a hub for the protesters — the first time a movement characterized by its fluidity and unpredictability has coagulated in fixed locations.

“The government did not respond even when 2 million residents marched peacefully,” a 25-year-old office worker who gave her surname as Wong said during a demonstration in the Central District, referring to huge rallies that were a feature of the start of the movement. “Now when the police are abusing their power the government … only thinks protesters are the problem.”

Violence from both sides has also escalated, and tensions have spilled out overseas.

On Thursday night, Hong Kong Justice Secretary Teresa Cheng fell in London after being surrounded by pro-democracy protesters — the most physical confrontation involving a member of the Cabinet since the unrest began.

Hong Kong Chief Executive Carrie Lam on Friday condemned the incident, describing it as a “barbaric attack.”

Cheng walked away from the confrontation without any visible signs of injury.

A 70-year-old street cleaner, who videos on social media showed had been hit in the head by a brick thrown by “masked rioters,” died on Thursday night, authorities said.

The Food and Environmental Hygiene Department said it was providing assistance to his family. The police said they would investigate the death.