Reassessing Hong Kong’s Economy: Challenges and Pathways to Revitalisation

Since the deluge of national security regulations, Beijing and its loyal agents in Hong Kong have tirelessly reiterated that the city is "advancing from stability to prosperity". While this may reflect their good wishes, the reality seems to tell a different story, featuring dwindling property prices and a quiet IPO market. This passage, therefore, aims to closely examine the reasons behind this stark contrast from a political-economic perspective and, more importantly, to contribute ideas for revitalising the Pearl of the Orient.

To begin with, the Government's striving for political correctness constitutes enormous challenges for the local retail industry. Since the handover of Hong Kong to the PRC, local authorities have made every effort to push for an all-round integration between the city and mainland China with multiple mega cross-border infrastructure projects aiming to create a "one-hour living circle", such as the high-speed railway and the Hong Kong-Zhuhai-Macau Bridge. It provides immense convenience and temptation for residents to consume in the mainland, a market characterised by its affordable goods and stellar service. On the other hand, mainland tourists, although also benefiting from the extensive travel network, are less inclined to visit and spend in Hong Kong due to the recent economic downturn in China and the unfavourable exchange rate. The combined effect is retail sales and leasing momentum remaining at a low level in Hong Kong, leaving the city a patient suffering from severe internal bleeding.

The pursuit of alignment with Beijing also impacts trade relations between Hong Kong and other established economies. Located on the frontlines of the US-China conflict, Hong Kong implemented strict national security regulations that aim to deter any form of foreign interference. Recent public pressure from China on the local enterprise CK Hutchison Holdings regarding the sale of the Panama Port has also amplified concerns among foreign businesses about geopolitical risks and the freedom to operate in Hong Kong. As a result, many are considering relocating their operations to other regions. In addition, some Hong Kong businesses were found to maintain ties with sanctioned economies, such as Iran, which further hampers its trade relations with Western economies. To maintain its status as an international financial centre, Hong Kong has been keen on searching for new trading partners, notably from ASEAN and the Middle East. However, as there is a lack of common industries between these economies and Hong Kong, it would be challenging to form closer economic ties between them.

The ruling class in Hong Kong appears to understand the challenging economic situation and has launched several top-down initiatives to stimulate domestic consumption. Yet, the policy inconsistency indubitably results in an unclear market positioning. The authorities began by launching a nightlife campaign and setting up night markets, hoping to create a "night-time economy" through selling local snacks. Soon after the wave receded, the city launched a "panda economy" campaign that encouraged cross-industry collaboration to stimulate consumption by incorporating panda elements into various products. However, there appears to be a lack of evidence supporting the campaign's effects on the city's economic growth. As a result, the Government has recently shifted its focus, once again, to develop the "Nezha economy", inspired by the market success of the film "Nezha 2" in mainland China. The constant shift in policy direction not only risks incurring more costs but also confusing tourists regarding the socio-cultural uniqueness of Hong Kong.

While the Pearl of the Orient’s economic miracle may be difficult to sustain, there is, nevertheless, one way for it to come out from the dead end: learning from the past. Hong Kong is historically famous for being a city of business rather than politics. During the colonial era, Hong Kong refrained from taking sides in geopolitical conflicts and did not mediate mainland China’s political movements. It offered a stable political environment for businesses and, more importantly, successfully attracted capital and investment from both the capitalist and communist bloc. The Government’s hostility against the West in recent years, often marked by harsh condemnation, undoubtedly goes against its formula for success. As Xia Baolong, the director of the Chinese Communist Party’s Hong Kong and Macau Affairs Office, urges the city to prioritise its economic development, the local authorities should adopt a more flexible approach to national security and be courageous to free themselves from their self-imposed notions of political correctness.

The past success of Hong Kong also relied on the colonial government's laissez-faire economic principle. Unlike many planned economies, the British Hong Kong government seldom interfered in the city’s economic development by developing policy guidelines for specific industries. The vibrant image of Hong Kong in the 1980s, characterised by the lively atmosphere along Canton Road and the numerous iconic neon signs lining Nathan Road, was a product of market demand and the dedication of business owners. The colonial government only provided a favourable environment with a transparent legal system and a simple tax structure. Since bureaucrats often lack first-hand experience in the industry, it may be better for them to adopt a market-oriented economic approach to avoid disrupting and confusing businesses.

Hong Kong’s economy is undoubtedly facing an immense challenge, much like a thirsty camel looking for water in a desert. While it may lose its direction, we all know that the oasis is not far away. In fact, it is right behind it.

Illustration by Will Allen/Europinion