The State Council’s Hong Kong and Macau Affairs Office – mainland China’s top office for handling Hong Kong issues – held a press briefing on Monday, July 29. It was the first briefing about Hong Kong since the island was handed back to China in 1997. Office Spokesperson Yang Guang stated, “If Hong Kong continues to be in chaos, it will have a cost upon society,”
Hong Kong has undergone months of unrest since the mainland China-Hong Kong extradition amendment bill surfaced, sparking outcry and chaos in the city of 7.5 million citizens. Over time, the issues fueling the ongoing protests have shifted.
With the extradition treaty now effectively dead, protesters have turned their anger toward the island’s Beijing-elected Chief Executive, Carrie Lam. Furthermore, suspicions surrounding mainland interference in the city’s governance have been on the rise.
Some see Spokesperson Yang’s use of the phrase “cost upon society” when describing the possible consequences of the demonstrations as a threat. However, from a purely economic standpoint, it must be acknowledged that negative effects can already be witnessed in the financial hub.
Property prices fall for the first time
Hong Kong is notorious for its high cost of living, with property prices that have left many sleeping at fast-food chains or residing in what are commonly referred to as coffin cubicles.
However, the months of ongoing protests are weighing on property investor confidence, with many beginning to reallocate investment funds to safer, stabler cities.
According to one of the island’s largest real-estate agencies, many buyers have backed out of agreements to purchase properties in Hong Kong, with the cancelled contracts valued at HK $70 million (approximately US $8.9 million). The buyers have forfeited a total of HK $3.5 million in deposits rather than proceeding with their purchases.
This shift in buyer sentiment is creating a ripple effect in the market. Even investors who remain confident in Hong Kong’s economic future are now stalling on the sidelines, believing that property prices will continue on a downward trend.
Retail sales suffering
One of the most recognizable health and beauty chains in Hong Kong, Watsons, has reported two months of declining sales due to ongoing protests and other factors. These include general economic uncertainty resulting from the tit-for-tat trade war between the US and China.
Diane Cheung, managing director of the retail giant, reported that “Month-to-date July our sales [sic] have fallen by a double-digit percentage from the same period last year.” Watsons has stores spread across the island, but those located in areas where many of the protests have occurred have been the most affected.
Watsons is not the only brand being impacted by the ongoing rallies, either. Fears of running into protests while shopping have spread among consumers, leading to a decline in overall retail spending. Not surprisingly, the most significant decline has occurred in spending from mainland tourists.
Other major brands, such as Levi Strauss & Co and Ralph Lauren Corp, have seen their sales figures affected by the protests, forcing some stores to shut their doors.
Last week, Andre Hoffmann, vice chairman at L’Occitane International SA, reported to Bloomberg that, “Hong Kong has been challenging… We lost several trading days in the quarter due to the protests. Chinese tourist spending in our shops has declined – all these are a bad cocktail for our business.”
Even before the protests, Hong Kong’s economy had already been slowing amidst ongoing trade tensions between the US and China. As the city’s demonstrations grew increasingly violent, retailers saw consumer spending decline by nearly 7% in June from the previous year.
Broader economic impacts
Hong Kong has long been a popular destination for mainlanders for overnight and weekend trips. This constant influx of tourists is a major source of spending on the island, especially in the retail and hospitality industries. However, figures released by the Hong Kong Tourism Board show that only 4.92 million people visited the city in June 2019, a decline of 8.4% from the previous year. The number of mainland Chinese visitors fell 9.8%, to 3.85 million.
A level 8 typhoon that struck the city during the middle of last week did not help the situation, with many stores and businesses closing early.
The People’s Liberation Army (PLA) also released threatening propaganda around the island, in what seems to be an attempt to instill fear among the public. Whether the PLA would actually interfere in the city’s ongoing unrest remains unclear, however.
While expressing the mainland’s support for law enforcement and Lam’s government, Spokesman Yang also referred to Hong Kong law. He stated that unless requested by the Hong Kong government to maintain order, the PLA will not interfere with the city’s affairs. However, he also warned that Hong Kong is not to be used “as a base to undermine China.”
No questions on military intervention were answered during the press conference.
It is too early to know whether these economic slumps are just a temporary dip during the current period of unease, or indicators of a long-term trend. Nevertheless, many who have witnessed all the commotion have made grim predictions, stating that it is more apparent than ever that Hong Kong’s democratic ways will not withstand the mainland’s grip.
Even many relatively optimistic observers believe that Hong Kong’s institutions will falter in the year 2047, when the agreement that created the Hong Kong Special Administrative Region (SAR) is set to expire. If that occurs, Hong Kong will turn into just another Chinese city.
Already, the number of Hong Kongers who express pride in being Chinese is at a record low.