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Graph of the week

Graph of the week

15-11-2019 | Insight

Unrest in Hong Kong

  • Jaap  van der Hart
    van der Hart
    Equity Fund Manager

Those who follow the global news won't fail to have noticed: the protests in Hong Kong are becoming more frequent and more violent. What started six months ago as demonstrations against a bill that would make extradition to China possible has escalated into a broader protest movement with violence, destruction and fights with the police. The bill has since been withdrawn but the protests have yet to subside. 

Reasons for continuing to agitate include the desire for general elections for the administration of the city state and opposition to China’s rising power and influence. Wealth inequality and sky-high property and rent prices also play an important role.

It is little surprise that the protests are affecting the local economy. Economic growth in the third quarter declined by 2.9%, with consumer spending plunging a whopping 20%. While Chinese tourists used to enjoy shopping in Hong Kong, they are now giving the city a wide berth. 

And these are the figures only up to the end of September. The data for October and November is unlikely to be better. The PMI (Purchasing Manager’s Index), which normally fluctuates around 50, has now slipped below 40.

Chinese economy barely affected

The impact of these events on the Chinese economy as a whole has been limited. Hong Kong’s economy represents less than 3% of the Chinese economy. Nevertheless, it plays an important role as a financial gateway to China. The territory’s better legal system and free flow of capital means that a great deal of overseas financing of Chinese companies goes via Hong Kong. 

The protests have yet to jeopardize these for the time being. But in the longer term, the stability of Hong Kong is important – both for China and for foreign investors. How the situation will unfold going forward is uncertain. The protest movement shows no signs of abating and has widespread support among the population. 

At the same time, it is unlikely that communist China will allow more democracy and citizen participation in the Hong Kong administration. There are fears of a violent crackdown on the protests by China but this is not an appealing option for China either. For now, the protests and riots are likely to continue and the Hong Kong economy will continue to suffer. 

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