Given all the investment, industrial production and retail sales registered in the first two months of the year, one should expect economic growth in the first quarter would be in the blues on the Chinese mainland. As Hong Kong has been relying heavily on the mainland factor, and its overseas markets have also suffered severe problems and will be unable to compensate for the losses in Hong Kong’s economic transactions with the mainland, it seems to be a foregone conclusion that the city’s economy might experience an economic decline even worse than that during last year’s political riots. The threats to the mainland, Hong Kong and the world are the coronavirus pandemic and a financial market collapse in the United States, which has been triggered by an international oil price war. It seems both threats will not rescind in the near future with the pandemic probably lasting through next winter. The prospect of economic recovery and even stabilization is depressively pessimistic.
However, China’s “People’s war” against the virus has brought hope and opportunities. The West and the rest of the world are just beginning to suffer under the pandemic. Countries like the United Kingdom and Sweden are no longer confident of stopping the spread of the disease and have sought herd immunization as an excuse for policy inadequacies. Others following the Chinese strategy of lockdowns and isolation have been struggling hard. The number of confirmed cases is growing larger for those outside China than inside China. As the first country damaged by the pandemic, China seems also to be the first country to recover from it, leading all nations in the world. The outcome will be felt in the second quarter of the year: China is fast recovering economically, while other countries, including competitive Japan, South Korea, Singapore and Germany, will still be trapped in increasingly draconian measures to fight off the virus; their economies will definitely move deeply southward.
China’s role as the world’s factory will be further strengthened when there are few alternative production locations and facilities and despite the large drop in world demand for many manufactured goods. Beijing has also made ready trillions of yuan of investment funds to stimulate the economy. The 1.4 billion population will become the largest consumption market in the depressed world. With the right economic strategy and stimulation package, one should expect a rapid recovery of the economy starting from the second quarter.
Hong Kong benefits from the effective public health policy of the mainland, which now more or less safely secures its border against the virus. Economic recovery in the mainland market would have a spillover effect on Hong Kong for its advanced producer’s services. The opportunities are there but whether it will be utilized to the full depends on Hong Kong’s policies and attitudes.
Hong Kong benefits from the effective public health policy of the mainland, which now more or less safely secures its border against the virus. Economic recovery in the mainland market would have a spillover effect on Hong Kong for its advanced producer’s services. The opportunities are there but whether it will be utilized to the full depends on Hong Kong’s policies and attitudes
With the rest of the world in turmoil, Hong Kong should at least in the coming months and years gear itself more for economic integration with the mainland, looking for greater trade and investment, and exports of Hong Kong’s professional and advanced producer’s services. This should be the right time for Hong Kong, the middlemen, to leverage on the world’s demand for China’s manufactured goods in exchange for energy, agricultural and mineral resources from aboard. Because of the lack of competition and probably without political interventions from hostile governments and politicians, it will be a golden opportunity for Hong Kong and mainland enterprises to re-establish domination in the world market while helping ailing countries to rebuild their trade and production systems.
Unlike production and investment on the mainland, Hong Kong’s contribution to service development will take some time before it will be reflected in growth statistics. Nevertheless, the economic resurgence on the mainland in the second quarter should boost economic confidence in Hong Kong and serve to rally support in local financial markets. Being a global financial center with access to free-flowing capital locally and overseas, improvements in the financial markets will trigger a virtuous cycle, with money coming in particularly from the mainland and overseas mainland enterprises to stabilize local real estate prices and retail sales.
Radical efforts by the US to rescue its financial markets by free distribution of cash to its citizens and a new round of quantitative easing might have some temporary effect on domestic and international confidence. Their long-term damage, however, should not be underestimated. The worst-case scenario is not another Great Recession like in the aftermath of the financial tsunami in 2008, but probably a Great Depression with the scale like that in the 1930s. If history repeats itself, China would, like the Soviet Union in the 1930s, benefit from the fall of the world’s capitalist system.
As part of China and heavily integrated with the mainland, Hong Kong is in an advantageous position to share and contribute to China’s resurgence in the coming years. Hong Kong, however, needs to reorganize and prepare itself. One is that Hong Kong has to re-examine its role as China’s global financial center. It has to deal carefully and skilfully with the Anglo-Saxon international financial system dominated by US financial capital in order to avoid collateral damage caused by further crises from the unending structurally oriented trade war between China and the US. It also needs to consider joining and promoting an alternative international financial architecture that differs from the US-controlled SWIFT and dollar systems. It could work with Beijing as well as countries like Russia to build a new international payment system starting from the CIPS (Cross-Border Inter-bank Payment System) and the offshore renminbi market. This could serve as the platform to develop financial services for Belt and Road countries and China’s relations with them beyond surveillance and intervention by the US. Hong Kong has a chance to emerge as the global financial center for the Belt and Road economic bloc, if it could combine onshore with offshore finance, the Anglo-Saxon system with its alternative(s). It would shape the future of Hong Kong and its role in China and in the polycentric global system. The current de-dollarization brought forth by national isolation and lockdowns from the pandemic and US financial crisis provides the best opportunity for a reorientation of Hong Kong’s financial sector.
A more immediate measure to boost local economic growth is to actively integrate Hong Kong with the mainland with a primary focus on the cities in the Pearl River Delta of the Guangdong-Hong Kong-Macao Greater Bay Area. Once the epidemic comes under control, the economy of China will once again be in high gear. The huge Chinese demand for shopping, tourism and overseas education would reappear. Yet, the world outside China would still be suffering from the pandemic with lockdowns, isolation and socio-economic stoppages. The pent-up Chinese demand has to find an alternative outlet. Hong Kong and Macao with the coronavirus kept under control could take up the mainland demand.
Similar to the situation in the post-SARS period, mainland demand would be relied on to push up local economy. Unlike the last time, this time may not need any drastic policy innovation of the central government; just resuming cross-border traffic would be able, by the sheer force of the market, to pour demand and money into Hong Kong’s various service industries, from retail, tourism, entertainment, financial services to education. Without diversion to other overseas destinations, the huge demand into Hong Kong would be more than enough to restore a handsome growth rate to the local economy. After the epidemic-induced recession and the real threat of a financial crisis, Hong Kong society should be sober and pragmatic enough to welcome the arrivals of mainland tourists and other service consumers.
The public health crisis coupled with financial and economic crises have created the golden opportunities for Hong Kong to rethink, reorganize and reorient so as to achieve a better role in China and in the world of a China resurgence. The city has always been lucky. The same will probably happen again this time.
The author is the director of One Belt One Road Research Institute, Chu Hai College of Higher Education, Hong Kong.
The views do not necessarily reflect those of China Daily.
