Hong Kong Faces a Troubled Future After Coronavirus

Even before the outbreak, Hong Kong was dealing with the effects of last year’s violent clashes between police and antigovernment protesters—as well as the U.S.-China trade war. The economy was sliding into recession, with hotels, restaurants, and stores suffering from a decline in Chinese visitors. Expatriates who once flooded in to take jobs in one of the world’s most important financial centers had started leaving in anticipation of a diminished role for the city. Although Hong Kong’s status under the “one country, two systems” framework is guaranteed until 2047, anxiety was growing about an erosion of the freedoms of speech, social stability, and rule of law that make the city a safe, easy place to live.

At first, the moves to contain the spread of the virus added to the fear that the city would become a less attractive destination for global professionals. Hong Kong has taken tough measures that not so long ago would have been difficult to imagine in Europe or the U.S. The names of buildings where infected individuals live have been posted online, and many people have been given electronic tracking wristbands to ensure compliance with home quarantines, backed by the threat of prison terms as long as six months and fines of HK$5,000 ($645) for violations.

By March the disease had spread around the world, and people were looking to Hong Kong in hopes of an early success story. The city had seen only 100 infections and three deaths, suggesting it had been able to limit Covid-19’s spread despite its proximity and close ties with mainland China, which had been the disease’s epicenter. But as offices, bars, and restaurants started reopening and people who had traveled abroad during the quarantine returned, cases began spiking all over again in what some worry could be a second wave of infections. By the end of March, there were more than 700 cases.

Alarmed by the spike, Hong Kong moved swiftly to institute a short-term ban on tourists and quarantine all international resident arrivals. Gatherings of more than four are no longer allowed, excluding weddings and funerals. The city isn’t out of the woods, epidemiologically or existentially.

Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA and a 15-year resident of Hong Kong, sees a city in long-term decline. “You may see the streets filled with people in Hong Kong again, but I doubt it will be comfortably so,” she says. However long the travel restrictions prompted by the coronavirus last, they’re just the latest marker of a worldwide shift away from globalization and toward protectionism.

Hong Kong became a magnet for people and capital by providing a gateway to China and the rest of Asia. Now, Garcia Herrero says, it risks losing its appeal—perhaps even more than other major offshore centers, such as Singapore and Dubai, given the potential decline in business opportunities and access to the rest of the world that the political upheaval in Hong Kong presents. “It reminds me of the Middle Ages, where suddenly global centers like Geneva and Venice closed down because they no longer held an important role,” she says.

Garcia Herrero forecasts that Hong Kong’s economy will contract 3% this year, mostly because of coronavirus. That’s despite the government’s decision to give each adult permanent resident HK$10,000 ($1,290) as part of a $15.4 billion economic stimulus package aimed at shoring up businesses hit by the one-two punch of the protests and the pandemic.

Longtime residents swat away the negative outlook, recounting tales told of a fall from grace in the years before the 1997 handover from Britain to China. They say Hong Kong will serve as an important way station for global capital and for the fortunes of wealthy Chinese and Western businesses. In a January blog post, Charles Li, who runs the Hong Kong stock exchange, argued that tension between the U.S. and China could make the city’s role as “the connector between East and West” even more important.

“Hong Kong still has its advantages, namely the rule of law and the free mobility of capital, which I can’t imagine will ever happen in mainland China,” says Tommy Wu, senior economist at Oxford Economics in Hong Kong. “In terms of doing business and intellectual property, I still see many economists and bankers preferring to be in Hong Kong [rather] than mainland China. But Hong Kong has to preserve those fundamentals, that’s what makes the city valuable.”

It’s true that the city has bounced back before. It weathered 1997 and 2003, when another viral outbreak, SARS, struck. The memory of SARS guided the city’s reaction to coronavirus. “The public and government takes health outbreaks very seriously and will adopt major behavioral changes, which isn’t true of other countries,” says Keiji Fukuda, director of the University of Hong Kong’s School of Public Health.

After that outbreak, China helped boost Hong Kong’s economy by allowing mainland tourists to visit on their own for the first time, rather than just on supervised group tours. This time around, though, the city is unlikely to see the same rush of support by travelers coming and spending money, because of a lingering anti-mainland Chinese sentiment that swelled during the protests and has only grown stronger since the virus took hold.

And with worldwide markets whipsawing, the financial sector, which had been relatively unscathed by the protests, will no doubt be hit. If so, bonus pools will shrink, placing further pressure on white-collar workers. These same people were already starting to recoil from the city during the protests, faced with closures of their kids’ schools and other disruptions. Even if Covid-19 is contained, they know mass protests could resume anytime. “The outlook for Hong Kong’s political situation isn’t better,” Garcia Herrero says. “It’s just half-frozen because of coronavirus.”

©2020 Bloomberg L.P.