Hong Kong 2019: A rock and a hard place

An Economic Success Story…with a Caveat

As a mercantile city Hong Kong has been remarkably successful with one of the main attributes being the city’s openness and global reach. In this regard, Hong Kong is far ahead of mainland China. And by most economic yardsticks, Hong Kong is an Asian success story in sharp contrast to the saga unfolding in the streets.

According to the World Trade Organization (WTO) in 2018 Hong Kong was the world’s 8th largest exporter of merchandise trade and the world’s 15th largest exporter of commercial services. In 2018 Hong Kong ranked 3rd in the world [only behind China in Asia] in FDI inflow ($115.7 billion) according to UNCTAD’s World Investment Report 2019 report. And Hong Kong ranked 3rd in FDI outflows ($85.2 billion) in Asia behind Japan and China. In 2018 Hong Kong’s stock market ranked the 3rd largest in Asia and the 5th largest in the world in terms of market capitalization. There were 2,315 companies listed on HKEx and the total market capitalization of Hong Kong’s stock market reached US$3.82 trillion.

The City is also the Asian home for many multinationals…particularly from the U.S. According to the Hong Kong Trade Development Council (HKTC) over 18% of the “parent” firms are coming from the U.S. with Japanese companies ranking second at 16.8%.

Even with a population approaching 7.5 million confined to 427 sq./miles the unemployment is at a healthy 2.8%. The region’s GDP in 2018 was 364.8 (US$ bn) up from 2017 GDP figure of 341.4 (US$ bn). The per capita GDP is also a healthy 48,958 (US$) compared to 46,180 (US$) in 2017. [As a point of comparison, the US per capita GDP in 2018 is estimated at 53,500 (US$).]

Besides the turmoil in the streets, Hong Kong is stuck in the middle of the tariff war between China and the U.S. This economic struggle between global heavy weights has taken its toll on an economy built on being a turnstile to the China marketplace. This is the caveat in any economic analysis of Hong Kong – the close ties to the China market can act both to the benefit and the detriment to the fortunes of the City.

According to the Hong Kong government statistics, in 2018, 57% of re-exports were of China origin and 55% were destined for China. For the PRC perspective, Hong Kong is the fourth largest trading partner of China after the US, Japan and South Korea, accounting for 6.7% of its total trade in 2018. Even more importantly, Hong Kong is the largest source of overseas direct investment in China. According to Hong Kong estimates, in 2018 of all the overseas-funded projects approved for the PRC, 46.3% were tied to Hong Kong interests. With such an exposure to the China market, unlike other Asian states, there is little economic cover for Hong Kong.

The Hong Kong Trade Development Council (HKTDC) in their report issued the statement on the impact of the trade war:

In view of the threat posed by prolonged trade disruption and slowing growth in some of the world’s major economies, the HKTDC made a downward revision to its forecast for Hong Kong’s export performance in 2019, from 5% to 2%. Exporters are advised to be more proactive in diversifying their markets and enhancing product competitiveness…