If Hong Kong Burns Does China Burn?

Posted by Ed 19 mths ago

(Hong Kong) - The Hong Kong protesters slogan 'We Burn, You Burn' is no idle threat.

As a result of their 8-month assault on the Hong Kong economy, tourism numbers have collapsed, 4-star hotels are selling nights at HKD400 (or less) and still, they languish, mostly empty, and Cathay Pacific is getting crushed.

Walk through the Soho restaurant district of HK and you will be greeted not by busy establishments but with dozens of boarded up outlets plastered with ‘for rent’ signs from property agents. Popular restaurants including Soho Spice and Olive, which have been operating for nearly two decades, are the latest casualties of the protests. One restaurant group with over a dozen outlets in Soho told AsiaXPAT that revenues are down by 50%.

Retailers are also being decimated as huge numbers of shops are closing across HK and many thousands of workers are being laid off. The global luxury brands are being pummelled as their lifeblood, mainland Chinese tourists, avoid Hong Kong with protesters having physically assaulted and screamed profanity at them telling them to leave Hong Kong. Louis Vuitton has shuttered one mega shop so far, and Burberry recently reported Hong Kong earnings have dropped by half.

The Hong Kong economy is mired in a very deep recession with -3.2% growth last quarter and prospects for the coming quarter looking even bleaker. The emerging coronavirus SARS-like pandemic is now threatening to drive off the few remaining tourists considering visiting Hong Kong. A perfect storm is brewing.

Hong Kong is a massive economy with tentacles deep into China. It dwarfs Greece, which was considered too big to fail and bailed out during the GFC. HSBC is a mega bank exponentially larger and more important than Lehman, and we all recall what happened when Lehman collapsed.

What are the implications for China, and the global economy, if Hong Kong continues this downwards trajectory and eventually hits a tipping point?

Reuters indicates that although the Hong Kong economy generates only a small fraction of China’s overall GDP, most of all investment into China still flows through Hong Kong. From IPOs to direct foreign investment and bond placements, Hong Kong is still the key city for corporations doing business in China.

Rule of law rules.

Talk of Shenzhen or Macau replacing Hong Kong as the financial centre for China is laughable. Neither city has anything remotely close to a system of ‘rule of law’. Shenzhen is behind the great Chinese Firewall which blocks access to information on Bloomberg terminals and blacks out CNBC if the censor deems a story unacceptable. Macau is a mecca of money-laundering run by triad gangsters and whorehouses masquerading as a family-fun destination. A global financial centre in the making? Give me a break!

China and the CCP are stuck with Hong Kong. And Hong Kong is on fire. If this crisis is not resolved and Hong Kong burns to the ground, China follows.

Some protesters have suggested that if the government does not respond to their 5 demands, and the protesters crash the HK economy, this will trigger another GFC. Doubt them at your peril.



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