Hong Kong faces recession amid civil unrest, social crisis

The three months of anti-government protests that shook Hong Kong has disrupted businesses and air travel causing Chinese tourists to shun the special administrative region. To add to that, the country is expected to face its first recession in a decade, as banks issue profit warnings, and hotels and restaurants experience dwindling sales.

The escalating tariff war between China and the United States (US) has also burdened this global trade and business hub.

In the second quarter, Hong Kong’s economy shrank 0.4% from the previous quarter. At that point, the anti-government protests were mild compared to the demonstrations in the months that followed.

The third quarter – July to September - is likely to contract from the previous quarter, which would mark a technical recession which is defined by two straight quarters of economic contraction.

The Hong Kong leaders are expecting an economic growth of 0% to 1% for the full-year, but experts are predicting for a contraction, due to the social crisis unfolding.

Due to the political unrest, banks have issued profit warnings while Hong Kong’s billionaires such as Li Ka Shing has urged for a halt to the unrest ‘in the name of love’.

China’s largest e-commerce firm Alibaba Group is delaying its close to US$15 billion listing in Hong Kong, people familiar with the matter told Reuters.

On Wednesday, Bank of East Asia warned on further impact the protests could have on small businesses, after it posted a 75% fall in net profit in its first half due to write-downs in China.

Across the border, the gloves may have come off in the latest US-China trade war dispute. The escalating trade war is not helping Hong Kong in getting any boost externally.

On Friday, China’s Finance Ministry announced new tariffs of between 5% and 10% on US$75 billion worth of goods from the US, in a retaliation to the earlier 10% of tariffs on US$300 billion worth of Chinese goods.

The Finance Ministry also reinstated 25% of tariffs on US automobiles and auto parts. The tariffs were initially suspended after the leaders of both countries met in Argentina last year.

US president Donald Trump has ordered US firms to ‘immediately start looking for an alternative to China’. The president’s top aides subsequently downplayed the “order”. ‘I think what he was saying is that he is ordering companies to start looking,’ said US treasury secretary Steven Mnuchin.