Is it business as usual during the Hong Kong protests?
Article 3 minute read

Is it business as usual during the Hong Kong protests?

02 October 2014

The world's imagination has been caught up in the Hong Kong protests this week, but how has the unrest impacted Asia's First City of Finance?

Tens of thousands of Hong Kong residents have been drawn to the streets to join the pro-democracy movement, demanding the right to elect their chief executive by universal suffrage in 2017.

What started as a student’s class boycott has now turned into the biggest civil movement in the city for decades, now coined the "Umbrella Revolution". Ordinary citizens (some with young children and toddlers) are marching into the streets appealing for electoral reform.

Unlike demonstrations in other parts of the world, the highly civil-minded protesters do not have an anti-business agenda. They are following their non-violent principles closely; retail shops are left unscratched and signs apologising for the inconvenience caused by the protest can be seen everywhere. Volunteers diligently work to clean up the streets, pick up garbage and separate recyclables every morning, remove graffiti created by fellow protestors and create lanes to enable smooth passage for emergency vehicles. Some of them even offer various free services, from haircuts, massages, counselling, and legal advice to holding classrooms on the streets for students.

But what of the economy?

While immediate adverse market impacts of the protests can be felt, it is more important to look at its long-term effect on the city’s economy through fundamentals. The strength of Hong Kong as a global city and international business centre lies in its institutions that ensure transparency, ease of doing business and the rule of law. As long as the independence of the city’s legislature, executive, judiciary and media are intact, the long-term outlook remains optimistic and its status as an international financial hub is all but guaranteed.

Hong Kong has long served as the facilitator of trade between China and the rest of the world. For the foreign investor, the city is their gateway for investing in China as it offers a stable operating environment with long-established rule of law. Last year alone, Hong Kong accounted for two-thirds of foreign direct investment (FDI) into the mainland.

For Chinese companies, Hong Kong serves as a reliable source of equity financing which is fully integrated into the global economy. Since 2012, Chinese firms have raised US$43bn (versus just US$25b in mainland exchanges) through initial public offerings at the well-established Hong Kong Stock Exchange (HKEx). The city’s unique status as a “Special Administrative Region” has benefitted China enormously since unification in 1997.

And that's not to mention that it was Hong Kong manufacturers that sparked the mainland’s economic miracle by being the first batch of investors to foray into its newly opened economy in the 1980s.

Likewise, China is equally important to Hong Kong as tourism and retail spending from mainlanders account for around 10% of its GDP; the city exports half of its output to China, and one-fifth of its bank assets are loans to mainland customers. Due to the symbiotic nature of the Hong Kong-China relationship, it is only logical for both sides to uphold the status-quo and safeguard the "one country, two systems" governance principle which laid the foundation for unification 17 years ago.

In most parts of the city people are going about their business as usual, going back to their jobs during the day and returning to the main demonstration sites after work. As the student leaders agree to hold talks with government official, the pro-democracy movement is expected to be heading to a more rational direction.

It's only a matter of time before Asia's World City gets her mojo back.

Written by

Mark O'Sullivan

Former Managing Director

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