GUIDANCE

Can Hong Kong's Economy Weather the Storm?

Nov 19, 2019 | 22:08 GMT

A barricade burns during clashes between protesters and police at the Chinese University of Hong Kong (CUHK) on November 12, 2019. Hong Kong pro-democracy protesters clashed with riot police in the city's upmarket business district and on university campuses, extending one of the most violent stretches of unrest seen in more than five months of political chaos in the city.

A barricade burns during a clash between pro-democracy protesters and riot police in Hong Kong on Nov. 12, extending one of the most violent stretches of the city's past half-year of political turmoil.

(DALE DE LA REY/AFP via Getty Images)

Highlights

  • Continuing unrest in Hong Kong will further erode the city's status as an international business center by diverting capital and investment to Singapore and other regional hubs.
  • Beijing will increasingly turn to its mainland cities for a new link to global markets but will ultimately fail to replace Hong Kong's uniquely liberal financial system in the short term.

Six months of civil unrest in Hong Kong have taken a toll on its economy, which has officially entered its first recession in a decade. The city's third-quarter gross domestic product (GDP) contracted by 2.9 percent in the third quarter of 2019. But while its financial sector -- the city's economic linchpin -- remains robust, the worst is likely yet to come. Deep-rooted grievances are fueling the escalating and increasingly violent attempts by protesters to resist Beijing, but their actions are only hardening the central government's resolve to compensate for the unreliability of its most critical financial link to the world. With a quick and relatively peaceful de-escalation now out of the question, Hong Kong's businesses and investors will have to adjust to the very likely new normal of operating against the backdrop of persisting protests and political impasses. And this reality, combined with Beijing's steadily strengthening hand and its possible intervention in the...

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