Why have Hong Kong protests killed the economy?

Via FTAlphaville:

Capital Economics has an interesting note out today on the impact of protest movements on growth in emerging markets. The note looks at the impact of dozens of large-scale protests and is worth reading in full, but we are going to focus on what it says about Hong Kong’s street movement.

We think there are two points worth making. The first is that a movement of the scale and duration that we are witnessing in Hong Kong is rare.

The note draws on the Mass Mobilization dataset, which shows that from 2010 till the end of March 2018 there were 2,700 protests in the 25 emerging markets that Capital Economics looks at. However, just 58 of these were “large” protests involving 50,000 people or more. And of those 58, only about half a dozen ran for more than a month.

Second, the movement in Hong Kong is also rare in that it is likely to shrink GDP. Most businesses in the territory now think that the economy is in the throes of a recession. This from the FT’s Alice Woodhouse:

Business confidence in Hong Kong sank to a seven-and-a-half year low in September as US-China trade tensions and anti-government protests hit demand, a private survey found. The IHS Markit Hong Kong purchasing manager’s index survey found growing pessimism among businesses as the Chinese territory’s private sector was stuck in a “deep downturn”.

This might not appear surprising. But it is often the case that protests have very little impact on growth, with GDP about as likely to expand as it is to shrink. The same goes for equity prices.

The reason Capital Economics thinks the effects of the protests are so extreme is that Hong Kong relies heavily on tourism — an area of the economy that does tend to be impacted by protests.

Our own take on this is that the effects are especially pernicious in this case due to the amount of media coverage of the Hong Kong movement. Unlike other emerging markets, several international news outlets have a big presence on the archipelago. It is also of more interest to international media than a lot of other protests due to the fact that many of the gripes stem from problems with Beijing.

David Llewellyn-Smith
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  1. No mention of the 40% decline in tourists, the MTR shutdown, and business being firebombed? Hard to have business confidence with no customers and threat of being burnt down if the protesters claim (incorrectly) the business is pro-China. (Maxsim).

  2. Isn’t this simply a result of HK’s good economy at the start of the protests?

    I mean, if the economy in question were already in the doldrums then protests would not make the economy any worse. Even if they did, the economy would have come down from an already low base, so its downside would be very limited.

    • or another angle, maybe the economy was not as healthy as generally believed and is just unable to weather the storm created by the protests.

  3. What people have to understand is that this economic destruction is a silent objective of the protestors, the wealth gap is too far apart from the young…..they want it to be brought down so they can rebuild….atm the city only caters for the rich…no pension, high cost of housing, gvt spends ridiculous amount of money that seem to only benefit the wealthy, like they are about to embark on a stupid redevelopment of Lama Island to the west, a pristine beautiful island, that they want to build a port, reclaim land, and spend 1 trillion HKD on….. which guess what?…only the 6 wealth families get a bite of the rebuild…developers again….yet old people pushing round trollies in streets collecting cardboard as they have no pension…young cant afford to live anywhere as no cheap housing….developers decided to throw them a bone and build sky coffins, literally makes aus tiny houses look like mansions…this is what you get when you say let them eat cake…

    • Spot on.

      I see two issues. The first is the fact the CCP are intentionally undermining the ‘one country, two systems’ agreement with the Extradition Law essentially subordinating Hong Kong to Chinese law and thus allowing the CCP to go after any form of dissent in Hong Kong…

      But the economic situation is critical. Property prices are at such a high level that they’ve effectively priced out almost everyone and then people are forced to live in shoebox apartments at stratospheric rents. Young people have no hope and the elderly life in fear with no welfare system. Meanwhile, the oligarchs pay essentially no tax and they have the CCP in their pockets (or vice versa) and they both use the police to suppress people and if they encounter problems, the triads can be relied upon as a form of Brown Shirts to bash the hell out of anyone who objects to what’s going on. It’s a dystopian place…

      • I think you are right Peter. Last time I went to HK I thought is seemed weirdly Orwellian. I used to go once every year or two for the past 15-years – usually for a 4-5 day holiday. HK used to be a great place but not anymore. The mainland and the local wealthy have ruined it.

    • Yep. Hard to blame them. “But you’re wrecking the economy!” B1tch, you and your gang already wrecked it for me.

      Just a more extreme version of what we have in Australia.