Hong Kong protests explained: the impact on businesses

With violent riots continuing to escalate and the city’s economy sliding into recession, this is the Hong Kong protests explained.


Months of increasingly violent protests have tipped Hong Kong into its first recession for 10 years. The region’s economy shrank by 3.2 per cent in the third quarter of 2019 – considerably more than the 0.5 per cent contraction that was reported in the second quarter.

This is the Hong Kong protest explained – with an in-depth look at the impact on local businesses and investors, including insight into the other factors that have eliminated growth, and whether any end to the riots is in sight.

What are the protests in Hong Kong about?

Known for its impressive public transportation links, enormous collection of skyscrapers and enthusiasm for all things cashless, seeing footage of burning barricades and protesters throwing petrol bombs has led many around the world to worry about what’s going on in Hong Kong.

The seeds of discontent were first sown in February 2019, when a controversial bill was proposed that would mean Hong Kongers could be extradited to mainland China to face trial. Critics feared that such a law could allow Beijing to target political opponents. Hong Kong was controlled by the United Kingdom until 1997, but the city was handed back to China after a special agreement known as “one country, two systems” was reached. This meant that the region would retain its own legal system, and residents would enjoy particular freedoms that may not be available to those back on the mainland.

Initially, the protests against the extradition bill were peaceful. Locals were concerned that their freedoms could be eroded, and feared that the law could pave the way for Beijing to take greater control. Hong Kong’s chief executive, Carrie Lam, remained determined to push the law through – even in the middle of May 2019, when a fight broke out between pro-democracy politicians and Beijing loyalists. Although Ms Lam’s administration eventually agreed to water down the extradition bill, the demonstrations intensified as increasing numbers of protesters took to the streets to warn that the concessions were not enough. On 9 June, it’s claimed that one million people – that’s one in seven of Hong Kong’s entire population – marched against the law.

Hong Kong protests explained: demonstrations turn violent

The days, weeks and months that followed would see the protests turn into riots. On 12 June, missives including bricks and bottles were thrown at police – and officers were subsequently accused of a heavy-handed response when pepper spray and batons were deployed in return. Hong Kongers were furious, and Ms Lam delayed the extradition bill indefinitely just a few days later.

By July, the law would be declared dead – but by now, the protests were about much more than this. Now, pro-democracy demonstrators wanted an independent investigation scrutinising the police’s use of force, and they were calling for Ms Lam to resign. Over the summer, a small band of rioters broke into the Legislative Council, with clashes spreading to shopping malls and subway stations. On one day in August, hundreds of rounds of tear gas were fired. As protesters turned to increasingly drastic measures to get their voices heard, they descended on the city’s airport – crippling air traffic for several days. Autumn marked the first police shooting of a protester, widespread anger at a ban on face masks, the death of a student and fiery battles at universities, which seemed more like war zones as those bunkered inside threw petrol bombs at riot police.

The impact on business

Protests have showed no sign of slowing down – and week after week, demonstrators are returning to the streets. When violence has flared up, the market has reacted negatively – and after a demonstrator was shot in the middle of November during a day of escalating tensions, with another man set on fire, the Hang Seng Index fell by 2.6 per cent. This was the worst loss to be inflicted in a single day for three months.

To show how the months of unrest have affected the Hang Seng overall, just look at its performance in the year to date. The index had exceeded 30,100 points in April – but at the time of writing, it has slumped by more than 11.7 per cent to 26,600.

That said, the social upheaval has actually resulted in a buying spree of Hong Kong stocks from investors on the mainland. The unrest, when combined with worries about a global economic showdown and the impact of the ongoing US-China trade war, has meant that stocks in Hong Kong are trading at a discount compared with those on Chinese exchanges. At one point in mid-August, the South China Morning Post reported that this discrepancy had hit 23 per cent – with equities worth $5.8bn purchased over a three-week period.

Some Hong Kong shares have been hit harder than others. MTR, the company which operates the city’s subway network, has seen its share price fall by 18 per cent since July. This, in part, can likely be attributed to the fact that several of its stations have been repeatedly targeted in the protests. Hong Kong mall owners such as the Wharf Real Estate Investment Company have also been affected, with its share price tumbling by 30 per cent from its year-to-date highs at the time of writing. The unrest has prompted a retail slowdown in the city, with shopping complexes being left eerily empty as shoppers stay away for fear of getting caught up in the violence and merchants put expansion plans on pause.

Tourism figures make for equally grim reading. According to official figures from the Hong Kong Tourism Board, there were just 3.1 million visitors in September 2019 – a 34.2 per cent decline from the same month in 2018. Arrivals fell sharpest from other parts of Asia – with a 90 per cent drop in the number of once-popular tour groups coming to visit from China.

What’s going on in Hong Kong: the future

Despite the gloomy economic picture, some analysts argue that investors currently have an excellent opportunity to invest in Hong Kong shares because many decent companies are undervalued. However, others have warned that this wouldn’t be without risk. As one fund manager at Beijing Axe Asset Management Co. told Bloomberg: “We don’t see things taking a turn for the better, and it would be a waste of time just letting money sit in Hong Kong.”

Council elections that normally attract an exceedingly low turnout generated immense interest in Hong Kong in mid-November, with the result being regarded as a barometer for whether the city’s residents still support the pro-democracy movement. Irrespective of what happens, protesters have shown they have the stamina to continue hitting the streets – seemingly at whatever cost. Given how there is no central organisation behind the demonstrations, it could also prove hard for Ms Lam’s administration to get around the negotiating table.

Perhaps the biggest unknown of all is whether or not Beijing’s relatively hands-off approach to the crisis will endure. Any mainland decision to launch a crackdown on the dissent – perhaps by sending in the troops – would prove risky, worsening the situation on the ground and further inflaming China’s already fractured relationships with the West.

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