People take photographs on an overcast day at the Tsim Sha Tsui waterfront on December 16. The city has been grappling with a sluggish economic recovery, weak consumption and falling stock and property markets. Photo: Xiaomei Chen
Opinion
Regina Ip
Regina Ip
As Hong Kong’s economy sputters, it’s time to face the new reality
The falling visitor numbers, increase in Hongkongers heading to the mainland and a patchy economic recovery call for a clear-eyed recognition of the changed business environment
The government must take a longer-term view and think hard about what sort of city Hong Kong will become in 10 to 20 years’ time
After a year of stability pockmarked by patchy economic recovery, Hong Kong’s financial secretary faces the triple challenge of weak local consumption, slumping stock and property markets, and the spectre of a structural fiscal deficit.
For an economy that has prided itself on the ability to chalk up hefty fiscal surpluses despite a low and simple taxation system, Hong Kong’s current predicament calls for a clear-eyed recognition of underlying trends and the changed business environment.
The government estimated about 34 million visitors came to Hong Kong in 2023. Although the numbers were higher than the 25.8 million visitor arrivals estimated by the Hong Kong Tourism Board in early 2023, the authorities were shocked to find far more Hong Kong people flocking to Shenzhen to spend their money than the other way round.
On December 23, at the start of the Christmas weekend, 435,661 travellers left Hong Kong for the mainland, more than 2½ times the 161,789 who came from the north. Likewise, on December 30, 299,713 people went north, substantially more than the 151,428 southbound visitors.
The northbound traffic has become so alarming that the government launched a “Night Vibes Hong Kong” campaign – night markets in various districts – to stimulate local consumption and tourist spending. Yet, despite officials’ best efforts, the contribution of such low-end economic activity to gross domestic product has been minimal.
The government cannot be faulted for striving hard to revive nightlife and domestic consumption, but it is far more important to grasp what this seemingly unstoppable trend portends. It shows that because of the strong local currency, high business costs and labour shortage, Hong Kong’s low-end consumer services are losing out to the mainland.
It also shows that Hongkongers have cast off their old worries about unsafe food, counterfeit products and poor law and order on the mainland, and embraced the better value offered by the goods and services there. With more cross-border road and rail linkages planned as part of the Northern Metropolis development, more Hongkongers will want to retire on the mainland or commute to Hong Kong for work on a daily basis.
04:36
Hongkongers hunt for roast chicken, soap and more bargains at US warehouse store in mainland China
Hongkongers hunt for roast chicken, soap and more bargains at US warehouse store in mainland China
The government must take a longer view and think hard about what sort of city Hong Kong will become in 10 to 20 years’ time. Will it be more like London or New York, where only higher-wage earners live in the expensive urban areas, while lower-income earners or retirees settle in nearby suburbs?
An irreversible process of integration of Hongkongers and their mainland counterparts is under way, despite occasional flare-ups of counteraccusations of discrimination or poor service by internet users on both sides of the Shenzhen River.
To maintain Hong Kong’s advantage in the Greater Bay Area, the government must formulate a population policy to attract and retain the talent the city needs to sustain its position as a global business and financial hub. It should also work out ways to enable those who choose to live in Guangdong and other parts of the mainland to do so more seamlessly and comfortably.
06:19
High hopes for China’s Greater Bay Area, but integrating 11 cities will pose challenges
High hopes for China’s Greater Bay Area, but integrating 11 cities will pose challenges
On the city’s fiscal position, Hong Kong has run a fiscal deficit every financial year since 2019-20. The fiscal deficit in the first eight months of the 2023-24 financial year was HK$164.1 billion.
Some believe that deficits are not a worry, as government spending cushions the economy from recession and investments in technology and innovation boost Hong Kong’s long-term future. Yet the government owes the people an explanation on whether the current deficit is transitory or structural, and a timetable for phasing out the fiscal deficit.
Stock markets are highly visible barometers of economic well-being. A continuous slump dampens confidence in Hong Kong’s ability to regain its shine as one of the world’s top financial centres. Low valuations stifle interest in initial public offerings, which in turn choke off demand for professional and business services related to public listings, mergers and acquisitions. A reduction of stamp duty on stock transactions does not go far enough.
The government ought to ask the Monetary Authority to revise its investment strategy and set aside a small percentage of the funds under its charge to buy good-quality stocks listed on the Hong Kong exchange and to use more Hong Kong asset managers. Only such decisive moves by the government can shore up confidence and stem the fall.
Likewise, the “new residential stamp duty” and “double stamp duty” for non-Hong Kong permanent residents ought to be scrapped. They were introduced more than 10 years ago by then-chief executive Leung Chun-ying as “demand-management” measures.
The problem now is not shortage of supply but shrinking demand. Demand from the market has been so weak that the Development Bureau is not offering any residential and commercial land for sale by auction in the first quarter of this year.
Though Hongkongers are wont to accuse the property tycoons of “property hegemony”, the drying up of revenue from land sales and premium modifications – premiums paid by developers for a change of land use – has sharply impacted the government’s revenue, and sent a ripple effect across many related sectors. Further declines could put the banking system under stress.
There is no need for the government to cling to outdated measures. It must move fast to scrap all remaining stamp duties on property transactions, and revise its investment strategy to boost confidence and investment income.
Regina Ip Lau Suk-yee is convenor of the Executive Council, a lawmaker and chairwoman of the New People’s Party
