Hong Kong needs to tap into Asia’s growing middle class for brighter future

The city’s stock market and tourism industry have taken a battering while the wealth gap is widening
However, with over a billion people in Asia expected to join the middle class by 2030, stimulating growth, Hong Kong is uniquely positioned to reap the benefits

Bernard Chan

Published: 9:30am, 23 Feb 2024

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The Year of the Dragon is widely believed to be auspicious. For the first time since 2019, we celebrated Lunar New Year with a fireworks display over Victoria Harbour, which attracted some 340,000 people, and the feel-good factor momentarily returned to the city.

As we look to the coming year, new challenges will arise, adding to an economic downturn that has been painful and prolonged. But the people of Hong Kong possess remarkable strength and resilience, and they understand that economic cycles are often tumultuous but not unique to our city.

While much doom and gloom is directed towards Hong Kong in the international media, the economies of many of our international trading partners are in much worse shape.

Last year, Hong Kong’s economy grew 3.2 per cent, rebounding from a contraction of 3.7 per cent in the previous year. While the official forecast for this year is set to be announced with the budget, the Economist Intelligence Unit is predicting 3.2 per cent again for this year.

By comparison, the International Monetary Fund expects the global economy to grow 3.1 per cent this year, revising its forecast upwards on stronger-than-anticipated performances by China and the United States. It expects China to grow 4.6 per cent, and the US by 2.1 per cent. Meanwhile, two G7 economies, Britain and Japan, fell into recession at the end of last year.

Compounding Hong Kong’s doom and gloom are geopolitical tensions, a challenging property sector and weak consumer demand, which have forced some money managers to divest from the stock market, resulting in the Hang Seng Index dropping below the psychological threshold of 15,000 points at one point.

The index has fallen below this level before, in 2003, during the severe acute respiratory syndrome (Sars) outbreak, in 2008 during the global financial crisis, and in 2022 during the Covid-19 pandemic. We now need policy changes from the central government to restore confidence and sustain a smooth recovery.

One of our most noticeable problems is the tourism downturn, which has heavily affected retailers and devastated the hospitality sector.

The good news is that visitor numbers over the first eight days of the Lunar New Year surpassed 2018 levels. Unfortunately, many were budget travellers on day trips from the mainland – who have a minimal impact on the local economy – and overseas visitors remain low.

The government must take measures to stimulate the sector by, for example, reducing the cost burden on visitors and lobbying Beijing to reduce travel restrictions while raising the tax-free shopping allowance from 5,000 yuan (US$695) per visit to Hong Kong to a more realistic figure.

04:36

Hongkongers hunt for roast chicken, soap and more bargains at US warehouse store in mainland China

Increasingly, locals and tourists believe that Hong Kong is too expensive and that much better value exists in many other cities around the region. This is evident by the increasing number of locals crossing the border daily for shopping and entertainment.

According to Forbes, we are the world’s fifth most expensive city. This is linked to residential and commercial property prices reflecting years of solid demand from residents and international investors, and our high standard of living. But property prices are falling and this will filter into the economy.

Unfortunately, the disparity in wealth is widening. In the first quarter of last year, Oxfam Hong Kong found that a staggering 20 per cent lived in poverty. This is unacceptable, and adequate provisions are required to provide economic opportunities and support to all members of society. This is not unique to Hong Kong; later this year, the government plans to change its methodology to measure and better respond to poverty in the community.

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A glimpse inside Hong Kong’s notorious subdivided homes

Amid these challenges, prudent fiscal policy is required to maintain solid economic growth and low unemployment. We must continue to focus on infrastructure development and invest in affordable housing, education and human capital.

Our international connectivity, stable political environment, effective governance and the rule of law give us the tools to take advantage of the economic opportunities in the world’s most dynamic region.

China has been a critical driver of middle-class growth since the turn of the century, and this is expected to continue. Over a billion people in Asia are expected to join the middle class by 2030, stimulating economic growth in the world’s largest market. Hong Kong is uniquely positioned to reap the benefits and play an influential role in this transformative phase. Despite the challenges, a bright future lies ahead.

Bernard Chan is a Hong Kong businessman and former Executive Council convenor