Special Report - Hong Kong Protests: The Business Impact
11 August marked the 10th consecutive week of protests in Hong Kong
The ongoing protests were sparked by the tabling of a Chinese extradition bill by the Hong Kong Special Administrative Region, which has since been indefinitely suspended
Businesses have begun to report the impacts the protest action has had on performance, both domestically and internationally
Protests are becoming increasingly disruptive, with flights being cancelled in and out of Hong Kong International Airport on 12-13 August after thousands of protesters staged a mass demonstration in the airport
Large-scale protests and demonstrations have been occurring in Hong Kong since early June. The unrest was sparked by opposition to the tabling of a new extradition bill by the Hong Kong Special Administrative Region, led by Chief Executive Carrie Lam. However, last month, protesters began to clash with the Hong Kong police, which has since resulted in hundreds of injuries. Whilst Lam has suspended the proposed bill indefinitely, following pressure from the ongoing protests, demonstrators continue to call for the bill to be completely withdrawn, as well as an independent inquiry into police brutality against protesters and the resignation of Lam herself.
Since the protest action began, political and business analysts have been monitoring the impact that the unrest has, and could have, on business operations in Hong Kong. Until the anti-government movement began, Hong Kong has been widely regarded as an international financial hub, and has been a location of preference for foreign investors and businesses. Significantly, Hong Kong facilitates access to China’s markets, but with the benefit of more relaxed laws and regulations. Hong Kong is regularly ranked as one of the easiest places to do business. However, since the protests began, 22 countries have issued travel advisories for Hong Kong, including some of the Administrative Region’s largest trade partners, including the UK, Australia and the US. As such, businesses are starting to consider the implications of continued unrest on their operations.
In a notable escalation, on Monday 12 August, thousands of protesters descended on Hong Kong International Airport’s arrivals and departures areas, prompting the airport authority to cancel all inbound and outbound flights beyond 16:30 local time. Following the return of the protesters the next day, outbound flights continued to be disrupted, with more than 300 flights cancelled in total. Violent clashes erupted between protesters and riot police, resulting in several injuries, before police were able to clear most of the airport of demonstrators. Hong Kong International Airport is one of the world’s busiest airports and the impact of the protests on its operations is in turn likely to affect both tourism to Hong Kong, as well as its use by business travellers.
As the protest action begins to impact on Hong Kong’s public transportation sector, including increasing violence being experienced on the metro network, a notable impact is also being witnessed on the business sector – both locally and internationally. Consequences of the disruptions have been listed as losses of revenue, disrupted supply chains and abandoned investments. Of note, several executives from international businesses have been raising concerns over the impact the unrest is having on performance, as well as forecasting future declines. Within Hong Kong, this has been more significant for the tourism and retail sectors.
Cathay Pacific Airways’ CEO, the flag carrier of Hong Kong, reportedly stated that flights to Hong Kong were down over the coming months, as a consequence of the recent anti-government protests. Further, hotel chains have been reporting reductions in bookings since the protests hit the international media. Business travellers form a significant portion of Hong Kong’s flight and hotel bookings, usually as stopovers for long-haul flights between the East and the West. However, the recent disruption to Hong Kong International Airport is likely to leave business travellers considering alternative destinations, as well as safety concerns prompted by the recent travel advisories.
In the retail sector, the Hong Kong administration reported that sales declined by 6.7 percent in June, from the previous year, a figure that is not expected to grow in the short-term, due to the ongoing uncertainty of the protests, coupled with tourism shrinkage.
For international businesses, the unrest has prompted difficult decisions, including how to manoeuvre the political sensitivities between China and Hong Kong. A number of businesses have felt the need to show alliance with one or the other. Of note, the luxury Italian fashion house, Versace, this month had to issue an apology after it listed Hong Kong and Macau as independent countries on one of its t-shirts, following outrage from Chinese consumers. Boycotts from either Chinese or Hong Kong consumers could be detrimental for a business, and could lead to alienation from portions of each market.
Unfortunately, for businesses and organisations located within Admiralty, one of the most affected areas by the protests, as well as Hong Kong’s Central Business District, the impact of the protests have been substantial. Some shopping centres in the area have gone to the extent of creating signage, barring police officers from entering the premises, with the hopes this will prevent serious clashes between protesters and police, which has resulted in extensive damage to properties.
Hong Kong officials have raised concerns for the long-term impacts of the protest movement on Hong Kong’s economy and employment rates. Should there be a significant impact to the economy, including the tourism sector, it is possible businesses will need to reduce employment figures. This in turn would raise the unemployment rates and would likely further drive frustration among Hong Kong’s youth. It is too early at this time to fully assess the impacts of the disruptions to Hong Kong International Airport; however, it is likely to have a lasting effect on business travellers who were impacted by the delays.
The role of China cannot be ignored when discussing the impacts and implications of the protest movement in Hong Kong. On 12 August, following a weekend of violent clashes and a three-day demonstration in Hong Kong International Airport, China’s rhetoric towards the protest action intensified. During a press briefing, a spokesperson for the Hong Kong and Macao Affairs Office of the State Council stated violence towards Hong Kong police by protesters “shows the first signs of terrorism emerging”. The decision to remark that the protests are demonstrating signs of ‘terrorism’ has raised concerns that additional powers could be introduced to address the protest action.
There is indication that businesses and investors are planning exit strategies from Hong Kong and are looking at business continuity plans (BCP) in case the situation deteriorates. For daily operations, some businesses have reportedly been exploring the risks the unrest pose to personnel commuting to work, particularly since the metro network has witnessed incidences of violence. As such, businesses have begun implementing measures such as remote working.
Whilst China, under its ‘One country, two systems’ rule, expresses intention to exert greater controls over the Administrative Region, it should be noted that the prosperity of Hong Kong and its role as a link between China and global economies relies on the view that it has a level of separation from mainland China. The Chinese administration will want to continue to present this image of autonomy in Hong Kong, which would be eroded by a heavy response from mainland China. This would be against China’s interests and would spark a major loss of confidence, prompting international businesses to pull out of Hong Kong. It would also provoke negative diplomatic responses from the international community.
Nevertheless, concerns have been heightening regarding the possibility of Chinese military intervention in Hong Kong, namely following the release of a military exercise video on 31 July by China’s People’s Liberation Army’s (PLA) Hong Kong garrison. Whilst Chinese military intervention remains a last resort, if it were to occur, it would prompt businesses and investors to withdraw from Hong Kong with immediate effect. Essentially, an extreme response from China would signal a fundamental shift in the dynamic between mainland China and Hong Kong, which would be the main factor behind the reaction from businesses and investors. Nevertheless, there has been no substantial capital outflow at this time and it appears that investors are waiting out the developments before taking any significant action. Regardless, the economy continues to be affected by the ongoing unrest in addition to uncertainty surrounding the situation, which will worsen with prolonged unrest and uncertainty.