Has Hong Kong become a failed state?

Hong Kong cannot protect its citizens, provide basic services or command the trust of its people, and it is failing to provide the safety and stability that a global financial centre needs.

Hong Kong is failing to provide the safety and stability a financial centre needs

Hong Kong is starting to resemble a “failed state”, says Clara Ferreira Marques on Bloomberg. There is “palpable anxiety” in the coronavirus-hit city, where a bungled official response, shortages of masks and toilet-paper panics remind me of Russia during the “chaotic summer of 1998”. A failing state is one that cannot protect its citizens, provide basic services and command the trust of its people. With the city reeling from anti-government protests, it “is ticking most of those boxes”. 

Advertisement - Article continues below

The city is failing to provide the safety and stability that a global financial centre needs. The contrast with Singapore is stark: the prognosis for Hong Kong’s “future as a financial hub looks poor”. 

Last year’s protests and a sharp decline in tourism had already pushed Hong Kong into recession, with GDP contracting 2.9% year on year in the final quarter of 2019. Now the coronavirus epidemic is making things even worse. UBS bank analysts predict a year-on-year fall of over 6% in the first quarter of this year, says The Economist. The local Hang Seng stock index is down more than 3% since 1 January and property prices are 5% below their peak. The risk now is that “speculative capital might quit the market and the city”. Falling property prices would put pressure on the banking system. 

Meanwhile, the loss of international and mainland visitors is inflicting a “double devastation” on local retailers, notes The Guardian. While the number of coronavirus cases in Hong Kong is relatively low for now, a more serious epidemic risks triggering a Wuhan-style lockdown. Macau and Thailand, where Chinese arrivals account for 2.7% of GDP, are also vulnerable, says Trinh Nguyen of Natixis. Other economies in Southeast Asia with significant Chinese tourist traffic include the Philippines and Vietnam.



China's economy

China’s economy to shrink for the first time since 1976

China may now be on course for its first quarterly contraction since 1976, with Goldman Sachs predicting a 9% plunge in first-quarter economic activit…
20 Mar 2020
China's economy

Is China heading for a secret recession?

The shutdown sparked by the coronavirus outbreak could put China at risk of a “secret recession”.
25 Feb 2020
China's economy

Investors eye up a new round of Chinese stimulus

Chinese policymakers have announced new stimulus measures to contain the fallout from the coronavirus. Asset managers are already positioning themselv…
6 Feb 2020
China stockmarkets

China's feverish stockmarket weighs the cost of the coronavirus

China’s stockmarket fell by 8% in one day – the biggest daily fall in more than four years. But investors shouldn't panic.
6 Feb 2020

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020