Has Hong Kong become a failed state?

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

(Image credit: Pavliha)

published 14 February 2020

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”.

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.

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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.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.