A Look At The Economic Costs Of The Protests In Hong Kong
AILSA CHANG, HOST:
For the last 10 weeks, protesters in Hong Kong have been pushing back against a law that would have allowed extradition to mainland China. Authorities in Hong Kong say that proposed law is off the table now, but the protests have morphed into complaints about police brutality and China's control over Hong Kong. And at Hong Kong's airport, protesters were back today, causing hundreds of flights to be canceled or delayed. And there were minor clashes with a small group of riot police.
MARY LOUISE KELLY, HOST:
Now, that airport contributes about 5% of Hong Kong's GDP. So what are the economic costs of these protests? We reached out to Dan Ten Kate - he's an editor for Bloomberg Asia based in Hong Kong - and asked if its reputation as a stable business hub is being damaged.
DANIEL TEN KATE: Yes, certainly. And in fact, that's probably the biggest cost to Hong Kong. It's just that reputation for the rule of law and order and just being a safe, stable place to put your money if you're a foreign company and you want to have a foothold in China but you don't really trust the Chinese laws. Hong Kong is just known for its independent legal system, and that's part of what sparked the protests to begin with.
The irony in that is probably that the protests and the fact that there's such lawlessness in Hong Kong at the moment has also undermined Hong Kong's reputation for the rule of law and is making foreign companies and foreign investors and just expats in general think twice about living here.
KELLY: Any examples you can point to of foreign investors who are maybe starting to think twice about putting their money there?
TEN KATE: We've heard from several fund managers who have lived here and who are thinking about moving to places like Singapore or London if things get worse. You know, as far as investors wanting to leave, it's still pretty early days. I mean, we're about 10 weeks in, so people aren't really jumping ship as of yet. But certainly, people are making contingency plans to do so.
KELLY: Give us a sense of the potential ripple effect on China's economy but also on the world economy. I was reading Hong Kong's stock market is the world's fourth-largest. I was surprised to read it's bigger than London's.
TEN KATE: Yes. And many Chinese companies - and many state-run Chinese companies look to the Hong Kong market to raise money. China has its own capital controls, which makes it difficult to move money in and out. And Hong Kong is a place where many companies can come easily set up shop and have access to a lot of the world's investment market.
We have seen the stock market down, you know, $500 billion in value from the start of the protests. So the market value has definitely shrunk as investors assess the impact on earnings from these protests. And the longer it drags on, the more that will be in jeopardy.
KELLY: So how - from an economic point of view, setting the politics aside for a moment - how worried are officials in Beijing and mainland China as they watch events play out in Hong Kong?
TEN KATE: Well, certainly they're worried. You know, they're already facing trade war with the United States that's brought growth on the mainland to its lowest in a couple decades. Hong Kong is a dilemma for them. If they go in tough, they face the prospect of more sanctions that could hurt the mainland economy.
And then they've got Hong Kong's own economy to deal with. Fifty-eight percent of China's outbound investment, including for the "Belt and Road" initiative, which is signature policy of President Xi Jinping, has been channeled through Hong Kong. So the diminished economy into Hong Kong and GDP in the city itself fell by 0.3% in the second quarter. You know, that could be a drag on overall growth as well.
KELLY: And what are the next numbers at?
TEN KATE: The next numbers - it remains to be seen. Hong Kong leader Carrie Lam warned that what Hong Kong is experiencing now is actually worse than the 2008 global financial crisis. And she's pledged some bold measures to kind of prop up the economy. She hasn't given any details on those yet. But in the past, it's involved some sort of stimulus.
KELLY: That is Daniel Ten Kate, editor for Bloomberg Asia, speaking to us from Hong Kong about the economic impact of protests there.
Daniel, thank you.
TEN KATE: Thank you.
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