Lawrence J. Lau

How Hong Kong can reboot its economy amid the devastation of coronavirus and social unrest

The government must invest in projects employing local labour, to turn around public sentiment. Hong Kong can’t afford to wait for the free market to act, or for tourists to return. Other priorities include housing and the Greater Bay Area

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A view through a window of office workers in the financial district of Central. Hong Kong faces changed circumstances and things will never return to the way they were. Photo: Nora Tam

Lawrence J. Lau

Published: 6:45am, 2 Jan 2021Updated: 7:35am, 2 Jan 2021

The year 2021 can and should usher in a new beginning for Hong Kong. The Hong Kong economy suffered greatly for much of 2019 from the social unrest and for all of 2020 from the Covid-19 pandemic. Things will never return to the way they were. Hong Kong faces changed circumstances, with new challenges but also new opportunities.

The Hong Kong economy has undergone huge changes over the past 40 years. Today, Hong Kong has become a predominantly service-oriented economy, focusing on financial and professional services and tourism, and does no manufacturing any more.

Its role as an entrepot port has declined substantially. Its real estate and construction sectors still prosper, but only because of the artificially limited land supply.

Relative to the mainland, the Hong Kong economy has shrunk significantly, from one-seventh of the mainland’s real gross domestic product to less than 3 per cent between 1978 and 2019. Going forward, the mainland economy is expected to grow twice as fast as Hong Kong for the coming decade.

The mainland economy itself has also undergone enormous changes. It has become not only the world’s factory, but also the world’s market. It has transformed from export-driven to internal demand-driven. It no longer relies on export surpluses or inflows of foreign direct investment. Chinese outbound investments have also been falling since 2016.

There have also been significant changes in the external environment. The US-China strategic competition (or even rivalry) – which began with their trade war in 2018, then continued with the Hong Kong social unrest, the disagreement over the origin of the Covid-19 virus and the imposition lately of various sanctions – is, unfortunately, the “new normal” for at least the next decade.