More than two and a half years of the Covid-19 pandemic and ensuing restrictions have exacted a heavy toll on Hong Kong and local businesses. According to the International Monetary Fund, Hong Kong is projected to rack up a cumulative GDP loss of HK$1,900 billion over the five-year period from 2020 to 2024. To put this into perspective, the Lantau Tomorrow Vision project is estimated to cost approximately HK$600 billion.
As a small and open economy, Hong Kong is expected to be badly affected, due to the sustained effects of closing its doors to contain the coronavirus. This is borne out by findings from a Chamber survey conducted in May, when an overwhelming majority (86%) of respondents said that their businesses have been “highly” (22%) or “very highly” (64%) affected by the imposition of travel and quarantine rules since the outbreak in 2020 (Figure 1).
The isolationist nature of the city’s Covid policy inevitably translates into constraints on commercial activities. As restrictions continue to hold sway, these have undercut businesses’ ability to conduct face-to-face meetings with overseas clients, which have in turn impacted both existing relationships and new opportunities (Figure 2).
Although the pandemic has fast-tracked the use of online tools and virtual meetings, these are no substitute for in-person interactions, especially in instances where physical examination of a product is required.
Travel restrictions are also impeding companies’ ability to maintain normal operations due to the loss of staff. Another example of costly disruptions is project delays caused by interrupted access to specialized technical support that is only available from trained personnel based overseas.
As most jurisdictions have already relaxed their Covid response strategies, there are growing questions among businesses over the viability of maintaining a presence in Hong Kong. This is reflected in the Chamber’s survey findings, where a total of 38% of respondents said that they had already adopted plans to relocate from the city (21%), or were making plans to do so over the coming months (17%) (Figure 3).
Among these, 63% described such a move – often accompanied by the loss of talent and expertise – as being “both temporary and permanent,” while 14% said this was long-term (Figure 4). This is a worrying development because the trend could snowball due to the clustering effect – a phenomenon where companies from the same industry come together to enjoy economies of scale and reap the benefits of higher productivity and synergistic innovation. As companies abandon Hong Kong, irreversible damage could be wrought on our standing and function as a premier business and financial centre.
To stave off such a development, urgent action is needed to reopen borders and normalize international connectivity. This is borne out in the survey findings, with some 73% of respondents who were making relocation plans indicating their willingness to reconsider their decision to leave if Hong Kong were to ease its travel and quarantine requirements. However, that still suggests that as many as 27% of companies will not return (Figure 5).
The recent shortening of the mandatory hotel stay for incoming visitors, from seven to three days followed by four days of home medical surveillance, is therefore a positive development. That being the case, visitors without a home in the city will still have to reserve a room in designated hotels for the entire seven days of quarantine, although they may visit certain places like shopping malls and department stores during the surveillance period.
If international confidence in Hong Kong and connectivity with the rest of the world are to be restored, a further relaxation in restrictions is needed. This is supported by our survey findings where 82% of respondents said that existing quarantine requirements were “too stringent”. Nine out of ten (91%) respondents favoured quarantine-free entry, if travellers to Hong Kong were fully vaccinated and had presented a negative Covid test result prior to entry (Figure 6).
For businesses, the biggest concern was centred on the lack of a clear road map for the normalisation of travel activities, followed by uncertainties caused by fluctuations in social-distancing measures. These challenges were compounded by manpower shortages and the brain drain, problems that are especially acute for larger companies – a finding consistent with results from the Chamber’s Brain Drain survey conducted in January 2022 (Figure 7).
When asked about the priorities of the new administration, respondents said they hoped that Hong Kong would rebuild its image as an open, dynamic and international city with a phased approach to restoring normality through an initial re-opening of the border to the rest of the world, followed by the border with Mainland China. Another concern is “re-establishing international connections and promoting Hong Kong externally,” which the business community hopes the new term government will address as a matter of priority (Table 1).
The operating environment is fraught with uncertainties caused by a myriad of factors from within and without. As Hong Kong continues to be hammered by a perfect storm of prolonged Covid-related border controls and rising geopolitical tensions, the Chamber lowered its economic forecast for 2022 to -0.5% on 4 August, compared to its February estimate of 1.2%.
Hong Kong has a strong record of rebounding from crises and it is hoped that the city and its residents will be able to overcome the existing set of challenges. That being the case, these are unprecedented times. Hong Kong’s ability to pull off another comeback will depend on whether we can convince people and investors that the city remains a dynamic, inclusive and welcoming place to visit, study, work and live in.
Wilson Chong, [email protected]