To gauge what is happening in Hong Kong at the moment, you only need to take a look at the streets. Business has slowed to a crawl, with numerous retail establishments cutting back on operating hours or having suspended activities completely. Crowds are also noticeably thinner, with most of the population undergoing voluntary isolation or reducing out-of-home activity as much as possible. 

This is amid the fifth and worst wave of the Covid pandemic, which has contributed to record-breaking caseloads and deaths. Hong Kong’s Covid-related social restrictions – already among the most stringent in the world – have been further tightened, with the Government declaring the latest crisis as a “war.”

According to Google’s Community Mobility project, which publishes data on changes in volume and visit duration for a variety of venues, visits by Hong Kongers to retail and recreation sites were down by 30% and 43% respectively in February and the first sixteen days of March, compared to pre-Covid levels. Although working from home and online shopping have become more commonplace since the pandemic’s onset, foot traffic remains a critical measure of economic activity and consumption. It goes without saying that the substantial decline in footfall caused by the current wave has dealt a body blow to brick-and-mortar stores.

Decline in shopper traffic is, however, not universal. In the case of supermarkets and pharmacies, patronage volumes jumped by 32% and 10% respectively for the same periods as mentioned in the preceding paragraph, relative to pre-Covid levels. The shopping frenzy was sparked by concerns over the possibility of a city-wide lockdown taking place in March. As a result, people flocked to stockpile groceries and essential goods, emptying shelves and often waiting in hours-long queues in the process, despite repeated reassurances by officials of adequate supplies. 

The surge in panic buying, which was further compounded by postings on social media, also overloaded e-commerce sites as online businesses struggled to cope with the unprecedented volumes. From the perspective of behavioral economics, the reaction appears quite rational and understandable, given the high degree of uncertainty over what the future holds.

Omicron will inevitably delay the long-awaited border reopening, which will have knock-on effects on business confidence as hopes for a return to normality are further deferred. Against the backdrop of the latest pandemic developments, the Hong Kong General Chamber of Commerce has revised downward its 2022 economic forecast for Hong Kong’s real GDP to 1.2% from the 2.8% made in December. The Hong Kong economy is expected to suffer a loss of approximately HK$45 billion this year as a result of the latest wave.

To its credit, the Government is doing its utmost to shore up the local economy. In his recent Budget unveiled on 23 February, Financial Secretary Paul Chan put forward a range of fiscal initiatives that also included a new round of the electronic consumption voucher scheme aimed at countering the economic fallout caused by the tightening of social-distancing rules. 

While the scheme is expected to provide a lifeline to many households, especially those at the grassroots level, it is likely that the lion’s share of the spending will be directed at daily necessities (as opposed to discretionary purchases) because of the scale and severity of the fifth wave. Although unintended, supermarket chains could become the main beneficiaries instead of the corner mom-and-pop stores.

An interesting feature in this year’s Budget concerns the Government’s attempt to use fiscal policy to promote social equity. One of these is the proposal to impose a rental enforcement moratorium for tenants of specific sectors. The other concerns a “progressive” rating system for domestic properties, with emphasis placed on the “affordable users pay” principle. 

While the idea of “progressive” taxation may be deemed “fair” – with the affluent being subjected to higher taxes, especially in the context of the widening divide between the haves and have-nots – there are also downsides with such interventions. Negative effects that mainly centre on disincentives to work, invest and innovate could eventually result in a shrinking of the proverbial economic pie, a development that runs counter to such well-meaning policies. 

This is not to say that a balance cannot be struck between economic gains and the equitable distribution of wealth. It is, however, incumbent on society to consider and debate the definition of a “progressive” taxation regime before major changes are made to our established tax system.

Hong Kong is renowned as a place where “East meets West.” However, the world has become more polarized as it enters another iteration of the Cold War. Economic systems and trade are becoming increasingly weaponized as international relations sour. Amid such geopolitical complexities, the ability to preserve our capabilities as a super-connector between Mainland China and the rest of the world will only become more challenging. This is expected to be aggravated by a worsening talent flight – a worrisome development, based on findings from a Chamber survey conducted in January (and addressed in this column in the March issue). 

Unless concrete measures are taken, and quickly, Hong Kong could be staring down the barrel of a manpower crisis with severe repercussions on our predominantly service-driven and knowledge-based economy. By then, our reputation as “Asia’s world city” could be all but in name. 

Wilson Chong
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