Successfully investing in Hong Kong (S.A.R.)

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last updated on 27 May 2020 | reading time approx. 4 minutes

 

 

 

How do you assess the current economic situation in Hong Kong?

Already at the beginning of the second half of 2018, there were signs of an economic slowdown, which, fuelled by the effects of the US-China trade war, violent protests and the global economic slowdown as a whole, gained considerable momentum in the third and fourth quarters of 2019, driving Hong Kong into recession for the first time since 2009. With the outbreak of the coronavirus crisis in January this year, the already tense situation has deteriorated considerably. Especially industries such as tourism, retail and local gastronomy have been heavily affected. It remains to be seen to what extent the measures introduced by the government to support and revive the economy are suitable for cushioning the effects of the protests and the global pandemic.
 

How would you describe the investment climate in Hong Kong? Which sectors offer the largest potential?

The major focus of investment so far has been on infrastructure measures with top priority given to Hong Kong's construction industry. Prime Minister Carrie Lam has put the creation of affordable housing and social housing at the top on her agenda. Coupled with large-scale projects – such as the completion of a high speed railway between Hong Kong and Guangzhou, Guangdong Province on the Chinese mainland, in 2019 or the Hong Kong-Zhuhai-Macau bridge project in 2018 – construction activity is expected to remain at a high level, although multi-billion mega-projects such as the planned Lantau Vision Tomorrow land reclamation project, are likely to be postponed for now.

 
Furthermore, the city should continue to develop as a location for innovations and start-ups; also numerous incubators and accelerator programmes have already sprung up in Hong Kong. Some start-up and up-and-coming businesses from the high- and fin-tech sector have meanwhile already made a name for themselves on global markets.

 

As regards e-commerce, recent studies show that demand for online shopping in Hong Kong continues to grow rapidly, although the base level was still lower than in the Chinese mainland.

 

In addition, the study results show that accelerated and more cost-effective delivery processes could encourage Hong Kong consumers to switch from offline to online shopping even faster. Furthermore, consumers call for more customised products and a better shopping experience, e.g. with showrooms, where they could have a closer look at the offered products before deciding whether to buy them.

  

What challenges do German companies face during their business ventures into Hong Kong?

It is not always easy to find and also to retain highly qualified local staff. The cost of living - especially rental fees - is extremely high in Hong Kong.

 

The salaries have therefore sky-rocketed, putting foreign companies under enormous pressure. In addition, neighbouring Chinese cities – such as Shenzhen – have developed into megalopolises, becoming a rival market to Hong Kong's employers. Tech giants like Huawei and Tencent are headquartered there and have become a particularly hip workplace especially for the younger generation (keyword GenY). As elsewhere, also here it is important to overcome mentality differences and cultural barriers, which requires greater social skills from companies' expert and managerial staff.

 

Will Hong Kong need to face pro-democracy protests again? If so, what would be the consequences?

I'm afraid we can assume that. With the outbreak of the global pandemic, which Hong Kong – compared to many other countries – has so far mastered truly in a skilful way, the protests have largely died down, but the demands of the protesters, for example those concerning more democratic participation, have not vanished into thin air. Consensus-based approaches to solutions, even for more deeply rooted causes of this complex conflict, such as the notorious lack of affordable housing, which the government is unable to bring under control but which year after year lags behind the goals the government has set itself, great concern about an increasing loss of autonomy among a large part of the population as well as the undermining of existing rights by mainland China, are not yet in sight; rather, both sides of the conflict rather focus on the demonstration of strength.

 

The consequences of this process are currently impossible to predict and we do not expect that the current government under the guidance of the central government in Beijing will yield to any further demands of the protesters. However, we consider a military intervention by mainland China, which has so far acted with reserve in this conflict, to be very unlikely at the present time. Mainland China has learned its lessons from the events of 1989 and thus the economic damage caused by a military intervention would be incalculable for China.

 

Although there have been isolated discussions among the public about possible solutions, such as the earlier extension of the city's autonomy status, officially ending in 2047, which could help deescalate the conflict, these considerations do not yet seem to have really reached the consciousness of decision-makers.

 

In your opinion, how will Hong Kong develop?

We are confident that Hong Kong will maintain its unique position as a trading and financial metropolis and will ultimately emerge stronger from the current turbulences. However, this requires a consensus-oriented dialogue between all involved parties in the near term, as well as a watchful eye on the part of the government as to whether the purely reactive measures taken in the course of the global pandemic are suitable for providing the necessary economic stimulus. If this succeeds, Hong Kong will be able to maintain its unique position as a gateway to China, as capital and information will continue to flow more freely than in mainland China.

 

Economic ventures will therefore continue to bring numerous advantages to investors. It is not without reason that Hong Kong repeatedly defended its title as the “freest economy in the world” from 1995 to 2019, which made it the number one in the global rankings. Moreover, the connection to the Pearl River Delta Mega-City Project, with the concentrated economic power of 60 million people and a share of the total Chinese GDP of well over 10 per cent, offers unimagined business opportunities, which will give a breath of fresh air to the business in this port metropolis in addition to Hong Kong's participation in the Chinese “Belt and Road” initiative.

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