Hong Kong’s economic challenges and sustainability concerns

Hong Kong faces economic challenges, including disrupted property markets, geopolitical tensions impacting trade, demographic shifts, and scepticism over infrastructure projects, prompting concerns about its economic sustainability.

Hong Kong’s economic trajectory post-COVID-19 has been marked by a less-than-anticipated recovery, influenced by an intricate interplay of various factors. The surge in local interest rates, prompted by successive rate hikes from the U.S. Federal Reserve, has cast a shadow on the once-lucrative residential property market, rendering it less appealing to investors. Simultaneously, the resilience of the local currency has ushered in a decline in tourism, with the number of visitors at a mere 65% of the 2018 levels, a concerning statistic even nine months after the city’s reopening.

Hong Kong finds itself ensnared in the geopolitical tensions between the United States and China. The resultant trade sanctions and technology controls have not only disrupted trade shares between these economic giants but also prompted a rerouting of goods, bypassing Hong Kong in favour of alternative routes through countries like Vietnam and Mexico. This geopolitical shift threatens the very essence of Hong Kong’s identity—a crucial gateway bridging the gap between the East and the West.

Underlying these challenges is a significant wage and price disparity between Hong Kong and its neighbour, Shenzhen. This has prompted residents to increasingly seek goods and services elsewhere, especially in Shenzhen, contributing to a growing integration of Hong Kong’s economy with that of Shenzhen.

Even demographically, an increasing elderly population, coupled with a decline in the birth rate—falling to a mere 0.77 in 2021, among the lowest globally—reflects a potentially troublesome future for the country. Intensifying this demographic conundrum is the outward migration of the younger populace to countries such as the United Kingdom and Canada, drawn by relatively straightforward migration pathways. This has posed a challenge to the city’s workforce.

Efforts to counteract this talent drain involve the importation of human resources from mainland China through various talent schemes, with over 100,000 applications already approved. While this strategy aims to mitigate demographic challenges, its long-term efficacy remains uncertain in the face of the city’s multifaceted economic struggles.

As Hong Kong grapples with these intricate challenges, the government’s response involves ambitious infrastructure projects, namely the Northern Metropolis and the Kau Yi Chau Artificial Islands. Despite Chief Executive John Lee’s optimism regarding the purported economic and social benefits of these ventures, scepticism abounds. Economic and political uncertainties, coupled with the projects’ considerable financing costs, raise pertinent questions. These further clouds Hong Kong’s economic horizon, prompting a critical examination of the sustainability of its current economic trajectory.