Hong Kong’s financial alarms are ringing louder, after emergency laws invoked on Friday triggered a weekend of violent clashes. Local currency is already being swapped for greenbacks. Hopes of a negotiated solution are fading, fuelling human and capital flight.
The Chinese-run territory’s prior experience with disasters, both natural and financial, shows a degree of resilience. It weathered the Asian currency crisis in 1997, successfully fending off an attack on its currency. Even so, the shock pushed the city into recession, and in 2003 a respiratory epidemic did similar damage. The house price index fell by a nearly third between 1998 and 2005. But the city bounced back.
Until this weekend, ordinary life was only slightly disturbed by unrest, set off four months ago by proposed legal changes that would have allowed suspects to be sent to China to stand trial. People were able to shop and commute. Over the past few days, that changed.
After Chief Executive Carrie Lam implemented colonial-era emergency powers, banning masks at protests, demonstrators took violence to a new level. They trashed subway stations, ATMs, and the branches of mainland businesses over a three-day weekend.
Many large malls, retail chains and supermarkets closed their doors or shortened their hours; the rail operator MTR Corp closed the entire system on Saturday, and it remains hobbled.
Residents reacted with alarm. Long queues formed at open grocery stores, and at ATMs. The Hong Kong Monetary Authority came out to reassure the public that the supply of banknotes remains enough to meet demand.
The risk is that popular anxiety proves infectious. The city’s credit rating has already been downgraded by Fitch. Goldman Sachs estimates that $4 billion departed from Hong Kong for Singapore over the summer; manageable but hardly reassuring.
August data showed local currency deposits shrank 1.6 per cent month-on-month, while US dollar deposits rose 2.7 per cent. Hard currency reserves posted a surprise $16 billion drop for that month.
Human capital may soon follow. Hong Kong residents rely heavily on the subway system, and more security measures would similarly impinge on daily life.
Anecdotal evidence suggests departures are already increasing, among expatriate executives but also locals. The more people press the panic button, the more will queue behind them. — Reuters
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