Every cloud has a silver lining. After enduring two challenging years since the pandemic roiled the city, recent signs of recovery suggest Hong Kong’s economy will gather steam in 2022 despite the fact that market uncertainty lingers.
The Hong Kong government announced that the city’s economy has expanded 6.4 percent last year, after it contracted 6.1 percent in 2020. The strong reversal was attributed to the double-digit growth of exports of goods through the year, along with the recovery of private consumption expenditures, improved labor market conditions, and the launch of the Consumption Voucher Scheme.
Looking ahead, the Hong Kong economy is expected to expand further in 2022, but the growth pace is subject to various uncertainties, especially those relating to the local epidemic development. The latest wave of the pandemic and the tightened anti-pandemic measures have posed renewed pressures on economic activities and weighed on sentiment. Local inbound tourism is still in the frozen stage.
Developments in the external environment also warrant attention. The global economic recovery, which should render further support to Hong Kong’s exports, is envisaged to slow in 2022. High inflation in some major economies may persist longer as a result of supply bottlenecks amid the evolving pandemic. While this development would increase pressure on local inflation, it could lead to a faster pace of monetary policy tightening by major central banks, with possible impacts on the global economy and financial market volatility. Developments in China-US relations and geopolitical tensions would also add uncertainties.
Hong Kong’s economic growth has been built on its openness to trade and its capital flows in the last few decades, which have helped the city secure a key position in the global supply chain. For the city’s economy to stay on a sustainable trajectory, the government needs to find new growth engines while doing its utmost to fortify the four traditional pillars of economic growth.
First, the financial services industry. The 13th National People’s Congress in March last year approved the 14th Five-Year Plan (2021-25), which supports Hong Kong’s strengthening its status as a global hub for the offshore renminbi business, asset management and risk management. Hong Kong should boost its financial-product choices, broaden its financial infrastructure, and deepen market liquidity to support these three functions. The recent inclusion of ETFs in the Shanghai-Shenzhen-Hong Kong Stock Connect, and the listing of ETFs based on the MSCI China A 50 Connect Index, are examples of such efforts.
To succeed, the city needs to ramp up harnessing innovation and technology to power its financial services sector. The Hong Kong Monetary Authority and People’s Bank of China signed a memorandum of understanding on fintech innovation supervisory cooperation in the Guangdong-Hong Kong-Macao Greater Bay Area recently; it will facilitate over 600 Hong Kong-based fintech startups launching their products and services across the border.
Then there are professional services as well as the trade and logistics sector. The Regional Comprehensive Economic Partnership — the world’s largest free trade agreement ever forged and which took effect in January — not only will boost regional trade but also open up some 65 percent of the service sectors to overseas service providers in financial, legal, construction and transportation services.
The RCEP will strengthen Hong Kong’s status as a regional hub for professional services. Hong Kong has accumulated a wealth of experience in international trade, and has a deep, diverse, bilingual and dual-culture talent pool, players in the professional services sector, as well as trade and logistics sectors that should capitalize on the RCEP to move up the value-chain ladder so that this can boost the long-term growth of these two sectors.
Finally, the inbound tourism sector. The outbreak of the omicron variant casts uncertainty on the prospects for the global economy and whether quarantine-free cross-border travel can be resumed. The fortune of the city’s inbound tourism industry very much depends on the pace of easing restrictions on cross-border travel.
Judging from these uncertainties, it is too optimistic to say Hong Kong’s economy is out of the doldrums. Moody’s Investors Service predicts Hong Kong’s long-term growth rate to stabilize at around 2.5 percent, below the average rate of more than 3 percent before 2019.
Therefore, Hong Kong needs both short- and long-term strategies to rekindle economic growth.
On the domestic front, Hong Kong’s government effectiveness and large fiscal reserves provide leeway to exercise prudent macroeconomic and fiscal policies to boost economic growth. With an adequate financial arsenal, the government is in a better position to mull whether to relaunch short-term strategies such as the consumption voucher program, and more funding to small and medium-sized enterprises to stabilize the labor market and domestic consumption.
Regarding long-term strategies, Hong Kong should take advantage of the recent economic recovery to sharpen the competitiveness of the financial services, professional services and the trade and logistics sector, and to embrace the new business opportunities unleashed by the 14th Five-Year Plan and the RCEP. Harnessing technology and innovation as well as talent nurturing are essential for enhancing competitiveness in the four pillar sectors.
Long-term strategies also include the promotion of the technology and innovation industry as the new growth engine.
Policymakers should also not lose sight of the grand picture: The Guangdong-Hong Kong-Macao Greater Bay Area. Deeper integration in the city-cluster area will allow for ease in the flow of people, capital, goods and services, which will unleash the growth potential of Hong Kong’s four pillars and the technology and innovation sector.
The author is a Hong Kong-based journalist.
The views do not necessarily reflect those of China Daily.