Hong Kong has been a financial gateway between east and west for many decades. However, Asia’s world city’s reputation has taken a big dent and one which will take years to disappear. Initially, the anti-government protests and now the ongoing coronavirus COVID-19 pandemic have ensured a state of recession for Hong Kong after almost a decade. The GDP has contracted 8.9% in the first quarter, as compared to the same time last year, making it HK’s worst economic annual performance since 1974.
The prolonged anti-Extradition bill protests have barred economic activities and many industries have fallen into a slump like tourism, real-estate etc. The government of Hong Kong has been trying to stimulate spending and revive GDP of Hong Kong through the use of various stimulus packages, but HKD’s peg to USD means that the figures are always low.
It is important to understand the concept behind the Stimulus cheques and why world governments are announcing cheques to deal with ailing economy. Global economy has been hit, and as per experts, this slump will be deeper than the 2008-09 crisis. People will not spend, to save their cash in times of crisis. Hence, the governments announce measures to stimulate demand by circulating more cash and boosting employment and eventually, the economy.
However, it is not always a win-win situation. There are many complications attached to it, and especially in a city like HK, where cash distribution is restricted to maintain the reserves and the currency peg. Also, it needs to be considered whether the intent is always met with the expected outcome, because consumer spending is not always guraranteed, especially in times of crisis, as explained by Velkarthik Anand, who is a final year economics major at the University of Hong Kong.
Anand talked about the importance of cash in crisis. He explains how cash is at a premium in these times and with increasing unemployment, people feel more compelled to save the money for later investment and spend only upon necessities.
This was in reference to the announcement in the Hong Kong budget regarding distribution of HK$10000 for all adult permanent citizens. The decision has been welcomed by the citizens, however they remain sceptical about the time which will be consumed in the entire process. Lau Ka Wan is a Hong Kong local. He believes that the process is “too slow”, and it will not be helpful to ones who live from “hand to mouth”.
He also expressed his concerns and doubts about the governments’ claim that it was difficult to distinguish between actual residents and immigrants. However, he refrained from arriving at any conclusion. When asked how he would deal with the money, he said that he was inclined towards saving it since he was not “a big spender” anyways.
Most of the world governments of the developed and developing world have announced stimulus packages for fuelling the economy and getting the supply chain back on track, including U.S.A., China, India, and Japan, to name a few. While the governments are trying to increase the purchasing power of the consumers and encouraging them to spend more, they also need to deal with reality, which is that unemployment levels are sky-rocketing in many of those countries.
Alone in USA, more than 36 million people have filed for unemployment since March. The jobless claims in UK increased by 70% just in April. With more people becoming jobless every day, the expectation of stimulating spending seems like a high hope.
Lau said that his family were not greatly affected by the pandemic, barring his brother, who is a swimming coach. Not to forget, in Hong Kong’s case, the unemployment rate has been increasing before the onset of the COVID-19 pandemic. It has been rising every month since November and has reached its peak since 2009. Hence, it becomes all the more important to address this issue, and to practically examine, whether the government measures are reaching out to the most vulnerable sections of the society.
Varun Nagar is an analyst at JP Morgan. He has observed the economic fall of Hong Kong very closely, and holds multiple factors responsible for the fall, including the slump in tourism industry, which was impacted by the protests and led to a drastic reduction of number of tourists visiting Hong Kong from mainland China. He, supports the handouts scheme by the government, which, according to him is a well though measure in the current times and can help people who will be not be able to sustain themselves in these testing times.HK GDP growth rate over years.
Other than the handouts scheme, the government has also opted for other stimulus techniques by enabling banks to lend more, so that more money is in circulation, along with focus on creation of new jobs and business cost reduction. The total stimulus package release by the HK government has already reached more than 9% of the gross domestic product of Hong Kong.
Varun also talked about various measures which the government could adopt to revive the economy and tackle unemployment. He believes that the most important thing right now, is to focus upon keeping the unemployment rates under check, by boosting investment and government consumption. He further explains that it can be done via building new infrastructure and subsidising goods and public services. He also raises an important point on income disparity and that government should focus more upon the low-income groups more than the ones who are capable of lifting themselves economically.
While the global economy is struggling to keep up pace in the wake of the pandemic, it cannot be denied that governments are coming up with various economic measures to lift the people out of economic distress. However, it is too soon to say if they will be successful in their measures because the implementation of these measures is a time-taking process which will require planning and resources.
The challenge for the Hong Kong government is even harder, considering the lack of trust of the citizens in the government. Hence, every step the government takes will be scrutinized by the people, and it remains to be seen if the people will correspond to the government’s actions with their support.