Hong Kong’s Turbulence to Persist as Protesters Ring in New Year

Iain Marlow, Shirley Zhao and Shawna Kwan
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Hong Kong’s Turbulence to Persist as Protesters Ring in New Year

(Bloomberg) -- Hong Kong’s turbulence shows no sign of abating in 2020, with the new year marked by rallies showing continued resistance against Beijing’s tightening grip over the financial hub.

Protesters were emboldened by hundreds of pro-democracy legislators who were elected in a landslide victory in district council polls in late November. The local lawmakers, who take office on New Year’s Day, will buoy a grassroots political movement that’s already sparked dramatic clashes, battering Hong Kong’s economy, decimating its retail and tourism sectors, curbed new investments and even challenged the city’s richest tycoons.

While some indicators show signs of recovery, raising the specter that relative calm over the holidays might mean the worst is over, the city is still facing sustained political and economic volatility as it heads into 2020. The new year was already expected to get off to a tense start with a march planned for Wednesday by the Civil Human Rights Front, the organizer of some of Hong Kong’s biggest protests.

Senior pro-government figures are bracing for an intense fight when voting for seats in the more powerful Legislative Council takes place in September.

“It’s going to be a hard-fought battle,” said Bernard Chan, a senior adviser to Hong Kong’s leader. “Both sides are gearing up now.”

Political Turmoil

Although district councils wield little real power -- mainly advising the government on matters such as maintaining parks and establishing recycling facilities -- they may prove to be a key organizing platform ahead of LegCo polls. They also help decide the composition of the committee that selects Hong Kong’s chief executive.

Still, there is firm opposition. China’s government has consistently backed Chief Executive Carrie Lam, including on a visit to Beijing she made to meet Chinese president Xi Jinping in mid-December.

“In 2019, we experienced challenges not seen before,” Lam said in a video released Tuesday.

“We all want to see an end to this predicament.”

Hong Kong must acknowledge the “shortcomings in our systems, as well as the deep-rooted problems and conflicts that have been accumulating for many years,” Lam said.

Nascent Lawmakers

Pro-democracy representatives took 85% of the 452 district council seats recently contested, but many of the new lawmakers are yet to prove their mettle.

Joseph Cheng, a pro-democracy activist and retired political science professor, has lectured at boot camps organized to help train the new recruits. “They have the resources, the status to approach people, and they have a good foundation to do grassroots work,” Cheng said.

Even still, the potential emergence of many new political candidates risks fragmenting support for the movement, Cheng said. “And if there’s too many, we could divide the vote too thin and not do well.”

Economic Jitters

Hong Kong’s economy is mired in recession after six months of violent unrest that halved visitor arrivals from mainland China, forced organizers to cancel events, and hurt countless businesses across the city. But the pain may be short lived.

The government is expecting final numbers to show an annualized contraction of 1.3% for 2019, the first annual decline in a decade, according to government documents. While year-over-year comparisons are expected to remain weak, with the protests starting in June, economists surveyed by Bloomberg now forecast positive quarter-on-quarter growth in the first half of 2020.

Easing trade tensions between the U.S. and China could boost Hong Kong’s flagging trade sector. The city will also likely receive additional stimulus when Financial Secretary Paul Chan presents his next budget in early 2020.

He acknowledged Tuesday that the economy has “suffered from serious blows,” after blogging days earlier that “negative growth will continue.”

Retail Reckoning

The first quarter of 2020 is likely to bring a reckoning for Hong Kong’s retail and tourism sectors, as some store owners choose not to renew leases after six months of depressed sales and a lackluster Christmas season.

More than 5,600 retail jobs could be axed and thousands of stores shut down in the first half of 2020, according to a recent survey of retailers. Prominent restaurants and bars like Happy Paradise and Ce La Vi have announced closure plans, while cosmetics retail chain Sa Sa International Holdings Ltd. said it was likely to shutter 30 stores this year.

The Lunar New Year, when spending traditionally peaks in Hong Kong amid a flood of vacationing mainlanders, may not provide its usual boost. Visitor numbers plunged 53% during Christmas week compared with a year earlier, according to local media reports.

Tycoons at Risk

Hong Kong’s ultra-wealthy business families have long enjoyed a close relationship with Beijing and been able to dominate the city’s economy thanks to large profits from the booming property market, few regulations to rein in oligarchies, and a favorable tax regime. But as protests raged, Beijing’s attention turned to deep-seated issues such as unaffordable housing.

And since Chinese officials believe tycoons are to blame, they may pressure Hong Kong to curb the power of the city’s super-rich. “In 2020 we are going to see a new dynamic in the political arena translating into some real impacts on businesses,” said Jackie Yan, an assistant professor in international business strategy at the University of Hong Kong.

Some tycoons have already reacted, with conglomerates like New World Development Co., Henderson Land Development Co. and Wheelock & Co. announcing they would donate land for building affordable housing. Hong Kong’s richest man Li Ka-shing, on the other hand, offered HK$1 billion ($130 million) to help ease protest-related financial pressure on small businesses.

“I expect to see more of this kind of thing in 2020,” Yan said.

Real Estate

Hong Kong’s property market has remained a rare pillar of resilience. Prices for existing homes fell just 6.7% from a record high in late June, when the protests started, paring values back to March 2019 levels.

The sector’s strength is down to a number of factors: Hong Kong simply doesn’t have enough housing to support its population, so demand for apartments remains strong. In October, the city’s government also relaxed mortgage rules. All that has made real estate agents optimistic.

“We expect purchasing power to be unleashed in the second quarter and support home prices, given that social events will subside by then,” said Sammy Po, the chief executive officer of Midland Realty International Ltd.’s residential department.

--With assistance from Eric Lam and Jinshan Hong.

To contact the reporters on this story: Iain Marlow in Hong Kong at imarlow1@bloomberg.net;Shirley Zhao in Hong Kong at xzhao306@bloomberg.net;Shawna Kwan in Hong Kong at wkwan35@bloomberg.net

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jason Gale

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