Opinion: For a true picture of Hong Kong’s economic challenges, look beyond brave headline numbers

Predictions that GDP growth will be lifted by a recovery in household consumption and a jump in tourist spending seem fragile – if not brave. Median monthly household income fell 2.8 per cent to HK$28,200 (US$3,604) between 2019 and 2022, with the poorest 20 per cent of households down by 10.7 per cent to HK$5,000. Now that the government’s HK$100 billion splash on consumption vouchers has ended, just where will this extra consumer spending come from?

And as for tourist spending, the shuttered bars and restaurants in Lan Kwai Fong, SoHo and Causeway Bay show that recovery remains a distant hope.

Government data shows that unemployment remains low, and both salaries and profits tax revenues are up since the start of the Covid-19 pandemic. Perhaps the anaemia that we feel is obscured by cuts in working hours and take-home pay, and the number of Hongkongers who work unnoticed and unrecorded in the “informal” economy.

Maybe there is simply a time lag before salaries and profits tax revenues begin to fall. At this stage in the Covid-19 recovery, it is impossible to tell.

As their property wealth has wilted, so too has the value of their stock market savings. Hong Kong’s stock market has fallen by over 20 per cent from this year’s high of 22,700. Stock market turnover in the first nine months of this year was HK$109.7 billion a day on average, compared with a daily average of HK$166.7 billion for the whole of 2021.

This comprehensive wilt is terrible for the government, too. From its very narrow revenue base of profits tax, salaries tax, stamp duties and land premiums – these account for around two-thirds of all revenues – all income streams are under stress.

The collapse in stock market turnover has clobbered stamp duties, as has the contraction in both domestic and commercial property sales. Rating and Valuation Department figures show that domestic property transactions were down around 40 per cent last year and were trending slightly lower in the first eight months of this year; and commercial property sales were down 48 per cent, and show no sign of an upturn. The government’s land auction revenue slumped from HK$143 billion in 2021-22 to HK$69.9 billion in 2022-23, with (an optimistic) forecast of HK$85 billion this year.

The result has been a precipitous collapse in Hong Kong’s fiscal reserves – from around HK$1.1 trillion 3-4 years ago, to perhaps HK$800 billion by the end of the current financial year. To be fair, much of this collapse has been due to around HK$600 billion that was spent on anti-epidemic treatment and relief, but the fall is forcing the government to explore different funding options for its more ambitious infrastructure projects.

It also puts pressure on commitments to cut carbon emissions, initiate climate change mitigation measures, such as flood prevention, and preparedness for the next pandemic.

Quite how this litany of terrible and unstaunched contractions can leave Hong Kong with a forecast economic growth of 4-5 per cent is a puzzle to me. But I fear that a boost to local consumption and a revival of tourism activity will fall far short of generating recovery. In time, much more economic harm is likely to be revealed, and John Lee’s “Happy Hong Kong” vision may be further off than he hopes and predicts.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades