by Lin Nguyen
A report from the Heritage Foundation, a conservative public policy think tank based out of Washington, has downgraded Hong Kong’s score on its Economic Freedom Index (EFI).
The report marks the first time in 25 years that Hong Kong hasn’t ranked first for economic freedom. Now, Singapore, a geo-economic rival and burgeoning powerhouse for international investment, has overtaken Hong Kong as the world’s freest economy.
According to the Heritage Foundation Report itself, Hong Kong lost its top slot due to growing concerns about investment freedom in the autonomous region. In particular, the report warned that “ongoing political and social turmoil has begun to erode its [Hong Kong’s] reputation as one of the best locations from which to do business, dampening investment inflows.”
Looking at the numbers, it’s easy to understand why the Heritage Foundation delivered such an indictment of Hong Kong’s political and social turmoil; or more specifically, the sustained clashes between government-aligned police and anti-government protestors. These volatile social conditions were kick-started when Carrie Lam, the Chief Executive of Hong Kong, announced that her administration would allow extradition to mainland China.
The protest marches and disturbances that ensued weighed heavily against Hong Kong’s traditionally peaceful image, and continued long after the extradition bill itself was rejected. The Lam administration’s subsequent response was a lesson in how not to engage with protestors, marked by heavy-handed police responses, political miscommunication, and a general lack of trust.
Unfortunately, protestors also share a portion of the blame for Hong Kong’s current conditions. Since taking to the streets in early 2019, Hong Kong’s tenacious yet increasingly violent protestors have not only sowed social divisions, they’ve also crippled business activity and driven out much of the city’s tourism industry.
By the end of 2019, the economy of Hong Kong, reeling from the US-China trade war and massive declines in retail and tourist spending, had entered its first annual recession in over a decade, shrinking by 1.2% year-over-year. Fourth quarter estimates have also revealed a 2.9% year-over-year contraction in Hong Kong’s gross domestic product. With multiple recession indicators signaling, both Moody’s Investor Service and Fitch Ratings, two of the world’s most influential credit rating agencies, have downgraded Hong Kong’s credit rating.
By early January 2020, violent demonstrations and heavy-handed police interventions were essentially the new normal in Hong Kong. However, as the novel coronavirus (COVID-19) outbreak in Wuhan continued to escalate, the city’s warring protest factions—recalling the harsh lessons of SARS in 2003—suspended mass demonstrations in a surprising show of support for the government’s early implementation of social isolation. On the insistence of medical staff and the recommendation of infectious disease experts, the Lam administration also shut down major transportation networks and border crossings connecting Hong Kong to mainland China.
In the following weeks, the ever-increasing severity of the virus outbreak pushed public health authorities to initiate strict personal quarantine and business shutdown procedures. The result? Hong Kong registered a steep reduction in both COVID-19 transmission rates and anti-government protest activity.
Unfortunately, in late March, Hong Kong experienced a surge in new COVID-19 cases, mainly due to imported cases from an influx of Hong Kongers returning home from hard-hit regions abroad. That uptick has now subsided.
Fortunately, Hong Kong’s public health authorities have not been complacent in the face of spiking COVID-19 cases, announcing a raft of strict new quarantine enforcements and mandating the closure of all non-essential businesses. The Lam administration has now also closed Hong Kong international airport to transit travel and banned non-residents from entering the city.
Although the situation remains dynamic, Hong Kong’s remarkably proactive response is expected to cap the latest increase in COVID-19 transmission. At the time of writing, Hong Kong has recorded slightly over 1000 confirmed cases of COVID-19, resulting in 4 deaths – enviably low numbers for those coming to terms with the virus in the United States and Europe.
With COVID-19 containment measures holding back street demonstrations, one can only hope that the lull in violence will allow for cooler heads to prevail. If Hong Kong wishes to restore its reputation for economic freedom, political stability, and civil order, then it must capitalize on this nascent sense of solidarity and unity.
Restoring a collective sense of responsibility must be a priority for all decision-makers in Hong Kong. By rebuilding cooperative dialogue channels between government and anti-government forces, Hong Kong will not only bolster its battered social and economic cohesion, it’ll also prevent the city’s COVID-19 lockdown from being compromised by a new wave of massive street demonstrations.
If domestic unity can be maintained, Hong Kong will be well-positioned to emerge from lockdown stronger and better equipped to wrestle for its place as a global economic hub and the leading regional financial hub. In this scenario, it’ll only be a matter of time before Hong Kong reclaims its position as the world’s freest economy.
The author is a journalist and political analyst specializing in Asia and advise and consult regional government offices as well as international companies seeking to do business in Asia.