Hong Kong’s economy has always been tied to that of mainland China. Those ties seem to have loosened a little. After six months of violent anti-government protests, business activity in the Asian financial hub has fallen even deeper into contraction — despite signs of a recovery on the mainland.
Nowhere is the divergence clearer than in the respective purchasing managers’ indices. The China composite PMI from Caixin, which is focused on private onshore businesses operating in both manufacturing and services, jumped to 53.2 last month. That was healthily above the 50-point mark dividing expansion from contraction and was the sharpest uptick in 21 months.
By contrast, the Hong Kong private sector PMI, also focused on manufacturing and services, dropped to 38.5 in November — the worst reading since the city was hit by a deadly Sars epidemic in 2003.
Conditions have deteriorated enough for economists to forecast a full-year fall in Hong Kong’s economic output. And Bank of America Merrill Lynch forecasts the economy to shrink at a sharper rate of 4 per cent in 2020.
Helen Qiao, chief Greater China economist for the bank, said the ramifications of social unrest in Hong Kong would linger for at least two to three quarters and warned that unemployment could also see a marked increase next year.
But she dismissed the idea that Hong Kong’s economy was really decoupling from China’s. The two are “very much correlated . . . even if Hong Kong has its own unique challenges,” she said, pointing to the city’s lack of monetary policy options thanks to its dollar peg.
That could mean more pain awaits Hong Kong’s retail and property stocks, which have been hit hardest by the unrest this year.
