Hong Kong confirms economy fell into recession amid protests

Police in riot gear arrive at the scene of a protest in the financial district in Hong Kong on Friday. Violent anti-government protests and the escalating US-China trade war have hit the financial hub. (AP)
Updated 15 November 2019

Hong Kong confirms economy fell into recession amid protests

  • Financial center potentially faces longer and deeper slump than during 2008-2009 global crisis

HONG KONG: Hong Kong sank into recession for the first time in a decade in the third quarter, government data confirmed on Friday, weighed down by increasingly violent anti-government protests and the escalating US-China trade war.

The economy shrank by 3.2 percent in July-September from the previous quarter on a seasonally adjusted basis, revised government data showed, in line with a preliminary reading.

Gross domestic product (GDP) contracted for the second consecutive quarter, meeting the technical definition of a recession.

With no end to the protests in sight, analysts warn that the financial and trading center potentially faces a longer and deeper slump than during the global financial crisis in 2008/2009 and the SARS epidemic in 2003.

From a year earlier, the economy contracted 2.9 percent, also in line with the preliminary reading. The readings were the weakest since the global crisis.

“Domestic demand worsened significantly in the third quarter, as the local social incidents took a heavy toll on consumption-related activities and subdued economic prospects weighed on consumption and investment sentiment,” the government said in a statement.

It revised down its forecast for full-year growth to a contraction of 1.3 percent versus an earlier estimate of 0-1 percent growth. That would mark the first annual decline since 2009. “Ending violence and restoring calm are pivotal to the recovery of the economy. The government will continue to closely monitor the situation and introduce measures as necessary to support enterprises and safeguard,” the government said.

More than five months of political protests have plunged the city into its worst crisis since it reverted from British to Chinese rule in 1997.

Tourists are canceling bookings, retailers are reeling from a sharp drop in sales and the stock market is faltering, adding to pressure the city is feeling from China’s economic slowdown and the prolonged Sino-US trade dispute.

August retail sales were the worst on record — down 23 percent from a year earlier — while September’s plunged 18.3 percent.

Parts of the city were paralyzed for a fifth day on Friday. Transportation disruptions have become common and some shopping malls and other businesses are shuttering early as the unrest escalates.

Hong Kong is one of the world’s most important financial hubs with total banking, fund and wealth management assets worth more than $6 trillion.

Many businesses with ambitions to expand in China still consider it as a gateway into the mainland, while Chinese firms use it to access international capital, as well as a testing ground and springboard for their global ambitions.

Business activity in the private sector fell to its weakest in 21 years in October, according to IHS Markit, while demand from mainland China declined at the sharpest pace in the survey’s history, which started in July 1998.

The government has rolled out stimulus measures since August, but since it is forced to keep a high level of reserves to back the Hong Kong dollar peg to the US dollar, the packages have been relatively small. Analysts also doubt the effectiveness of handouts, since the uncertainty prevents businesses and consumers from spending and investing, and store closures will lead to job losses. 


US trade offensive takes out WTO as global arbiter

Updated 10 December 2019

US trade offensive takes out WTO as global arbiter

  • Two years after starting to block appointments, the US will finally paralyze the WTO’s Appellate Body
  • Two of three members of Appellate Body exit and leave it unable to issue rulings

BRUSSELS: US disruption of the global economic order reaches a major milestone on Tuesday as the World Trade Organization (WTO) loses its ability to intervene in trade wars, threatening the future of the Geneva-based body.
Two years after starting to block appointments, the United States will finally paralyze the WTO’s Appellate Body, which acts as the supreme court for international trade, as two of three members exit and leave it unable to issue rulings.
Major trade disputes, including the US conflict with China and metal tariffs imposed by US President Donald Trump, will not be resolved by the global trade arbiter.
Stephen Vaughn, who served as general counsel to the US Trade Representative during Trump’s first two years, said many disputes would be settled in future by negotiations.
Critics say this means a return to a post-war period of inconsistent settlements, problems the WTO’s creation in 1995 was designed to fix.
The EU ambassador to the WTO told counterparts in Geneva on Monday the Appellate Body’s paralysis risked creating a system of economic relations based on power rather than rules.
The crippling of dispute settlement comes as the WTO also struggles in its other major role of opening markets.
The WTO club of 164 has not produced any international accord since abandoning “Doha Round” negotiations in 2015.
Trade-restrictive measures among the G20 group of largest economies are at historic highs, compounded by Trump’s “America First” agenda and the trade war with China.
Phil Hogan, the European Union’s new trade commissioner, said on Friday the WTO was no longer fit for purpose and in dire need of reforms going beyond just fixing the appeals mechanism.
For developed countries, in particular, the WTO’s rules must change to take account of state-controlled enterprises.
In 2017, Japan brought together the United States and the European Union in a joint bid to set new global rules on state subsidies and forced technology transfers.
The US is also pushing to limit the ability of WTO members to grant themselves developing status, which for example gives them longer to implement WTO agreements.
Such “developing countries” include Singapore and Israel, but China is the clear focus.
US Commerce Secretary Wilbur Ross told Reuters last week the United States wanted to end concessions given to then struggling economies that were no longer appropriate.
“We’ve been spoiling countries for a very, very long time, so naturally they’re pushing back as we try to change things,” he said.
The trouble with WTO reform is that changes require consensus to pass. That includes Chinese backing.
Beijing has published its own reform proposals with a string of grievances against US actions. Reform should resolve crucial issues threatening the WTO’s existence, while preserving the interests of developing countries.
Many observers believe the WTO faces a pivotal moment in mid-2020 when its trade ministers gather in a drive to push through a multinational deal — on cutting fishing subsidies.
“It’s not the WTO that will save the fish. It’s the fish that are going to save the WTO,” said one ambassador.