FOX Business’ Stuart Varney on Hong Kong protests.
Hong Kong’s violent protests are taking a toll on the city’s economy.
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The protests, which have stretched into the 17th week, caused a 42 percent drop in visits from mainland China in August. As a result, retail sales plunged by 23 percent year-over-year – the biggest drop on record, according to a government spokesperson. Before the protests began, 76 percent of Hong Kong tourists were from the mainland.
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“The Association expects the drop in retail sales will continue in the coming months, due to the substantial drop in inbound tourists and weak local consumption sentiment,” the Hong Kong Retail Management Association said in a press release, adding member companies indicated 30 percent to 80 percent of their stores were closed on Oct. 1 due to protests.
The protests, which show no signs of slowing down, took a new turn this week as a demonstrator was shot. In an effort to put an end to the demonstrations, city officials are set to meet Friday to invoke emergency powers, including a ban on face masks, The Wall Street Journal reports, citing people familiar with the plan.
There’s a lot at stake for Hong Kong. A May survey conducted by Duff & Phelps found that Hong Kong was regarded as the world’s No. 3 most prominent financial center, trailing only New York and London. The survey was conducted before the protests broke out.
Goldman Sachs analysts Gurpreet Singh Sahi and Yingqiang Guo estimate that since the protests broke out in June about $3 billion to $4 billion have left the city for Singapore.
“That said, the HK banking system still has ample liquidity in Hong Kong dollar as well as in foreign currencies,” though “this set of data is unlikely to allay investor concerns around outflows from HK,” they wrote.
A continued capital flight would be a crippling blow to Hong Kong’s economy.
“Running down its FX reserves will push up domestic interest rates, exacerbating the city’s economic woes,” wrote Julian Evans-Pritchard and Martin Lynge Rasmussen, China economists at the London-based research firm Capital Economics, in an August note.
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They argue a drop in reserves could lead to a correction in the property market and cause gross domestic product to decline by up to 4 percent, taking almost a decade to recover.
