We may be turning the corner

Hong Kong’s first positive quarterly growth in 21 months points to a strong economic rebound for this year amid robust global trade and higher local consumption. Sophie He reports from Hong Kong.

After two years in the economic doldrums, there are signs that the skies are clearing, with Hong Kong anticipating 3.5 to 5.5 percent GDP growth for 2021.

The special administrative region is poised to embrace an economic rebound this year on stronger global trade and local consumption, pushing back a biting 2-year recession whipped up by social unrest and the coronavirus pandemic. Some countries and regions around the world are also gradually coming out of the woods as they keep the public health crisis at bay.

Latest figures from the Census and Statistics Department are heartening - the city's GDP surged 7.8 percent in real terms in the first quarter of this year, compared with the same period of 2020, and against a 2.8 percent drop in the fourth quarter of last year.

The turnaround follows six consecutive quarters of negative growth, which exceeded those during the global financial tsunamis of 1997 and 2007.

A larger increase in GDP in the first three months of this year was mainly attributed to robust external trade and a low comparison base in 2020, the SAR government said.

Financial experts and academics are adamant that Hong Kong should seize all possible opportunities to expedite its economic recovery, while seeking deeper integration with the Guangdong-Hong Kong- Macao Greater Bay Area and play its role in the nation's "dual-circulation" economy.

"Our economy has shrunk for two years, and now we're seeing positive growth. I won't say a 3.5 to 5.5 percent GDP growth, as predicted by the SAR government, is strong. It's just normal growth," said Nicholas Kwan, director of research at the Hong Kong Trade Development Council.

He explained that the base of the city's GDP last year was extremely low, as the local economy had dwindled by 6.1 percent year-on-year in 2020 - the sharpest annual decline on record.

Compared to other regional economies, Hong Kong's projected economic growth of 3.5 to 5.5 percent is modest, he said. The mainland reported staggering 18.3 percent GDP growth for the first three months of this year, against just 2.3 percent growth in 2020, as COVID-19 raged. It's the only major world economy to record positive GDP growth last year.

Get back on track

Kwan said that the SAR's economy will start seeing a "more meaningful" rebound in the second half of this year, driven by exports. With the pandemic largely contained on the mainland, Hong Kong-owned factories, most of which are located there, are back on track.

On the demand side, as most of Hong Kong's export markets, including Europe and the United States, rolled out stimulus policies, consumers with monetary payouts from the government have provided strong demand for Chinese products.

At the same time, the operations of many of Hong Kong's competitors, especially factories in Southeast Asia, remain disrupted by the pandemic. As a result, a big portion of their orders are ending up in our region, Kwan noted.

"From what we know, Hong Kong factories aren't worried about getting orders now, but how to meet them. The main problem is labor shortage and the lack of skilled workers," Kwan said. "Instead, it has become a bottleneck problem for Hong Kong exporters."

The HKTDC's Export Index for the first three months of this year showed a reading of 39 - 2.8 points higher than that of the previous quarter. It was the fourth successive quarterly rise, pointing to continued recovery in exporter sentiment.

Hong Kong is experiencing bottlenecks in the export sector, such as the temporary shortage of skilled labor and logistics issues, as well as high demand for air cargo and shipping containers.

Hong Kong should play a key role in the country's "dual-circulation" development pattern to provide an external link for internal circulation, urged Kwan. For too long, Hong Kong businesses have been using the mainland as a base to export to the world. This will continue to be a key function, and it will be critical for the city to maintain or reinforce it.

The 14th Five-Year Plan (2021-25) for National Economic and Social Development shows that the nation has shifted its focus to quality growth," he noted. "In this area, Hong Kong still has something to offer because we've been at a very different level of development for quite a while."

Kwan said the mainland will have similar problems to those Hong Kong had faced as it reaches this development stage. Like urbanization, environmental issues and energy efficiency, the SAR can offer support in the services, legal, financial and technology aspects in the process.

The 14th Five-Year Plan has offered a high position and a string of supportive measures for Hong Kong, said Joe Fang Zhou, research director of the One Country Two Systems Research Institute. It will support Hong Kong to become one of the world's 10 major hubs, covering innovation and technology, aviation, Chinese and foreign culture and art exchanges.

Fang said the SAR government must follow up on these measures and settle on a road map to find out which of them needs the support or cooperation of the central government, and which areas require the city's own efforts, particularly, in innovation. Hong Kong has much to offer in the Greater Bay Area's development and by doing so, the city can accelerate its own economic progress.

Step forward

Fang said with the pandemic being gradually brought under control, Hong Kong should focus on finance and technology. As the mainland is promoting financial market reform and the opening of capital accounts, Hong Kong's ability in channeling capital, as well as its role in demonstrating financial innovation, will be strengthened.

As the central government is deploying large-scale international-level laboratories and major scientific installation platforms across the country, the SAR government, as well as industries, should formulate plans and participate in the nation's strategic deployment of science and technology, he said.

Hong Kong also has an important part to play in the "dual-circulation" economy. It should enrich its green financial products, strengthen the city's role in the development of the national digital currency, and augment its offshore financial products denominated in the renminbi to boost investment and trade with countries using the Chinese currency for trade settlement.

In launching policies to help Hong Kong companies expand and invest in the Greater Bay Area, Kwan said the SAR government should talk to representatives of various industries and business communities to understand their needs better.