Like a struggling student, Hong Kong knew its report card was going to be bad. Now we know the failing grade.
Hong Kong entered recession in the third quarter, the latest figures show, with a 3.2% decline from the second quarter, and 2.9% from the same time last year. The government revised down second-quarter 2019 to an economic drop of 0.5% from the first quarter, although this actually represented 0.4% growth year on year.
Still, two straight down quarters: recession. A pretty hefty one at that, since negative 3.2% for the third quarter is a bigger fall than anticipated. Hong Kong's under-fire leader, Carrie Lam, has warned that the territory will also post a full-year decline.
It's no surprise. We've seen five months now of large pro-democracy marches, increasingly violent clashes with police, and the vandalism of mainland businesses, even the subway system. Some mainland Chinese citizens working in Cantonese Hong Kong now feel uncomfortable about anti-mainland sentiment, and say they want to move back across the border. There are many fewer Mandarin-speaking shoppers in the mall.
But actually, business continues as usual for a lot of the city, and for many industries. The stock market has muddled along, now showing a 4.9% gain for the year. The city's office towers are still hives of activity. Regional businesses are more concerned about any Asia-wide slowdown than what's going on around the corner.
The Hong Kong economy was already fading before this summer's demonstrations, as a result of the U.S.-China trade war. Beijing is now struggling to hit its own growth target of between 6.0% and 6.5% this year. The yuan has also been falling against the U.S. dollar. That means mainland tourists who go on shopping sprees in Hong Kong's luxury malls have less cash when they convert it into the Hong Kong dollar, which is pegged to its U.S. counterpart. Rich mainlanders buying bolt-hole apartments here find their yuan doesn't go as far.
Certain industries have been devastated by the demonstrations. High-street and luxury retail, restaurants, hotels and anyone else relying on footfall from foreign visitors and Hong Kongers themselves are all really struggling. Lam says tourist numbers were down about 50% in the first half of October.
Figures released on Friday show that retail sales fell 18.3% in September, compared with a year ago. That's after a 22.9% drop in August. It marks eight straight months of decline, clear indication the rot set in before the last five months of protest. Still, Q3 has been almost the worst quarter in history for retailers, narrowly outdone by the aftermath of the Asian financial crisis in 1998.
A buddy of mine who works in finance for a large French luxury-clothing brand says his company will have to shutter stores. If landlords don't give rent concessions, he says a lot of stores and whole companies are going to go out of business.
That's the immediate effect. The long-term impact of Hong Kongers sticking up for their freedoms and identity is unclear. We all fear a crackdown by Beijing.
The Communist Party leadership has this week been meeting in the Chinese capital, in a four-day closed-door "plenum." These secret talking shops normally raise issues for discussion, even if serious decisions are made by a handful of the party's top leaders.
Hong Kong was "of course" an important topic at the meeting, according to one of the officials in attendance, Shen Chunyao, as quoted by Reuters. He said the plenum decided to "perfect" the system for appointing and replacing the leaders of Hong Kong and Macau, without giving any details on that.
Sounds menacing. Equally worryingly, Shen said that Hong Kong and Macau society, particularly civil servants and young people, must improve their "patriotic spirit" and knowledge of Chinese culture.
We've had a law rammed down our throats here that we must respect the Chinese national anthem, which is generally roundly booed at soccer matches in Hong Kong. There's also a long-standing effort to force greater patriotic education in Hong Kong schools.
A teaching manual for instruction of the "China model" was unveiled in 2012 that praised the Communist Party as an "advanced, selfless and united ruling group." The system of Democratic and Republican parties in the United States was described as a "fierce inter-partly rivalry [that] makes the people suffer."
After public opposition in Hong Kong, that curriculum was put on hold. We can expect some form of brainwashing to return. Again and again, we Hong Kongers are told we don't "understand" China, don't "understand" the now-dead extradition law that would have allowed rendition into its rigged legal system.
Hong Kong's top official, the chief executive, is currently picked by a tight network of 1,200 mainland loyalists. Beijing can keep these hand-picked electors on side by sweetening, or threatening, their business in China.
Hong Kong's constitution, the Basic Law, says that the "ultimate aim" is for the chief executive to be elected by "universal suffrage upon nomination by a broadly representative nominating committee."
In 2014, Beijing tried to push through "democracy" by saying Hong Kongers could have one-person, one-vote -- but only from two or three candidates it selects. That compromise was voted down by Hong Kong democrats, and led to the "Umbrella Revolution" that shut down parts of central Hong Kong for three months in 2014.
The current demonstrations are the direct result of the fact that nothing changed politically after 2014. The only outcome was that the leaders back then were locked up for the archaic crimes of the "incitement" of others to participate in an unlawful assembly, or "conspiracy to commit public nuisance."
The current demonstrations pointedly have no leader, and are organized on social media, to avoid the exact same outcome. The poster child of the Umbrella Movement, Joshua Wong, has served his time. But he was barred on Tuesday from competing in upcoming elections for district council. Despite his public protestations, the election officer read his mind that he supports independence for Hong Kong.
Unless something fundamental changes politically in Hong Kong, these issues will simply re-surface. So far, the main response has been to crack down politically, and curb freedoms, bit by bit.
Coming out of the plenum, the Communist Party is determined to "further improve" the central government's system of "exercising full administrative power" over Hong Kong, according to Shen, the official in attendance. The party will "firmly safeguard" national security, and will "resolutely prevent and contain external forces from interfering in Hong Kong and Macau affairs and carrying out separatist, subversive, infiltration or destructive activities."
Beijing's narrative, peddled in state media, and something the Communist Party perhaps even believes itself, is that there's no way Hong Kongers have got it in their own head that they want democracy. There's no way they reject greater interference by Beijing in the city. They must be being directed by outside forces, "black hands," by shadowy CIA and MI6 agents manipulating public opinion to destabilize the city.
So the 1 million Hong Kongers that march organizers say took part in a June 9 march were all manipulated into it. So too were the 2 million Hong Kongers who took to the streets on June 16. All conned.
Of course, the truth is that free-market, capitalist Hong Kongers are perfectly able to make up their own minds. Many don't trust the Communist Party, fear its increasing encroachment on the city's institutions, and don't like efforts to brainwash their kids.
The Hong Kong government, fresh from banning Wong from elections, successfully petitioned Hong Kong's High Court to issue a temporary injunction on Thursday that bans people from posting or spreading messages online that "incite the use or threat of violence."
It's the first time the Hong Kong government has openly targeted free speech on the Internet, although there have been suspicious outages that restricted access to pro-protest, pro-democracy posts.
The Hong Kong police have petitioned Facebook (FB) to remove what the force claims are defamatory or unfounded allegations, including a post by pro-democracy lawmaker Alvin Yeung showing a young demonstrator being shot by police. They also insist that Facebook must hand over information so it can investigate online "crimes."
The police have posted two public letters to Facebook. The second insists that Facebook must act decisively against "inaccurate reports" and posts that "provoke hatred," and expresses "extreme disappointment" that Facebook has so far not deleted the posts criticizing the police.
"We strongly demand the Hong Kong office of Facebook remove such content and hand over relevant information to police for further investigation," the October 24 letter read.
The online censors are watching. We await Beijing's next move.