Carrie Lam economy hong kong politics

As Hong Kong Chaos Escalates To Molotov Cocktails, One Bank Says Recession ‘Unavoidable’

Chaos beckons.

Things went from bad to worse in Hong Kong on Saturday when activists summarily ignored an official ban to stage a 13th week of protests in the city.

The march followed the arrest of several prominent protest leaders and comes on the heels of reports that embattled chief executive Carrie Lam’s proposal to appease the demonstrators was rejected by Beijing.

Saturday’s “proceedings” sound like no fun at all. Police fired blue-dyed water cannons at protesters (apparently if you stain them blue, you can find them later) who responded by throwing fire bombs at authorities and setting barricades ablaze. A fire near the junction of Hennessy Road and Anton Street in Wan Chai burned particularly bright according to local press.


Saturday’s violence comes on the fifth anniversary of China’s move to limit democratic reforms in the city.

Some protesters waived American flags and asked Donald Trump to “liberate” them. “We would like Mr. President Trump to liberate Hong Kong”, a 30-year-old named Chris told Bloomberg.

That is sure to irritate Beijing and will doubtlessly serve as fodder for all manner of “commentaries” in state media. Washington’s purported “meddling” will likely come up at daily briefings next week too. Chinese officials have variously accused the US of having its “black hand” in the protests.

As ever, we would note that from a macroeconomic perspective, this comes at a particularly inopportune time. Between the violence and the impact of the Sino-US trade war, Hong Kong’s economy is in trouble.

Exports contracted for a ninth consecutive month in July and although the number (-5.7%) wasn’t as bad as feared, June’s decrease (-9%) was the largest in years. Imports, meanwhile, fell 8.7% last month and it’s entirely likely that the fraught domestic picture (e.g., things are on fire and there are running street battles on the weekends) won’t help.

In other words, Hong Kong’s economy is laboring under an acute domestic crisis and an increasingly dire external outlook, which explains why the government projected growth may flatline this year, despite a stimulus push.

Read more: Hong Kong Adds Billions In Stimulus, But Warns Economy May Flatline Amid Unrest

If you ask BofA, a recession of some stripe is now basically a foregone conclusion.

“We expect growth to weaken materially in 3Q-4Q19 on the back of local instability and escalated US-China trade tension [and] even if business returns to normal level in the upcoming months, we are concerned that tourist arrivals and business confidence will likely remain weak for a prolonged period”, the bank wrote, in a Thursday note calling a brief recession “unavoidable”. Here’s a table that summarizes their various scenarios:


As you can see, the bear case is particularly dour, even as bear cases go and includes a deflationary quagmire. “While many expect instability in HK to be just a storm in a teacup that will run its own course very soon, risks are that it could coincide with a significant downturn in global demand against rising uncertainty from elevated trade tension”, BofA cautions, describing the bear case and adding that “the combination of asset deflation and CPI deflation [would] potentially test growth resilience and policy response in years to come”. The bank expects more stimulus on top of what was announced earlier this month.

Ultimately, the problem is that Hong Kong is so exposed on multiple fronts that a descent into anarchy (and you’ll pardon the hyperbole considering what unfolded on Saturday) could risk a kind of nightmare spiral, including capital outflows as the city loses its luster as a financial hub and the FX system comes under pressure.


BofA emphasizes all of that.

“If either the local social disorder escalates into general chaos, or a global recession emerges in the near future partly due to trade conflicts, we would see further risks to our bear-case scenario”, the bank sighs, adding that “due to its high openness, reliance on tourism, and dependence on the Chinese economy, the Hong Kong economy is particularly exposed to external demand weakness”.


16 comments on “As Hong Kong Chaos Escalates To Molotov Cocktails, One Bank Says Recession ‘Unavoidable’

  1. mfn says:

    Authoritarians being authoritarians = bad for global economy. Next up: Brexit and (eventually) breakup of the UK, additional defections from EU. Global GDP headed lower, political conflict (China/Hong Kong, India/Pakistan, Iran/Saudi, Venezuela, Columbia) on the rise, incidence of climate disasters and climate-related migration also rising. Don’t mean to harsh your mellow at the start of the long weekend, but w’e’re all going to be poorer in five years. 10yr treasury at 1.5% looks pretty darn good. #MAGA

  2. Is this what happens when the US is unable to show international economic leadership and our plan seems to be economic isolation from a world that has been taking advantage of us?

  3. PJSPHD says:

    I’d like Trump to liberate us, too.

  4. Off-The-Run says:

    Think the PRC could greatly defuse the situation if they got more serious about providing affordable housing. Obviously, this doesn’t solve everything, but it would certainly help.

    • DoubleB says:

      The most under-reported aspect of this entire saga. HK’ers with some decent jobs are living in literal tin boxes. Carrie Lam and the extradition bill became a catalyst for a lot of other economic issues that have building for some time in HK.

  5. Harvey Cotton says:

    China is showing a damn sight more restraint than the United States would in that situation. If there was 13 weeks of protest on Wall Street and Time Square, a national emergency would have been called and the National Guard would have been deployed.

    • Right?! I mean, everybody keeps warning “Beijing better not crack down violently” and it’s like “well, they’re literally burning the city down now!” at what point is Xi justified in saying enough is enough? and I mean, I could see if this was some kind of uprising on the Mainland where we were seeing an actual revolt aimed at usurping the Party on the way to making China a democracy. if that was the case, I could definitely see the international community telling Beijing that maybe the time has come, and the world is watching. but let’s face it: These are some kids in Hong Kong who have gotten in their head that they stand for something. and that’s fine, but it just has a contrived feel to it to me.

  6. Dana Newman says:

    Ev’rywhere I hear the sound of marching charging feet, boy
    ‘Cause summer’s here and the time is right for fighting in the street, boy
    Well now, what can a poor boy do, except to sing for a rock n’ roll band?
    ‘Cause in sleepy Hong Kong town there’s just no place for a street fighting man
    Hey think the time is right for a palace revolution
    But where I live the game to play is compromise solution

    Same as it ever was.

  7. historian says:

    Wiki example: he February 28 incident or the February 28 massacre, also known as the 228 (or 2/28) incident (from Chinese: 二二八事件; pinyin: Èr’èrbā shìjiàn), was an anti-government uprising in Taiwan that was violently suppressed by the Kuomintang-led Republic of China government, which killed thousands of civilians beginning on February 28, 1947. The number of Taiwanese deaths from the incident and massacre was estimated to be between 5,000 and 28,000.[1

  8. H, I agree that it does seem a bit contrived. If this continues to escalate China will have no choice but to re-establish order. Even if they are the perpetrators themselves. I suspect a lot of demonstrators will be rounded up and disappear into China not be heard from again.

  9. jyl says:

    Ok, assume there is an Tien An Men in Hong Kong sometime in September. Implications on economy, markets, trade negos?

    • mfn says:

      Implications on global economy and markets will be negative, as most will see it as continued shrinking of the global trade pie. No impact on trade negotiations: Trump doesn’t give a fig about democracy — in Hong Kong, here, anywhere. He’ll make some farting noises and then will strike a deal that he can tout as victory in advance of the election. The base will swallow hook, line, and sinker.

  10. Anonymous says:

    Trump has interjected himself into the HK issue (presumably thinking that somehow increases his leverage, since his actual concern for human rights may be assumed to be nil) , China has pulled the US (and UK) into the public story through stories about CIA involvement, and the protesters are trying to pull the US into the story even more.

    So I think a violent end to the HK protests will impact the trade dispute in some way. China will be on the defensive as far as public relations go, and it will be even more important to avoid losing face to the US in the trade context. Trump could make this worse with some more tweet-blather.

  11. George says:

    Of course this is contrived ….This is also a textbook example of how some of our Agencies work and are trained to work…We have seen this for at least the last 50 years in many places….same game different day and place…!!

Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.