Updated: May 7
By Andrew Kemp
After a couple of tough years, the city’s economic outlook is beginning to look up and the government can now begin to focus on future growth prospects rather than financial triage
The Hong Kong economy is finally beginning to see brighter prospects in its short-term future after a couple of very challenging years.
Often chaotic pro-democracy street protests, a Sino-US trade war and a global pandemic all contributed to the city recording its first back-to-back annual contraction in 2020 since the Asian Financial Crisis in 1998. GDP shrank by 1.2% year on year in 2019 and by 6.1% last year, according to data from the Hong Kong Census and Statistics Department.
The Hong Kong government, however, is upbeat about the city’s prospects in 2021, with Financial Secretary Paul Chan Mo-po predicting that GDP will grow by 3.5-5.5%. The city is banking on both its ongoing vaccination programme as well as deepening political and economic ties with mainland China to help deliver stronger results this year.
“In the past year, we have added headcount in areas such as commercial litigation, insolvency, construction and capital markets. We’re anticipating an economic recovery and an uptick in certain types of legal work on both the transactional and contentious side of the business and we’re positioning ourselves to take advantage of that”
Damien Laracy, the office head of Hill Dickinson Hong Kong.
The coronavirus (COVID-19) pandemic hit the economy hard last year, driving the number of bankruptcy applications up by 6.6% year on year to almost 8,700 cases while the number of filed compulsory winding-up petitions climbed by 7.2% to 450. Unemployment levels, meanwhile, climbed to a 17-year high of 7.2% by the end of February this year.
However, with the city’s vaccination programme underway, with the latest figures suggesting around 1mn of the population aged 16 and over has received at least one dose of the vaccine, Chan Mo-po is looking forward to a stronger second half. The official said in late March that if the city’s vaccination efforts helped ease the pandemic, then “local economic activities could recover more steadily and comprehensively in the second half of this year”.
It is certainly a more positive picture than just a few months ago, when the city’s economic planners were warning of greater financial pain to come amid a fourth-wave of infections.
Damien Laracy, the office head of Hill Dickinson Hong Kong, told Conventus Law that a growing sense of quiet optimism could be felt across the city’s many business and leisure sectors. Laracy noted that rising confidence levels have recently encouraged his firm to expand its roster of senior lawyers in preparation for the economic rebound.
He said: “In the past year, we have added headcount in areas such as commercial litigation, insolvency, construction
and capital markets. We’re anticipating an economic recovery and an uptick in certain types of legal work on both the transactional and contentious side of the business and we’re positioning ourselves to take advantage of that.”
That is not to say that the city is without its economic challenges, given the current state of strained bilateral relations between mainland China and the US. Chan Mo-po has pointed to what he described as a number of “deep-rooted conflicts” between the two sides, which he believes will contrib
ute to a continuation of the tensions.
But while the Sino-US trade war remains far from resolved, Hong Kong’s efforts to emerge from under the shadow of COVID-19 coupled with reduced civil disruption should give the city some breathing room.
“Driven in part by the recent China-US political tensions, we expect to see continued interests in both primary and secondary listings of ‘returning’ technology and new economy businesses on the Hong Kong stock exchange.”
Yang Kang Chan, head of Hill Dickinson Hong Kong’s equity capital markets team.
Yang Kang Chan, the head of Hill Dickinson Hong Kong’s equity capital markets team, said that while strained bilateral relations may have added to global market volatility, they had also created new investment opportunities.
He said: “Driven in part by the recent China-US political tensions, we expect to see continued interests in both primary and secondary listings of ‘returning’ technology and new economy businesses on the Hong Kong stock exchange.”
Chan highlighted the biotechnology and healthcare industry as another noteworthy segment of the Hong Kong and mainland market. He said: “As we finish up the first quarter of 2021, we continue to be bullish on Hong Kong as a platform of fund raising for regional and global businesses.”
Beijing’s introduction of national security legislation last year, meanwhile, effectively eliminated the city’s street protest movement by criminalising secession, subversion, terrorism and collusion with foreign forces. The move, however, has attracted mounting criticism from the international community, with the city’s role as a leading seat of international arbitration increasingly in question.
Edward Liu, Hill Dickinson Hong Kong’s legal director, said that the criticisms levelled at the city’s legal sector were largely unfounded and that Hong Kong’s long-term prospects were compelling, given the mainland government’s major domestic and international trade initiatives.
He said: “As the Belt and Road Initiative [BRI] and Greater Bay Area [GBA] development continue, and given the city’s position as the only jurisdiction that practices common law in China, Hong Kong is undoubtedly well-positioned to handle arbitration cases involving Chinese parties.”
The BRI aims to develop a global network of trade routes that seeks to deepen co-operation between the mainland and economies in Asia, the Middle East, Africa and Europe. The GBA, meanwhile, seeks to link Hong Kong with 11 cities across Southern China, driving demand for local and foreign investment, most if not all of which will be channelled through Hong Kong.
“We are anticipating a gradual return to a more active market, with investors looking at undervalued companies and distressed assets. Mid-term we will see a return to a more buoyant transactional market.”
Antony Cowie, head of Hill Dickinson Hong Kong’s transactional practice.
While the city experienced significant downturns across multiple major business sectors over the last year, as investors rationalised their spending in order to weather the downturn, there is light at the end of the tunnel.
Antony Cowie, the head of Hill Dickinson Hong Kong’s transactional practice, said that while the volume of M&A transactions over the past 12 months had slumped, he was confident of a mid-term recovery.
He said: “We have seen parties that were in late 2019 gearing up to engage in acquisitions in 2020, taking a step back and adopting a ‘wait and see’ approach, which is clearly contributing to the inactivity.”
Cowie, however, said he had since engaged in a number of transactions where “cash-rich buyers” had adopted a longer-term view in light of their industry counterparts’ struggles with liquidity and raising finance.
He added: “We are anticipating a gradual return to a more active market, with investors looking at undervalued companies and distressed assets. Mid-term we will see a return to a more buoyant transactional market.”
The construction sector is another market that has been squeezed over the past year, but is also showing signs of recovery.
Richard Lyons, a partner in Hill Dickinson Hong Kong’s construction team, said that while the construction sector had been hit by the pandemic over the past year it had managed to “soldier on”. He noted that the government’s planned US$127.6bn in infrastructure investment between now and 2028-2029 would help to stimulate the public and private construction sector.
Lyons said: “The construction market has traditionally been dominated by a small number of large local and overseas contractors. Increasingly, those contractors are from Mainland China, which are able to squeeze margins to an absolute minimum in order to fill order books. The word on the street is that there is work ‘out there’.”
The Hong Kong economy is emerging from a couple of very rocky years. But after facing three major economic challenges, the city can finally look forward to a time when the Sino-US trade war is the only area of concern. When the city’s vaccination programme reaches a critical mass, Hong Kong should be in a better position to revisit its international and domestic border closures which will, in turn, spur on renewed growth.
This article was written by Andrew Kemp for Conventus Law in association with Hill Dickinson.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position or policy of Hill Dickinson or its other employees and affiliates.
For further information, please contact:
Damien Laracy, Head of Hong Kong. Partner, Hill Dickinson
Anthony Cowie, Partner, Hill Dickinson
Richard Lyons, Partner, Hill Dickinson
Yang Kang (YK) Chan, Partner, Hill Dickinson
Edward Liu, Legal Director, Hill Dickinson