Practical analysis for investment professionals
03 October 2014

Hong Kong in Turmoil: Views from the Ground

“Hello mate, how are you getting to work today?”

“Well, I really don’t know.”

“You probably have to get on the MTR (subway) through Kowloon and take the Tseung Kwan O line to North Point.”

“Hadn’t thought of that.”

This is not the usual banter in Hong Kong, which boasts one of the world’s most efficient public transport systems, but it’s an actual exchange I overheard among commuters earlier this week. These are, after all, extraordinary times in the city. Days of protests have brought parts of the Asian financial center to a standstill in the largest show of defiance against Beijing in a Chinese territory. For some, going to work now requires advance planning.

The protests, now known worldwide by the hashtags #OccupyCentral and #UmbrellaRevolution, have been described in the Financial Times as “China’s biggest political challenge since Tiananmen in 1989.” On the ground, though, the protesters, mostly students — teenagers, really, some in their uniforms and armed with homework — are hardly menacing.

Alberto Jaramillo, CFA, former president of CFA Society Mexico, whose office building is right across from the besieged government complex, says that although there are some small inconveniences like finding parking, the protests have been peaceful, and the protesters respectful, clean, and orderly. “This is the most civilized protest I have ever witnessed,” he says.

Still, there have been some surreal moments: a string orchestra playing on the street, newlyweds having their wedding photos taken in the barricades, derivatives traders grilling sausages on what normally would be a busy highway, protesters neatly recycling trash. We also joke that the closure of Gloucester Road has cleared Hong Kong’s notoriously bad air.

Winners and Losers

The stakes are high. For the first time since the handover to China in 1997, Hong Kong’s political issues are directly colliding with its economic interests. Hardest hit by the protests are retailers in the “occupied” areas in the middle of a lucrative season (Golden Week) when throngs of Chinese tourists would normally be lining up outside stores selling jewelry and luxury brands. ANZ Bank estimates the affected retailers may have lost at least HKD2.2 billion. (Jewelers on average derive 50-70% of sales from Chinese tourists, according to Jefferies.)

“Our real worry is that the political deadlock would eventually affect business sentiment and consumer confidence at large,” said Raymond Yeung, senior economist of ANZ Bank. “The impact of Occupy Central is not confined to tourist spending. The slowdown of China has already affected the city’s growth momentum. If the protests continue to drag on, Hong Kong’s Q4 outlook will increasingly turn gloomy.” But not everyone’s a loser. McDonald’s and convenience stores such as 7-Eleven around the protest sites are making a killing — refreshments and yes, umbrellas, are flying off the shelves. Firechat, the mobile messaging app that works without the need for 3G or Wifi, went viral. And for Templeton’s Mark Mobius, the Hang Seng’s decline is an invitation for bargain hunting.


How long the protests will last and how the situation will be resolved is anyone’s guess. Both sides appear dug in.

What’s at stake is the Hong Kong people’s right to choose their own leader, the chief executive.

Although a Chinese territory, Hong Kong is administered separately from the mainland under “one country, two systems.” However, Beijing is wary of Hong Kong’s ability to choose a leader who will be loyal to China, and many Hong Kong people have grown resentful of Beijing’s monopoly in determining who rules them.

Currently, the chief executive is chosen by a committee of 1,200 largely pro-Beijing representatives from various industry and social groups. The protesters want direct elections through one man, one vote. But China’s highest lawmaking body ruled out an open nomination system to select of the chief executive in 2017. Candidates must be endorsed by more than half of the members of the nominating committee, which protesters say is designed to guarantee that only Beijing-friendly candidates are able to stand for election.

The protesters are also demanding that Chief Executive Leung Chun-ying resign and are bringing to the surface the bubbling social and economic dissatisfaction across Hong Kong society, especially among the youth. Decent paying entry-level jobs are harder to find, and home ownership has become more difficult as property prices skyrocketed, partly pushed up by demand from mainland buyers.

Fear of History Repeating

The last large protest in Hong Kong, in 2003, (about half a million marchers) led to the resignation of Beijing’s first-appointed leader. Leung could suffer the same fate.

The biggest fear is a Tiananmen-like violent crackdown. With many of the student protesters too young to witness the events of 1989, distraught parents have flooded a Red Cross support hotline in recent days. Some political analysts worry that Beijing might misread the situation. After all, dissent is rarely tolerated in the mainland, and the protests come at a time when Chinese President Xi Jinping is still consolidating his power base and needs to project strength. But the consequences of such action would be severe and only further alienate the Hong Kong people.

The government could also just wait the protests out. It’s uncertain how long the protesters can sustain their activities and how long public opinion will remain on their side. If the cost to people’s livelihoods from transport disruptions or business closures mount, support could wane.

Long-Term Costs

The immediate impact to Hong Kong’s economy may be limited. The real cost, however, could be felt in the months to come. Large business groups have strong commercial interests in mainland China and have opposed the protests.

It’s not hard to see their motivations. Over the last 10 years, China has showered Hong Kong with economic incentives such as a free trade agreement, the first offshore renminbi center, and most recently, the integration of the Shanghai and Hong Kong stock exchanges. Hong Kong has also profited from its special status as the gateway for Chinese companies going overseas and as a destination for Chinese wealth.

Will there be a shift in China’s economic stance toward Hong Kong? One CFA charterholder I spoke to, a retail sector equity analyst, says one scenario is for China to reduce the number of tour groups and visa approvals for travelers to Hong Kong. Just a 20–30% reduction would seriously hurt retailers and the economy.

Regardless of how the protests are resolved, the question is whether Hong Kong can bear the economic consequences of its political aspirations.

To keep abreast of the developing situation in Hong Kong, here are some resources you might want to bookmark or follow.

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Heda Bayron

Heda Bayron is a communications specialist at CFA Institute in Asia Pacific. She has more than 15 years of experience in corporate communications and journalism. Previously, Bayron was a communications consultant at the International Finance Corporation, a member of the World Bank Group, and a senior press officer at Asia Society in New York. She also worked with the Hong Kong Institute of Certified Public Accountants as deputy editor of its member magazine, A Plus, where she won a Society of Publishers in Asia award for Editorial Excellence in Business Reporting. Before that, Bayron was an assistant editor at Voice of America's Asia News Center in Hong Kong for more than seven years.

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