16:07 | 02/01/2019 Global Economy
The storm winds of the recent trade war between the United States and China have settled in a truce for now, but the weeks of agitation — of rising tariffs and counter duties — battered one economy close to Beijing: Hong Kong’s.
|A man watches as people salvage usable materials from discarded office furniture for their secondhand shop in Hong Kong in December 2018|
The government says the impact of the trade war can be seen in consumer prices, slower spending and lighter trade. Consumer price inflation ticked up 2.8 percent in the third quarter. The government warned that inflation could head upward as local costs rise along with residential rental rates.
Trade and logistics — the apparatus to move the shoes and dresses and smartphones from Chinese factories to markets worldwide — are central to Hong Kong’s economy. The sector accounts for nearly one-fifth of the city’s GDP, higher than the substantial financial and banking industry here. When tariffs hit, goods cost more to sell in the United States, which means companies decrease stock and consumers buy less.
China’s economic growth weakened in the third quarter from a year earlier, its lowest expansion since the global financial crisis in 2008.
Clearly consumers are wary. Retail sales in Hong Kong, the semi-autonomous Chinese territory, grew in September at their slowest pace in 15 months. Also hurting the city was substantial damage from typhoon Mangkhut.
Favorite shops of mainland tourists — Sa Sa International, Chow Tai Food Jewelry, and Luk Fook Holdings, all posted slowed sales in the third quarter.
Hong Kong also saw its economy lag for local reasons. Home prices in what is often called the world’s least affordable market chilled this year as interest rates rose. The number of residential property transactions fell by 24 percent from 18,900 in the second quarter to 14,400 in the third quarter, according to the government.
Property sellers saw the slowdown in sales set in this summer, after the residential property market had churned hard for 28 consecutive months. Median home prices dropped by as much as 5 percent from June, agents told the South China Morning Post in October. The city’s rating and valuation Index, which tracks prices of older homes, in August marked the first monthly decline in more than two years. Even the government offered discounts. A 97,300-square-foot plot of the former Kai Tak airport in the city’s Kowloon district sold for $1.03 billion to a unit of China Overseas Land & Investment, nearly 13 percent lower than another Kai Tak sale in November.
The market chill began in August after Carrie Lam, Hong Kong’s chief executive, introduced a tax to compel developers to create more housing. Meanwhile, banks raised mortgage rates for the first time in 12 years.
That means mortgage holders have less extra money to spend and it is forecast that there will be fewer tourists visiting Hong Kong, perhaps because of the volatility in China.
Folded into China's economy
Hong Kong produces very little domestically. Because the territory’s economy is so entwined with China’s, and because the range of products and services are so narrow, the impact of the extra tariffs will be felt on whatever the city acquires from China and re-exports.
Hong Kong is likely to suffer more during China’s downturns as the former British colony is folded into China’s economy and as the government plans for a massive technology hub to be rooted in nearby Shenzhen.
Andrew Sheng, a distinguished fellow at the Asia Global Institute at the University of Hong Kong, wrote in an email that he didn’t think the city would encounter much inflation, despite the downward pressure coming from lower property prices and a slowing global economy.
“The Hong Kong economy will suffer from the trade conflict,” said the former central banker and financial regulator in Asia. “Although it is very resilient to overseas shocks.”