Advertisement
China economy
This Week in AsiaOpinion
Donald Low
Donald Low

Asian Angle | What Hong Kong must do to prepare for years of weaker growth in mainland China

  • Failure to anticipate and prepare for weaker growth would mean the city sleepwalks into stagnation, or worse, lurches from one crisis to another
  • A more active, adaptive government is needed for re-industrialisation, developing stronger ties with other regions and meeting future challenges

Reading Time:5 minutes
Why you can trust SCMP
5
A man talks on his phone in front of the skyline in Hong Kong. The longer term implications of mainland China’s slower growth for the city are profound. Photo: AP
Donald Low
At the start of this year, the conventional wisdom among analysts studying China was that the economy would come roaring back to life and easily beat the government’s modest growth forecast. The US economy, meanwhile, was tipped to face a recession amid repeated interest-rate increases to bring down inflation that was running at close to 40-year highs.
Advertisement

The reality has turned out to be quite the opposite. 2023 will be remembered as the year that the Chinese economy struggled to deal with falling prices and wages – reflecting weak domestic demand – as firms and households cut spending to pay debts, and amid continued declines in the prices of property and other financial assets.

While China’s economy is likely to meet the government’s growth forecast for 2023 of 5 per cent, this hardly constitutes a strong recovery as the economy grew at just 3 per cent last year. The country’s significantly lower interest rates have also led to capital flight, putting pressure on the renminbi, which has depreciated by around 5 per cent against the US dollar since the start of the year.

A 100 yuan banknote is seen in front of a US dollar. China’s renminbi has depreciated by around 5 per cent against the US dollar since the start of the year. Photo: dpa
A 100 yuan banknote is seen in front of a US dollar. China’s renminbi has depreciated by around 5 per cent against the US dollar since the start of the year. Photo: dpa

By contrast, the US economy has surprised on the upside. Not only did third-quarter growth come in at a sizzling 4.9 per cent (which, coincidentally, was also how much the Chinese economy grew in the same period), but inflation fell to 3.2 per cent in October – raising expectations that the cycle of interest rate hikes was over.

The point of highlighting the US and China’s contrasting economic fortunes this year is not to argue that they represent a longer-term trend. Rather, it is to suggest that the conventional view of China’s economy as an unstoppable juggernaut – that would, inevitably, become the largest in the world by 2035 – could well be wrong.

If so, it is incumbent on the Hong Kong government to prepare for the possibility that the Chinese economy does not grow at the projected 5-6 per cent over the next decade or so, but at a more realistic rate of, say, 3 per cent.

Profound implications for Hong Kong

The longer-term implications for Hong Kong of mainland China’s slower growth are profound. A failure to anticipate and prepare for this scenario would mean that Hong Kong sleepwalks into stagnation, or worse, lurches from one crisis to another – not unlike how the city’s authorities failed to anticipate and prepare for the likelihood of Covid becoming endemic.

Advertisement