“Too Little, Too Late” – Hong Kong sinks into recession
November 14, 2019
2 min read
What's going on here?
The major international trading hub faces a harsh recession following the announcement of an extradition bill to China and the ongoing China-US trade war. Increasingly violent protests over a 5-month period have caused chaos, hindering business and discouraging tourists (for more information read our “LittleLaw looks at” piece on the protests here).
The economy has shrunk by 3.2% during the three months to September, compared to the previous quarter. Whilst the bill has since been halted by city leader Carrie Lam, many protesters claim this move is “too little, too late”.
What does this mean?
The bill has stirred up political unrest during an already difficult time in Hong Kong due to the US-China Trade war, which has weakened the economy. The bill, proposed in April, would have enabled the Hong Kong government to consider requests from China for the extradition of criminal suspects. Extradition is the removal of a suspect to another country as they are wanted for crimes on those territories, where they will likely face trial. The Hong Kong government argues that the bill will ensure that the city will not become a safe haven for criminals.
Hong Kong has an entirely separate judiciary and legal system from China however many Hong Kong residents fear that the proposed bill would give China greater influence to target activists and journalists. Human Rights Watch’s Sophie Richardson stated earlier this year that “no one will be safe, including activists, human rights lawyers, journalists, and social workers”. Protesters fear that the bill could be revived, and demonstrations call for complete withdrawal of the bill as well as greater democracy and an inquiry into alleged police brutality. The protests have become increasingly violent over the 5 months since the announcement of the bill, with reports stating that a police officer fired a live round during a protest on the 1st of October and further shootings reported in recent days.
What's the big picture effect?
The resulting political instability and the reduced accessibility of Chinese-made products due to the US-China trade war has triggered a harsh recession in Hong Kong, which experts believe could be on a par with the 2008 financial crisis. Two consecutive quarters of negative growth technically constitutes a recession and financial analysts predict that GDP will continue to fall in 2020. The weakened economy has dampened consumer sentiment and as the demonstrations have severely disrupted retail, catering, tourism and other consumer-related sectors, it is unlikely that Hong Kong will see any growth in GDP in light of the ongoing demonstrations. Furthermore, any recovery will be hindered by weak business investment, as there has been lasting damage to the city’s reputation as a stable and autonomous financial hub.
The recession will certainly hit many large law firms hard as most global firms have a presence in the city. Hong Kong’s stock market generates around $5 trillion and much of the M&A and IPO work in the city keeps the law firms busy. The reduced flow of foreign capital through Hong Kong will certainly cause a lot of issues for the legal industry.
Report written by Emily Noble
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