Opinion: Does China really need Hong Kong — and for how long?
As the 25th anniversary of the British handover of Hong Kong to China passes, Hong Kong is struggling to keep up with the mounting economic struggles caused by a pandemic, protests and competition
Hong Kong recently observed the 25th anniversary of the handover from British to Chinese control. What will happen in the next 25 years is unclear, but from the perspective of my industry, travel and tourism, the reader can draw their own conclusions.
From 2019 on, the overlapping events of political protest (including the implementation of the National Security Act), the COVID-19 pandemic and competition from adjacent Pearl River Delta cities called into serious question the viability of Hong Kong as the premier East Asian air hub.
Hong Kong’s airport faces a compounding threats
First, during the political protests of 2019, students invaded and then squatted at Chek Lap Kok, otherwise known as Hong Kong International Airport, protesting a proposed extradition law sent down from Beijing. Anxious passengers, piloting unruly luggage carts, hastily made their way towards their gates. For those arriving in Hong Kong, using the city’s metro system was out of the question as protesters clogged that transportation artery as well.
Tourism plummeted with each passing day of unrest. Cathay Pacific Airlines (the Hong Kong based long-haul carrier) employees who expressed their solidarity with the protesters did little to help their private company, owned by Swire, and likely contributed to its rapid decline during the next two years.
Second, COVID-19 ground Hong Kong’s airport to a halt in late December 2019, like other hubs around the world. However, measures to insure a zero COVID-19 policy after the decline in the first waves of the virus, kept potential tourists away. The prospects of a 21-day quarantine upon arrival, regardless of vaccination status, sealed the fate, in many minds, of Hong Kong’s status as an international air hub.
This dealt a devastating blow to Cathay Pacific’s hub status, as pilots and crew faced a no-man’s-land of combining two weeks abroad flying with two weeks in quarantine before repeating the cycle all over again.
One also wonders in the case of Cathay Pacific if the government in Beijing is not somewhat content to let the privately managed airline twist in the wind as the status of the air hub remains uncertain. Not only the hub, but hotels in the upper echelon of global performers, like the Hong Kong Peninsula, reported devastating losses during the three years in question. Competing chain Mandarin Oriental eventually extracted key management officials from the city due to concerns about overreaching pandemic measures and the new National Security Act.
Third, “the python effect”: the rise of neighboring world class airports that might squeeze air primacy from Hong Kong’s identity, further jeopardizing its quick return to preeminence once COVID-19 restrictions have been normalized.
Guangzhou Baiyun International Airport in Southern China welcomed nearly 74 million passengers in 2019. Shenzhen Bao’an International Airport hosted nearly 50 million passengers in 2018. The Macau International Airport, a favorite of high rollers, received nearly 10 million passengers in 2019. A new Pearl River Delta International Airport will also come on-line in the next decade. Hong Kong Airport Authority Victor Fung asserted that “Hong Kong’s airport should work with counterparts in the Pearl River Delta (PRD) to maintain long-term competitiveness.”
What will Hong Kong’s fate be?
All of this is not to say that Hong Kong will not remain an important financial center, but even that is up in the air. On a recent CNN International business broadcast, host Richard Quest asked Kurt Tong, former U.S. Consul to Macau and Hong Kong, about the resilience of the embattled city as a global financial hub. This response, as found in the CNN transcript, is almost as revealing as the question is provocative:
Quest: Is it your view — do you share the view of some that actually, China — mainland China doesn’t really care and actually, will be quite happy to watch Hong Kong go down the toilet? It’s got Shanghai, it’s got its own larger economy itself. This idea of Hong Kong being the ... financial window for China simply is irrelevant these days, and if Hong Kong withers, so be it.
Tong: You know, Richard, I don’t agree with that. I think that China needs Hong Kong for at least another decade to provide the access to foreign capital and the flow of information and ideas and finance that will really help develop the Chinese economy.
Shocking is the fact that Tong indirectly agrees with Quest’s analysis, with the caveat of allowing another decade to pass!
What makes this of historical interest is that leading up to the Communist takeover of China in 1949, uncertainty as to the fate of the market economy in Shanghai caused a massive shift of capital and corporate governance to Hong Kong, which was seen as safe from an imminent takeover.
What we are seeing now is the same sort of phenomenon. In terms of air hubs, it means that Hong Kong will still be an important part of the East Asian market, but its status may be significantly diminished and that also leaves the health of Cathay Pacific, which has prided itself on being Hong Kong’s hometown carrier, in the balance as well.