A third iteration of the dreaded Coronavirus that first swept the region as SARS in 2003 and MERS in 2014 has resurfaced, claiming lives and eroding value – as much as 0.5 percent of China’s GDP. Can an already weakened Hong Kong remain immune? 

Even as beleaguered chief Carrie Lam makes the case in Davos for Hong Kong as a global investment destination, skepticism around its future reaches a feverish pitch. Despite any charm, the otherwise steely leader may be able to muster, the numbers are damning – when China sneezes, Hong Kong quite literally catches a cold.

In 2018, over 50 percent of all outbound investment from China, including that associated with its Belt and Road Initiative, was routed through Hong Kong. In the same year, a Wealth-X census estimated that, with 285 billionaires, China was home to the largest population of uber-wealthy outside of the U.S., Hong Kong’s unique status as clearinghouse to the world’s second-largest economy and its cultural and geographical ties to its newly-minted wealthy made it a magnet for both investment and private banks. 

Evidence of a Slowdown

A walk through Hong Kong’s Central business district or coffee at Cafe Causette which doubles up as an unofficial meeting room for bankers from nearby HSBC, Standard Chartered, J.P. Morgan, Goldman Sachs, and Citi will provide enough evidence of a slowdown.

A trifecta of factors – the unrest, the customary shutdown over Chinese New Year and the Coronavirus outbreak – have «brought things to a complete halt,» says a headhunter who has decamped to Europe temporarily, hoping order will soon return. He will not, however, be going back to Hong Kong as planned at the end of the month, which also marks the beginning of the Chinese Year of the Rat.

Not Enough Deal Flow

«There is not much interest from either banks or candidates at the moment and schools have been ordered to remain shut at the end of the usual New Year holidays.» Notwithstanding Alibaba’s secondary listing on the Hong Kong Exchange last year – a move that had all the markings of a Chinese state-led public relations exercise – there is not enough deal flow to justify the presence of the hordes of bankers that once called Hong Kong home.

And the many billionaires and millionaires private banks were so tantalized by? They are keen to prove allegiance to the Motherland by taking their business elsewhere.

No Tourists, No Swiss Watches 

But it isn’t only the financial services industry, which is cyclical at the best of times, that is suffering. World Bank data estimates that 28 million tourists came to Hong Kong, a city of 7 million people, in 2018. Arrivals from China account for 70 percent of these visitors. Given their penchant for luxury, Mainland tourism skewed Hong Kong’s economy disproportionately towards retail.

Not only is it the largest market in the world for premium Swiss watches, for example, auction houses Christie's and Sotheby’s have both broken records for sales of fine jewelry, rare handbags, and wines to seemingly price-agnostic connoisseurs in Hong Kong.

Ban on Group Travel

However, instability has upended the trend. In October last year, data from The Federation of the Swiss Watch Industry confirmed a 30 percent contraction in the demand for luxury watches in Hong Kong, whereas regional rival Singapore registered a 5 percent increase in the same month. The culprit?

A corresponding 29 percent fall in arrivals from China, according to the Hong Kong Tourism Board. That the slump is likely to continue, was confirmed by Beijing’s decision to impose a ban on group travel as a way to contain the spread of Coronavirus, an embargo that is likely to stay in place for months.

Too Early To Call It Quits? 

There has been a range of reactions from banks to fears of a pandemic, but commentators agree that a measured response is probably the most appropriate one. The most recent research note from Bank of Singapore expects the virus «to have a less severe impact than SARS» and it was «unlikely to cause lasting damage to the global economy».

Some part of this optimism must stem from the influence of China – and hence, Hong Kong – as an economic and political heavyweight.  Far from being the emerging economy, it was during the SARS outbreak, the region is too big to fail today. But an equal amount must surely stem from the resilience Hong Kong – and its people – have shown, civil unrest, recessions, and viruses notwithstanding.