The roots of Hong Kong’s problems can be traced back to both China and America.

Hong Kong’s struggles due to China’s influence

Are you ready for another interesting story? Sit back, relax, and enjoy more audio and podcasts on either iOS or Android. Now, let’s dive into the recent story of Sevva, a trendy bar and restaurant in Hong Kong with breathtaking views. A dining area in this swanky establishment offers views of major financial institutions across the street, including HSBC’s office windows. It’s the perfect place to enjoy a cocktail while gazing at Hong Kong’s beautiful skyline. However, this popular spot, known for its fresh, simple, and honest cuisine, is set to close its doors in May, sending shockwaves through the city’s already struggling financial industry.

Amidst a prolonged downturn, Hong Kong has seen its main stock market index plummet by over a quarter since late January. The situation confirms a general malaise prevailing throughout the city, where initial public offerings have raised the smallest amount in 20 years. This dire economic environment has sharply impacted the financial services industry, which accounts for more than a fifth of Hong Kong’s GDP. With such high stakes, the industry provides a key barometer for the city’s overall economic health.

The decline of Hong Kong’s financial industry has had a wide-reaching impact, dragging down property prices by almost 20% from their peak. Factors such as the COVID-19 pandemic and the social movements of 2019 have played a critical role in creating enormous challenges for the city’s businesses. It has been made even worse with the imposition of stringent national-security laws by China, eroding the city’s autonomy and making it harder for Hong Kong to serve as a “superconnector” between China and the rest of the world.

Despite this bleak economic outlook, there’s hope on the horizon. If the Fed cuts interest rates, Hong Kong’s domestic economy is expected to see a vigorous revival. As financial conditions ease and the city’s currency weakens, deals and visitors might return, revitalizing the city’s economy.

The city’s financial industry and property market remained resilient after the introduction of the national-security law. However, a regulatory campaign by mainland China against property developers and internet firms listed in Hong Kong has led to further financial turbulence. Additionally, the sharp rise in interest rates, driven by the need to maintain the currency peg to the dollar, has constrained the city’s fragile recovery, pressuring the property market and broader economy.

So, why should we care about Hong Kong’s struggles? Because it’s not just another city in China. It has its distinctive characteristics and its significance as a global financial center.

As we turn the page on another challenging chapter for Hong Kong’s economy, the city’s appeal will continue to endure. Despite the loss of an iconic restaurant, Sevva, Hong Kong will remain a place where people from around the world can enjoy a taste of Asia without giving up familiar utensils.

Before we wrap up, we have more expert analysis of the biggest stories in economics, finance, and markets available. If you’re interested, sign up to Money Talks, our weekly subscriber-only newsletter at economist.com. What a journey, isn’t it? Now, let’s look forward to the future of Hong Kong.

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