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Hong Kong’s Refusal to Open Border Is Crushing City’s Businesses


© Bloomberg. An empty area for passengers heading to quarantine in the arrival hall at Hong Kong International Airport.

(Bloomberg) — Sparks cascade into the night sky as welders work on two office towers arising in Hong Kong’s waterfront banking district. Owned by companies controlled by the city’s two richest men, the high-rise construction projects radiate confidence in the future of finance hub.

On the streets below, optimism is in short supply. The city, which hosted 65 million visitors in 2018, has been effectively closed to the world since March 2020. There is little sign of the border with mainland China opening this year. Strict Covid restrictions — such as forcing restaurants to shut at 6 p.m. — throttled consumer spending. In February and March, retail sales plunged more than 12% from a year earlier. The economy contracted 4% in the first quarter, one of its worst performances in the past 30 years. 

Behind the bleak figures is the human cost. Small business owners facing potential ruin after being forced to shutter their operations for months on end. Residents choosing to emigrate rather than take the risk of their childrens’ schools closing again. Uncertainty over future policy is the enduring theme of many interviewed by Bloomberg News for this story. Quelling such doubts will be key if John Lee, the city’s next leader, is to revive the city’s economy when he takes over on July 1, the 25th anniversary of the return to Chinese rule. 

Elizabeth Chan has experienced the economic pain first hand. The government ordered the closure of her beauty salon business along with gyms, bars, cinemas and theme parks in early January for the second time in two years. While the move did little to blunt the spread of omicron, it’s almost driven her business into the ground. She’s closed two of her three Elite Skin & Hair salons and reduced staff to 15 from 50. Salons were allowed to open last month, but Chan estimates about 20% of her clients have left the city.

“We are very worried, our clients are worried,” said Chan. “From an accounting point of view, we should close down the business. It’s gone past the point of survival.”

Anthony Yu opened The Galley, an airplane-themed restaurant in the city’s gritty Tai Kok Tsui district, before the pandemic brought Hong Kong’s air traffic to a halt. In 2018, the last year before civil unrest and Covid curbed travel, the airport handled about 75 million passengers. Last year it was 1.4 million, a drop of 98%. 

Due to onerous quarantine rules for travelers, the highly-rated restaurant is now the closest many can get to being in the sky. Diners sit in plane seats next to oval windows, being attended to by staff dressed in aircrew uniforms. 

“Customers say because we can’t travel we are dining in your restaurant so we get a closer feeling to it,” said Yu. “People even bring their pets.”

Social distancing rules crushed his business — which also includes a Las Vegas-themed bar, hot pot restaurant and takeaway outlet. Sales plunged 90% in the first three months of the year as the government banned evening dine-in and limited the number of diners per table to two.

The government has since eased rules to allow restaurants to stay open till 10 p.m. and allowed eight per table. But Yu isn’t optimistic. A major concern for business owners is the potential for restrictions to be reimposed in the event of another wave.

“The economy will not quickly return to normal,” he said. “All of us are under big pressure because we can’t see a clear future.”

Small and medium businesses employ about 45% of the workforce in Hong Kong’s private sector, making them crucial to the economy. Hong Kong’s unemployment rate climbed to 5% in the first quarter, a nine-month high. About 470,000 people applied for pandemic-related unemployment relief, 57% more than authorities expected, the government said in mid-April.

As the rest of the world moves past Covid restrictions to living with the virus, Hong Kong’s approach of closing businesses, restricting everyday activities and keeping travelers out looks increasingly outdated and punitive. Governments bar China have abandoned Covid Zero policies in the face of omicron, while Asian nations are rapidly dismantling travel restrictions aimed at limiting the spread of the virus. 

New Zealand’s leader Jacinda Ardern said Wednesday the country will fully reopen its border in July, two months earlier than planned. Japan’s Prime Minister Fumio Kishida pledged last week to relax virus-related border controls in line with other wealthy countries in June. Singapore and Thailand both eased entry rules for vaccinated travelers last month.

Hong Kong is moving in a more liberal direction than before, certainly compared with mainland China, where Covid Zero is being pursued with increasing zeal. This month, the financial hub ended a two-year ban on visits by all non-residents and eased some restrictions on inbound flights. Hotel quarantine for inbound travelers has been halved to seven days. Most remaining social distancing rules will be eased later this month.

Hong Kong Plots Different Covid Path to Xi’s Zero Tolerance 

Yet the quarantine rule means the city is still effectively closed to visitors. Simon Murray, the former Glencore (OTC:GLNCY) Plc chairman who built his career in Hong Kong, doesn’t want to return until restrictions are lifted. 

“I don’t fancy coming and sitting in a hotel for seven days under lock and key,” said 82-year old Murray, a former French Foreign Legionnaire. “A knock on the door reminds me of foreign legion prison.”

Hong Kong is “falling behind” as the rest of the world reopens, Cathay Pacific Airways (OTC:CPCAY) Ltd. chairman Patrick Healy said at the airline’s annual general meeting Wednesday.

There is plenty of room for Hong Kong to ease international border controls. Infections have continued to decline even as the government loosened rules. New daily cases are below 300, from more than 50,000 at the peak in March. Vaccination rates continue to climb. About 86% of the population aged 3 and up have had two doses.

It’s not clear what the prerequisites are for reopening the border with the mainland, Hong Kong’s leader Carrie Lam said this week. Hayman Chan, a third-generation tailor, used to drive to his workshop in neighboring Shenzhen several times a day before the pandemic. He hasn’t been back to the mainland since last year, when he did 21 days quarantine.

“It takes a very long time to make an order and a longer lead time means less business, it’s just a massive headache,” said Chan, who is chief executive officer of Hondsyork, which specializes in selling suits online for global clients. 

Chan has closed two of his three premises and cut staff to six from 20 as business declined. “It can’t get any worse,” he said.

Back in Hong Kong’s financial district, construction continues on the buildings owned by Li Ka-shing’s CK Asset Holdings Ltd. and Lee Shau Kee’s Henderson Land (OTC:HLDCY) Development Co. Yet demand for office space is falling. 

The city recorded just HK$7.8 billion ($994 million) of commercial property transactions in the first quarter, compared to a quarterly average of about HK$30 billion in 2018, Cushman & Wakefield (NYSE:CWK) data show.

“I’ve been working in this industry for more than 25 years,” said James Mak, a district sales director in Midland IC&I Ltd. and who helps broker sales of office floors. “This is the worst.”

©2022 Bloomberg L.P.

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