HONG KONG - Hong Kong's financial alarms are ringing louder, after emergency laws invoked on Friday triggered a weekend of violent clashes. Local currency is already being swapped for greenbacks. Hopes of a negotiated solution are fading, fuelling human and capital flight.
The Chinese-run territory's prior experience with disasters, both natural and financial, shows a degree of resilience. It weathered the Asian currency crisis in 1997, successfully fending off an attack on its currency. Even so, the shock pushed the city into recession, and in 2003 a respiratory epidemic did similar damage. The house price index fell by a nearly third between 1998 and 2005. But the city bounced back.
Until this weekend, ordinary life was only slightly disturbed by unrest, set off four months ago by proposed legal changes that would have allowed suspects to be sent to China to stand trial. People were able to shop and commute. Over the past few days, that changed.
After Chief Executive Carrie Lam implemented colonial-era emergency powers, banning masks at protests, demonstrators took violence to a new level. They trashed subway stations, ATMs, and the branches of mainland businesses over a three-day weekend. Many large malls, retail chains and supermarkets closed their doors or shortened their hours; the rail operator MTR Corp 0066.HK closed the entire system on Saturday, and it remains hobbled.
Residents reacted with alarm. Long queues formed at open grocery stores, and at ATMs. The Hong Kong Monetary Authority came out to reassure the public that the supply of banknotes remains enough to meet demand.
The risk is that popular anxiety proves infectious. The city's credit rating has already been downgraded by Fitch. Goldman Sachs estimates that $4 billion departed from Hong Kong for Singapore over the summer; manageable but hardly reassuring. August data showed local currency deposits shrank 1.6% month-on-month, while U.S. dollar deposits rose 2.7%. Hard currency reserves posted a surprise $16 billion drop for that month.
Human capital may soon follow. Hong Kong residents rely heavily on the subway system, and more security measures would similarly impinge on daily life. Anecdotal evidence suggests departures are already increasing, among expatriate executives but also locals. The more people press the panic button, the more will queue behind them.
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- Hong Kong’s government on Oct. 4 invoked emergency powers to quell violent protests, bringing in a rule to ban the use of face masks during demonstrations. Chief Executive Carrie Lam said the law allows authorities to "make any regulations whatsoever". The news prompted immediate street demonstrations, and violent clashes.
- During protests over the three-day weekend, demonstrators attacked local branches of mainland businesses including Bank of China, China Life and Xiaomi, and vandalised subway stations. They also shone lasers at the barracks of the People's Liberation Army in Kowloon district, prompting a warning from the PLA.
- Malls and other businesses operated with restricted hours over the period. Rail operator MTR Corp closed its entire system for certain periods over the weekend, and some stations remain closed on Tuesday.
(Editing by Clara Ferreira Marques and Katrina Hamlin) ((firstname.lastname@example.org; Reuters Messaging: email@example.com))