|13 November, 2019

Volatile Hong Kong poses a supply-chain quandary

Five months of demonstrations this year present an unprecedented challenge

Image used for illustrative purpose, investment theme background with aerial panoramic view of the Hong Kong City Skyline and Victoria Harbour at sunset at china.

Image used for illustrative purpose, investment theme background with aerial panoramic view of the Hong Kong City Skyline and Victoria Harbour at sunset at china.

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HONG KONG - The corporate calculus on Hong Kong is changing. For a third consecutive weekday, transport networks have been disrupted by violent anti-government protests, prompting schools to close and leaving workers stranded. Much the way toymakers and apparel vendors have accelerated their quest for factories outside China, its special administrative region poses an international supply-chain quandary.

Hong Kong boasts an admirable track record of surviving shocks, from regular typhoons to the SARS epidemic. Five months of demonstrations this year, however, present an unprecedented challenge. A day after police shot a protester at close range, college students battled law enforcement in a prolonged and fiery standoff. Tear gas was fired in the crowded central business district at lunchtime.

The unrest has exposed a government, led by Carrie Lam, and a police force ill-equipped to cope. A police spokesman saying the city’s rule of law has been pushed “to the brink of total collapse” can only prompt multinational companies to accelerate contingency planning. More than 1,500 of them, with nearly 200,000 employees, have stationed their regional headquarters in Hong Kong, in large part because of the city’s robust rule of law.

So far, there have only been small signs of financial capital flight. Bigger changes are becoming inevitable, though.

Human capital will be a real challenge. Banks, consultants and others in the services industry will struggle to entice Western executives to move to a volatile Hong Kong. Likewise, violence being directed at the city’s mainland Chinese residents is bound to dissuade southbound relocations. And many Hong Kongers themselves will seek an escape hatch. It has happened before: About 300,000 of them were living in Canada in the late 1990s, around the time of the British handover.

Nearly half of companies surveyed by the American Chamber of Commerce in Hong Kong said they were pessimistic about business prospects longer-term. More than a third reported wrestling with a possible talent drain and a quarter indicated plans to scale back or move away. And that was over a month ago, before the latest escalation. Finding a different hub will be difficult, especially for those that need proximity to the influential stock exchange, depend on Hong Kong as a gateway to the mainland or relish an independent judiciary. Each day of fresh violence, however, makes alternatives look better.

CONTEXT NEWS

- Hong Kong entered a third day of widespread transport disruption on Nov. 13, a day after protesters and police clashed across the city. Tear gas was fired in the central business district for a second consecutive day on Nov. 12 while running battles at university campuses continued through the night.

- Police Senior Superintendent Kwong Wing-cheung said on Nov. 12 that unrest had pushed the special administrative region of China to the "brink of a total breakdown".

(Editing by Clara Ferreira Marques and Sharon Lam)

© Reuters News 2019

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