A view of Victoria Harbour in Hong Kong in July 2018. Photo: IC

The ongoing protests in China's Hong Kong Special Administrative Region (HKSAR) have cast a shadow over Hong Kong's already slowly-growing economy, dragged down by the lackluster global economy as well as the simmering trade war between China and the US.

Yuan, a 25-year-old white-collar worker living in Beijing, travels to Hong Kong once a month on average to visit her family. But in the past two months, she has chosen to stay far away as the city has been disrupted by black-clad, mask-wearing rioters.

"Several of my close friends who are Hongkongers told me that the number of people in downtown shopping malls, mainly from the Chinese mainland, has strikingly reduced as the protestors usually swarm in these shopping malls," said Yuan.

"My friends cannot normally shop and a lot of stores choose to close much earlier than their regular time," Yuan told the Global Times over the weekend.

"Hong Kong has been a place that attaches importance to the principle that harmony brings fortune, but as the rioters cause so much chaos in various aspects, like paralyzing public transport, it is difficult for everyone to lead a good life," said Yuan.

Hong Kong International Airport canceled flights for two consecutive days from August 12 to 13 due to thousands of protestors flooding the venue, which has not only affected its tourism and retail industries, but also its image as an international hub.

Data from the HKSAR government showed on Friday that Hong Kong's GDP expanded by 0.5 percent in the second quarter year-on-year, slightly slower than the 0.6 percent growth in the first quarter. The lower level marked Hong Kong's weakest growth since 2009.

In a seasonally-adjusted, quarter-to-quarter comparison, real GDP decreased by 0.4 percent in the second quarter after an expansion of 1.3 percent in the preceding quarter, according to Andrew Au, an economist of the HKSAR government.

Hong Kong Financial Secretary Paul Chan Mo-po had previously mentioned that if third-quarter economic data continues negative growth, Hong Kong will be caught in a technical economic recession.

"Data will show a worse result in the third quarter, as the second-quarter data ended in June cannot gauge the impact caused by the protests which started in June," said Hong Hao, chief China strategist at BOCOM International.

Ahead of the GDP figure release, the HKSAR government on Thursday unveiled a support package worth HK$19.1 billion ($2.44 billion) to help local residents and small to medium-sized enterprises. "However, it is difficult to achieve its support target compared with the hard blow that the city has experienced in the past two months of chaos," Hong told the Global Times over the weekend.

Pillar industries shaken

Impacts thus far are devastating and it will be a long-term situation before the local economy is restored, said analysts.

Trade and logistics, the financial services industry, tourism and business, and the professional services sector are the four major pillars supporting Hong Kong's economy, providing 46.4 percent of the region's employment while contributing to 57.1 percent of economic output in 2017, according to a report by Caixin magazine.

The ongoing protests, showing no signs of halting, are taking a sharp toll on the region's economy with tourism and retail sectors hit hard.

In the prosperous Causeway Bay area, where tourists from the Chinese mainland often travel to buy luxury goods and taste Hong Kong culinary specialties, some hotels have seen prices tumble due to dwindling numbers of tourists. "A room once worth 2,000 yuan ($283.98) per night now only costs 700 to 800 yuan," an insurance salesperson, who asked to remain anonymous, told the Global Times.

As of Thursday, a total of 29 countries have released tourism warnings for Hong Kong. Data showed that trips made to Hong Kong increased by 150 percent year-on-year in the first five months of 2019, yet the growth rate tumbled to 8.5 percent in June.

Hong Kong's Secretary for Commerce and Economic Development Edward Yau Tang-wah said in July that the number of inbound tourists dropped 26 percent at the end of July and 31 percent in August.

Some major retailers are also reporting slowdowns. Switzerland-based Richemont, which owns the Cartier and Van Cleef & Arpels brands, and Swatch Group, the world's largest watchmaker, are among the luxury brands hit by store closures and the decrease in tourist arrivals, according to Bloomberg. Switzerland's exports of watches to Hong Kong plunged 27 percent in June. Brands like Prada and Ralph Lauren also saw sales drop amid unrest.

"The damage to retail and tourism industries also means a loss of jobs for many local residents," said Liang Haiming, an economist at Hainan University.

A man operating a western restaurant in the Sheung Wan area of Hong Kong, who declined to give his full name, told the Global Times over the weekend that his business has deteriorated recently due to the fallout from the protests. 

"The black-clad protestors made scenes in my store when they were having dessert. One of my friends tried to convince them not to disturb other guests, and the other day they poured paint into my store twice," the man complained.

In Mong Kok, one of the busiest districts in Hong Kong, a restaurant has witnessed consecutive loss since its opening. "Lots of guests have canceled their booking because the rioters have made them afraid to come," said Qin, the restaurant owner.

"In the middle of July, booking of 16 to 18 guests was dropped because two large-scale protests happened around," said Qin. "Some guests even told me that they are coming here at the cost of their life safety," she added.

The escalating protests will likely result in a higher rate of unemployment in the second half of 2019, Nikkei Asian Review reported on August 12, citing Law Chi-kwong, Hong Kong's secretary for labor and welfare.

Declines in the services and retail industries, and a drop in tourist numbers will affect about 30 percent of the working population, according to Law.

Latest data from the HKSAR government showed on Monday that the seasonally adjusted unemployment rate increased from 2.8 percent in the April-June period to 2.9 percent in the May-July period.

Total employment decreased by around 3,300 from 3,870,700 in April-June to 3,867,400 in May-July. 

Commenting on the latest unemployment figures, the Secretary for Labor and Welfare Law Chi-kwong said "as the consumption market stayed soft, the unemployment rate of the retail, accommodation and food services sectors taken together went up from the preceding three-month period."

"As the economy is expected to stay weak in the coming months, the local labor market will unavoidably be subject to greater pressure. The government will monitor the labor market situation closely," Law said.

"What is worse is that if more local residents lose their jobs, how can they pay their monthly mortgage with the skyrocketing price of apartments?" said Hong.

Some analysts have expressed concerns over the possibility that Hong Kong's property values might see a slump. "If house prices tumble as protest fallout tends to be a catalyst, the HKSAR will return to its level in 1997 when the Asian financial crisis broke out," Hong noted.

According to Liang, thus far the property market has not dropped significantly.

An increasing number of Hong Kong-based real estate companies have recently voiced their support for the HKSAR's government and their opposition to the violent protests.

On August 13, signatories including CK Asset Holdings, Henderson Land Development, Sun Hung Kai Properties, Sino Group, Wheelock Properties and Chinachem Investment Co issued a joint statement voicing their opposition toward increasingly violent protests and vandalism in the city.

The protests have also put Hong Kong's position as a financial center and assets haven in an awkward position, as they have spurred investors to transfer their fortunes to other places like Singapore. "The Southeast Asian country has the capability to accommodate the capital transferred from Hong Kong," Hong noted.

More than $600 billion of stock market value has vaporized since early July, the Bloomberg reported Thursday.

Hong Kong's benchmark Hang Seng Index dropped to its lowest level within the year at 24,899, compared with its peak in May at 30,000.

AB InBev, the world's largest brewer, canceled the planned IPO of its Asia Pacific unit in Hong Kong in July. The IPO was considered the largest of 2019.

China's e-commerce giant Alibaba has reportedly delayed its planned second listing in Hong Kong due to the region's protests. The company declined to comment when contacted by the Global Times.

"If IPO is conducted at this time in Hong Kong, these companies' market evaluations are set to be discounted," Hong explained.

Weakening advantages 

Hong Kong has played a crucial role as a conduit between the Chinese mainland and the West in trade and finance. But as the mainland accelerates the progress in its reform and opening-up, such a role for the HKSAR will be weakened even though its financial services industry is most competitive, analysts said.

China has rolled out a slew of measures to open its financial sector over the past two years, including the Shanghai-London Stock Connect, the Science and Technology Innovation Board, and lifting the cap on stakes held by foreign financial firms.

Moreover, the HKSAR lacks the vitality that Shenzhen, South China's Guangdong Province, has in terms of start-ups and technological innovation, Hong said.

Economic output by the science and technology innovation sector in Hong Kong accounted for only 0.7 percent of its GDP over the past four years, employing about 40,000, less than 1 percent of total employment, according to the Caixin report.

"Relying on its historic halo as a pole hole between the mainland and the West, instead of seeking transformation, will only make Hong Kong lackluster in the long run," said Hong.

A 23-year-old student who has been pursuing her master's degree in Hong Kong told the Global Times that her confidence in Hong Kong has been largely reduced due to the recent unrest. "I was thinking to find a job here after graduation, since the city has higher salaries and a more developed economy than cities in the mainland, but now I just want to leave as early as possible."

"The protests are the last straw to crush my mind to stay, although I have already felt a depressing atmosphere for youth like us to work here, while paying big bills on house rental and shopping," she added.

According to Hong, strengthening its connection with the mainland, under the framework of the Guangdong-Hong Kong-Macao Greater Bay Area, is the best way out for Hong Kong to revive its economy and restore the damage caused by the protests.