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Sunday, Oct 01, 2023

On recovery, John Lee must beware of overpromising and underdelivering

On recovery, John Lee must beware of overpromising and underdelivering

With encouraging macroeconomic data unlikely to emerge before the end of the year, impatience in promising an imminent recovery is almost certain to backfire.
Ask any good corporate public relations consultant for the cardinal rule in company communications, and the answer is likely to be: “Underpromise, overdeliver.” However strong the urge to sell a positive story, executives should beware the temptation to “overegg” performance or forecasts. Falling short will only disappoint and breed scepticism.

Never has this sage counsel rung truer than for Hong Kong Chief Executive John Lee Ka-chiu’s “result-oriented” administration. And, by this measure, he and senior colleagues are listening to dubious counsel. Lee, addressing the recent Asian Financial Forum, conceded that global economic uncertainties would weigh on the city but its future remained bright because of Beijing’s support.

“Rest assured, we’ll go fast in a safe and orderly manner towards our shared goal of everything resuming as normal as soon as practicable and possible,” he promised, adding that he and colleagues would be “running” around the world after the Lunar New Year to promote Hong Kong.

I was reminded of Financial Secretary Paul Chan Mo-po, who last month portrayed himself as an artist and called on Hongkongers to “make good use of colour to paint a brighter future”.

One can feel sympathy. And I am part of the community that retains confidence in Hong Kong’s long-term prospects. But impatience in promising an imminent recovery is almost certain to backfire. Too many people worldwide remain wedded to a negative narrative for Hong Kong that is regularly refreshed by international politicians and pro-democracy activists whose views seem more readily trusted than those of Hong Kong officials.

Lee may wish otherwise, but the deep, self-inflicted wounds of 2019 remain only partly healed, not just among those who fled on British National (Overseas) passports, but also many still here. The legacy of incompetence and procrastination that soured attitudes to the previous administration has yet to be purged, despite encouraging efforts by Lee’s administration.

Negativity towards Hong Kong is in some parts of the world indelibly linked to negativity towards Beijing, and is something our administration can do little about, however busily officials run around the world selling our positive story.

Perhaps most challenging and frustrating is the simple reality that severe harm has been done to Hong Kong’s economy, in particular by Covid-19 and the dreadful pandemic management. We are far enough from being able to show the world some positive data that almost any recovery narrative will remain for some time “fact-free”.

First, and most shocking, is Hong Kong’s expected economic contraction of around 3.2 per cent last year. According to the International Monetary Fund, that puts us on a par with Russia (minus 3.4 per cent) and modestly ahead of Sri Lanka (minus 8.7 per cent).

While Chan has promised some recovery this year, he concedes that “the external environment will still be complex and challenging”. This caution was endorsed by the World Bank’s latest report, which said: “Global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment and disruptions caused by Russia’s invasion of Ukraine.” It added: “Over the past two decades, slowdowns on this scale have foreshadowed a global recession.”

Evidence is thin on the ground in Hong Kong to contradict this wary forecast: the economic relief from the reopening of Hong Kong and the mainland will take time to gather momentum, and is unlikely to show results in the retail, tourism, hotel or restaurant sectors until well after the Lunar New Year.

Meanwhile, 2022 data shows that asset wealth in Hong Kong has taken a beating. The equity market was down 15 per cent, with Mandatory Provident Fund portfolios and pensions similarly punctured: house sales were down 38 per cent by transaction volume and 13.8 per cent by value, and mortgage repayment costs are at their highest in over a decade.

Data on Hong Kong’s role as an international business hub is also nail-biting. Survey findings, related to a question for Secretary for Commerce and Economic Development Algernon Yau in the Legislative Council last month, reported that international companies in Hong Kong fell below 9,000 for the first time since 2019, with 3 per cent of those surveyed planning relocation, and a further 16 per cent uncertain about business plans. Yau did not contradict the findings.

Our role as a hub for headquarters is more critical than most acknowledge, since it drives not just our financial sector, but also our legal and accounting sectors.

I am willing to argue that Hong Kong’s role as a headquarter hub is likely to recover but the data to underpin this narrative is unlikely to be available until late in 2023.

So too will any encouraging macroeconomic data. The deficit in 2022-23 is likely to pass US$100 billion. Reserves have been depleted by Covid-19-related healthcare spending and consumer spending support.

Revenues have been depleted by a sharp fall in corporate and income tax payments, by lower land auction revenues and with declining stamp duties for stock and property market activity. Chan’s February 22 budget is set to paint a challenging story for 2022, with cautious forecasts for the year ahead.

Impatient as Lee may be to shift the Hong Kong narrative to the positive, the dull reality is that it will take time to attract the data needed to make it credible. Meanwhile, better to underpromise and hope to overdeliver.

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