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Hong Kong protests

Hong Kong business warns of risks to economy as protests continue

Visitors deterred by unrest, hitting airlines, hotels and shopping malls

An officer raises a warning flag as riot police try to disperse anti-extradition bill protesters using tear gas at Sham Shui Po in Hong Kong on Aug. 11, 2019.   © Reuters

HONG KONG -- As mass protests sweep across Hong Kong for the 10th consecutive weekend, the businesses that keep the territory's economy turning are warning of dire consequences if the standoff continues.

Executives from some of Hong Kong's most important companies, announcing interim results last week, are raising the alarm over risks to future earnings as a result of the demonstrations, which have frequently ended in violent clashes with police.

Clement Kwok King-man, CEO of Hongkong and Shanghai Hotels, which operates the landmark Peninsula Hotel, even suggested "the broader economic stability of Hong Kong" could be at stake.

This weekend violence broke out yet again, with police firing tear gas to disperse protesters who had barricaded roads. The protests have made headlines around the world, prompting visitors to stay away from Hong Kong.

Cathay Pacific Airways CEO Rupert Hogg told reporters on Wednesday that inbound bookings to Hong Kong were down on the year owing in part to the recent protests. Commercial Officer Paul Loo Kar-pui described the drop as in the "double-digits."

The effect of the unrest has yet to show up in earnings -- Hong Kong's leading airline swung to a 1.35 billion Hong Kong dollar ($172 million) net profit for the first six months of 2019, against the net loss of HK$263 million a year earlier when high oil prices hit returns.

But the drop in travelers bodes ill for the second half. Hogg said it was "relatively early" to discuss "what countermeasures Cathay will take," but he did not rule out the possibility of slashing ticket prices, which could further hit revenue.

Protesters occupied parts of Hong Kong International Airport on Aug. 10 to deliver their message directly to visitors from around the world. (Photo by Kenji Kawase)

Making matters worse, the Chinese aviation authority issued a safety risk warning for the airline on Friday night, noting a Cathay Pacific crew member's involvement in "violent activities," a reference to the protests. Local media reports that there are calls by mainland residents and companies to boycott Cathay.

The airline suspended a pilot arrested during anti-government protests in Hong Kong and fired two airport employees citing misconduct on Saturday. It also said it would bar "overly radical" staff from crewing flights to the mainland.

Shares in Cathay Pacific fell more than 4% in early trade on Monday to close to a 10-year low.

The hotel sector is also feeling the pinch. At Hongkong and Shanghai Hotels, the protests exacerbated an already difficult situation due to the U.S.-China trade war, with revenue at its flagship Hong Kong hotel in ritzy Tsim Sha Tsui falling 7% in the first half, while the occupancy rate dropped by 7%. There was another violent clash in the vicinity of the hotel on Saturday night.

On the outlook for the rest of the 2019, Kwok said: "We are concerned about the effect this political uncertainty may have on our results, especially given the proportion of our income which is earned in Hong Kong."

Official statistics reinforce such concerns. According to Edward Yau Tang-wah, the territory's secretary for commerce and economic development, visitor arrivals began declining on a weekly basis in mid-July and are deteriorating further.

At a news conference Thursday, he said the year-on-year drop widened to 31% in early August, while hotel occupancy in July was "definitely a double-digit fall."

This is mainly due to 22 countries issuing travel advisories for Hong Kong. Australia and the U.S. have recently upgrading their advisory levels. On Friday, the government spokesman issued a statement stressing that the territory welcomes both tourists and investors and remains "a safe place for travelers from around the world."

MTR, the operator of the city's railways and shopping malls, is facing the "biggest challenge" in providing safe and reliable services in its 40-year history, CEO Jacob Kam Chak-pui told a news conference Thursday.

The unrest has affected people's "desire to go out, or to consume," Kam said, adding: "The overall economy has been impacted. I am sure there will be an impact on us."

Mall operators are trying to fend off demonstrations in their properties. Wharf Holdings, owner of Harbour City and Times Square, two of the largest shopping centers in Hong Kong, has put up notices that bar police officers from entering their premises.

Meanwhile, Real Estate Developers Association of Hong Kong issued a joint statement on Thursday, condemning "the radical actions by a small group of violent protesters" that had disturbed the public order.

Seventeen of the city's largest developers -- including CK Asset Holdings, Henderson Land Development, New World DevelopmentSun Hung Kai Properties Properties and Hang Lung Properties -- co-signed the statement. It came a day after a conference in the neighboring mainland city of Shenzhen, called by the top Beijing official in charge of Hong Kong affairs, to warn the Hong Kong public via pro-Beijing lawmakers and business elites.

Chief Executive Carrie Lam Cheng Yuet-ngor, Hong Kong's leader, on Friday likened the effect of protests on the economy to that of a "tsunami," and "worse" than the effect of the severe acute respiratory syndrome, or SARS, epidemic of 2003 and global financial crisis in 2008.

Lam was immediately denounced by her critics for exaggerating the brunt of the protests. Pan-democrat lawmaker Claudia Mo Man-ching refuted Lam for "scaring off" the people. Mo's fellow opposition lawmaker and a tax adviser Kenneth Leung Kai-cheong blamed the slowdown on preexisting issues and called Lam "irresponsible" for casting the protest as an economic and livelihood issue.

But dark clouds appear to be gathering over Hong Kong. The ongoing protests are adding downward pressure to an economy battling the headwinds of a U.S.-China trade war and the mainland's slowing economy. Hong Kong suffered a 0.3% economic contraction on a quarter-on-quarter basis in the three months to the end of June.

"If the government chooses to toughen its stance toward the protesters, the negative economic impact would be multiplied as a result of economic sanctions imposed on Hong Kong," said Kevin Lai, chief economist at Daiwa Capital Markets in Hong Kong. "There is also the risk of capital outflows and brain drain in the longer run," he added.

Given that there were only three weeks of influence reflected in the second quarter, Lai is certain that "the immediate impact from protests will be much greater" in the third quarter. That means, another quarter-on-quarter contraction "is very likely, and hence a recession is inevitable."

Nikkei staff writers Michelle Chan and Nikki Sun contributed to this story.

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