Hong Kong’s new future as China’s Covid quarantine haven

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The world has evolved. Many packed their bags and left. Those of us still living in Hong Kong seem to fall easily into a mental coma induced by years of Covid-19 restrictions. With its border with mainland China – and everywhere else – still partially closed, this island city can feel stuffy.

But pessimism is not in our nature. Now that we’ve chosen to stay, it’s time to ask some more constructive questions. How can Hong Kong reverse this economic downturn? What is our way forward?

The economic toll of the pandemic is most evident in the retail, restaurant and hospitality sectors. Three years ago, they employed more than 600,000 people, or about 15% of Hong Kong’s labor force. Before Covid-19, mainland Chinese tourists accounted for around a third of total retail sales, a testament to the open economy that Hong Kong once was. This tourism dollar evaporated when China closed its borders in March 2020. Employment in the sectors fell more than 20% from the 2019 peak.

It is therefore encouraging that Hong Kong is easing travel restrictions and visitors are starting to return to the city.

All of the recent policy changes are incremental, but they add up. For inbound travellers, Hong Kong is ending a five-day flight ban on airlines that carried passengers infected with Covid-19. He convinced the Shenzhen government to increase its daily quota of quarantined hotel rooms from 1,300 to 2,000, to facilitate the busiest border crossing into mainland China. While the seven-day hotel quarantine remains in place for now, from August Hong Kong will provide 23,000 quarantine rooms per day, up from the current 12,500, to accommodate more travellers. That’s about a quarter of the city’s hotel capacity.

So consider the following policy proposition: With China sticking to Covid-zero and the reopening of the border nowhere in sight, can Hong Kong serve as a meeting point for China-related businesses and a hub? milder quarantine for those who want to go to the mainland?

Over the past month and a half I have been busy meeting visitors from Shanghai and New York. Mainland business executives have been coming on work trips since early June – in fact, a number fled Shanghai as soon as Covid lockdowns eased. Some global asset managers have also bitten the bullet. After all, Zoom meetings can only go so far.

As for overseas Chinese who haven’t seen their parents for years, Hong Kong is also making a logical transition. Flights to China are rare, expensive and can be canceled at any time.

Once these travelers land in Hong Kong, they tend to stay here for a while. Entry into China is by no means guaranteed – these days you have to hire scalpers just to have a chance of locking yourself in a quarantine room in Shenzhen. And after a draconian two-month lockdown in Shanghai, some mainland visitors are in no rush to return. All of a sudden, the famous bustling warehouse and its gruff inhabitants have become human and gentle.

This should create tourism revenue for Hong Kong’s service sector. Hotel occupancy rose to 70% in May, according to the latest available data. This number is probably higher now. Like everywhere else, the pandemic has closed many restaurants but new ones are popping up. Good luck getting a table at popular new JIA Group venues like Estro and Andō. As for Shanghai outcasts who miss the flavors at home, Wanchai’s Yong Fu serves authentic drunken crab – at twice the price.

For decades, Hong Kong thrived on smart arbitrage exchanges, providing access to the Chinese market as well as things China couldn’t provide. Property rights were respected and businesses across the continent took advantage of cheap dollar financing. As these trades dry up, new opportunities emerge. Covid-Zero lite and a smooth transition to the mainland could be another lucrative value proposition.

During his recent trip to mark the 25th anniversary of the return of the former British colony, President Xi Jinping touted “one country, two systems” as the framework for Hong Kong. Everyone reads the tea leaves, trying to figure out what exactly he meant. If the focus was on “two systems”, especially when it comes to the city’s Covid policies, Hong Kong still has a future.

More from this writer and others on Bloomberg Opinion:

• Chinese paranoia of Covid alienates its diaspora: Shuli Ren

• How the Hong Kong dreams of 1997 sank without a trace: Matthew Brooker

• Expats from Hong Kong, where is your next destination? : Anjani Trivedi

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She holds the CFA charter.

More stories like this are available at bloomberg.com/opinion

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