Coronavirus: Fallout from global pandemic clouds Hong Kong’s economic recovery, Kurt Tong says

Mark Magnier

Governments worldwide are grappling with the political, economic and public health fallout from the coronavirus, but Hong Kong faces a particularly challenging road ahead, business leaders and former US officials said on Monday.

Coming on the heels of months of demonstrations, the virus has hammered the local and Chinese economies. It has also slowed the integration of the two economies and tended to widen already polarised views among Hong Kong residents toward the mainland, some said.

“The Hong Kong government has actually done a very credible job … in containing coronavirus infections,” said Kurt Tong, former US consul general to Hong Kong and Macau and now a partner at the Asia Group consultancy. “But it’s getting zero credit for that because the trust level towards the government was so low to start with.”

Hong Kong’s open economy makes it particularly vulnerable to external shocks like the current pandemic. It was already reeling from months of pro-democracy demonstrations that were triggered in June by a bill to allow extradition to China. And its ties to global markets leave it vulnerable to the looming global downturn.

Kurt Tong served as US consul general to Hong Kong and Macau until last year. Photo: SCMP

“It’s in a passel of trouble,” Tong said at an event organised by the National Press Foundation in Washington. “Financial markets will continue to reflect global trends, not local trends. The local economy will look extraordinarily bad throughout 2020. And there will be more political instability in the coming year, which is all kind of sad.”

On other fronts, the business leaders and former US officials said US-China trade tensions were likely to come roaring back once the global coronavirus pandemic ebbs, but they expressed hope that the health crisis would not lead to extreme decoupling of the two massive economies.

“In the US-China relationship, the friction points still have to be confronted. And they will be confronted by either a Republican president or a Democrat president,” said Myron Brilliant, executive vice-president and head of international affairs the US Chamber of Commerce. “I think these bilateral issues are going to come back in a big way.”

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Executives and analysts also said they did not think the Trump administration would significantly reduce the 25 per cent tariffs on US$250 billion in Chinese goods, despite the potential benefit it could offer for stimulating the US economy.

They added that they expected Washington to give Beijing some leeway in meeting its purchase requirements under the phase one trade deal signed in December, but not too much. The deal called on China to buy at least US$200 billion in US farm, energy and manufactured goods and in services over the next two years.

“Will they meet their targets for 2020? Unlikely,” said Brilliant, adding that the targets were difficult to reach even before the virus outbreak. “I think the administration is going to have to show some flexibility.”

Brilliant said the Chamber did not support a decoupling of the world’s two largest economies and would not like to see the coronavirus outbreak become a vehicle for that to happen. Tong, however, said it was already happening as travel is cut, deals shelved and some factories grind to a halt.

Some questioned how much flexibility President Donald Trump would display. As the November presidential election approaches, he may want to look tough toward Beijing since he sees the US-China trade deal as a signature accomplishment. “I’m not sure how patient he’ll be,” said Jeff Moon, head of Moon Strategies, a China trade consultancy and a former US Trade Representative official.

A likely virus-related slide in the US economy could also leave Trump feeling less charitable, others said. “The second best option for him when he doesn’t get his own maximalist position is always blame shifting,” said Kevin G. Nealer, a principal with the Scowcroft Group consultancy.

Representative Stephanie Murphy, a Democrat from Florida, has been among those calling on the administration to reduce some of the US$250 billion in punitive tariffs that remain after the phase one deal. Supporters of this view argue that the tariffs not only hurt American consumers but lifting them could help stimulate a battered economy.

“I don’t know how realistic that is” in the current political climate, said Wendy Cutler, vice-president of the Asia Society Policy Institute and a former US Trade Representative lead negotiator. But a possible interim step might be to make permanent the tariff exclusions that were temporarily rolled back, she said.

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Tong said he doubted the coronavirus crisis would harden or otherwise change Beijing’s basic policy toward Hong Kong any time soon given all the other challenges it is facing. “The mainland government's pretty busy and it's going to have a lot going on,” he said. “I don't think it'll be looking to do anything interesting or precipitous either positively or negatively.”

“My gut instinct is that it’s going to be another hot summer with a lot of protests, but whether that’s where the population goes is not entirely predictable.”

Officials said one of the few areas on which Washington and Beijing traditionally cooperated, no matter how tense other parts of the relationship got, was in health care. But even that has become politicised in the current environment, they said.

“A pandemic is a perfect issue appropriate for multilateral cooperation,” said Cutler.

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Some US officials and lawmakers have blamed China for its handling of the virus, which began in the central city of Wuhan. A Chinese official recently countered, repeating a conspiracy theory that the US Army could have introduced the virus when it was in China competing in the international Military World Games in October. That saw another salvo on Monday when Secretary of State Mike Pompeo called his Chinese counterpart and “conveyed strong US objections” to China’s attempt to “shift blame for Covid-19 to the United States”.

“The Chinese leadership has its hands full with the health crisis, but it too likes to demonise foreign threats,” said Nealer, a former State Department officer. “It is already taking steps to cooperate with the EU and other countries and do so in ways that diminish US influence and erode habits of cooperation with America’s allies.”

“Trump’s decision to surprise Europe with the travel ban opened the door to China’s proposal to work with Europeans and send health workers to Italy,” he added. “There is little meaningful cooperation on responses and coping strategies, despite the obvious compelling interest.”

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