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Pandemic and Politics Push Hong Kong’s Economy Into Record Slump – Bloomberg

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Hong Kong’s economy suffered its worst quarter on record, extending the first recession in a decade as the coronavirus pandemic battered a city already weakened by political unrest.

The economy contracted 8.9% in the first quarter from year-ago levels, according to the government. The decline surpasses the previous record of -8.3% in the third quarter of 1998 and a 7.8% contraction in the first quarter of 2009, the two worst readings in data back to 1974, according to the Census and Statistics Department Hong Kong.

Record Slump

Hong Kong’s first-quarter GDP contracts as virus compounds protest woes

Source:  Census and Statistics Department Hong Kong, Bloomberg survey

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The latest decline also marks the third straight quarterly contraction for Hong Kong, the longest such stretch since the aftermath of the global financial crisis in 2009. The economy started shrinking from the third quarter of last year amid violent street protests and a government crackdown, political factors that remain unresolved.

“Our economic situation is very challenging, we are deep into recession,” Financial Secretary Paul Chan said at a press conference after the data was released. “Globally the epidemic is yet to be put under complete control. That will affect our export, that will also affect international traveling and business investment. Going forward, the second quarter, we believe that even if there is improvement, the improvement will be gradual and small.”

A 10.2% drop in private consumption from a year earlier was a major driver for the contraction, according to the government report. Total exports of goods sank 9.7% in the period, while exports of services plummeted 37.8%. Government spending grew by 8.3% from a year ago.

Assuming the virus crisis improves, Hong Kong will come out of recession gradually toward the end of the year, Chan said. On Sunday, Chan warned of the worst full-year performance on record with a contraction of as much as 7%, after the economy shrank 1.2% last year.

“Economic activities are likely to stay subdued in the near term if the threat of the pandemic continues,” a government spokesman said in the release. “Hong Kong’s near-term economic outlook is subject to very high uncertainties, hinging crucially on the evolving global public health and economic situations.”

Developments in the U.S.-China relationship, geopolitical tensions and global financial market volatility also warrant continued attention, the spokesman said. Revised figures with a more detailed breakdown are due on May 15.

Easing Controls

“The Hong Kong economy can’t rely solely on fiscal stimulus to get back to normal,” said Iris Pang, greater China chief economist with ING Bank NV in Hong Kong. “Consumption will continue to be bad in the second quarter, though may not be worse than the first on a quarter-on-quarter basis. That’s due to an extra hit on consumption from violent protests and social distancing measures.”

Even as the city prepares to ease some social distancing measures amid a steady improvement in the local outbreak situation, the hit to global commerce and the threat of renewed anti-government unrest means activity is likely to remain depressed. Unemployment is rising with tourism, retail, transport and other industries decimated.

The extended downturn’s impact can be especially seen across the city’s struggling small and medium-sized businesses, which have borne the brunt of the impact from protests since last year and now the coronavirus.

“Hong Kong has been a risk-taking society relative to starting a business, but the situation going on the last year will create long memories in people’s minds,” said Todd Handcock, chairman of the Canadian Chamber of Commerce. “It’s been a very challenging year for SMEs in Hong Kong. The unfortunate reality is some of these will not survive and others will struggle for a very long time.”

Click here to read more about the government’s stimulus strategy

As of December, 340,000 SMEs accounted for more than 98% of all business units and employed some 1.3 million people, or about 45% of the total excluding civil servants, according to government data.

Sentiment among small businesses is sitting near a record low while those reporting a need for credit jumped to an almost four-year high of 8.8%, March government data show.

Small Bump

Hong Kong small and medium business sentiment rebounded slightly in March

Source: Hong Kong Census and Statistics Department

Note: Data show monthly diffusion index reading on business receipts for SMEs, calculated by adding the percentage of respondents reporting “up” compared with previous month and half those responding “same.” Survey size is about 600 SMEs drawn from a larger pool. Reading above 50 indicates generally favorable business conditions.

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“If we all fold, the unemployment levels are going to skyrocket in this city,” said Bella Dobie, co-founder and managing director of Hong Kong branding and marketing firm Orijen. The firm has six full-time staff including Dobie and has been in business since 2000. “The economy of Hong Kong has been struggling since the start of the protests and Covid-19 is just a double whammy.”

The government has taken steps to address the looming employment crisis through multiple rounds of stimulus spending, most prominently through an HK$80 billion wage subsidy program that is not expected to begin distribution until June.

Hong Kong Faces Delays Giving Cash Out as Virus Hits Economy

Those businesses that do survive will likely emerge with smaller, leaner operations, with lasting implications on the wider economy as jobs that once existed may not return. Total employment in the city shrank by a record 3.6% in March.

As of December, the number of job vacancies in the private sector of Hong Kong totaled about 54,000, down 30% from a year ago, according to government data. Vacancies in retail and accommodation and food services plummeted 44% and 65% respectively.

The threat of protests resuming once the virus fades and measures forbidding group gatherings ease could also further extend the pain for businesses and the economy.

“It’s about the huge uncertainty of the city’s future,” said Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. “Anybody who lives here understands it, you don’t even know what is going to happen tomorrow.”

— With assistance by Alfred Liu

(Updates with comments from Paul Chan and an economist.)

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    Review finds no case for formal probe of Beijing’s activities under elections law

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    OTTAWA – The federal agency that investigates election infractions found insufficient evidence to support suggestions Beijing wielded undue influence against the Conservatives in the Vancouver area during the 2021 general election.

    The Commissioner of Canada Elections’ recently completed review of the lingering issue was tabled Tuesday at a federal inquiry into foreign interference.

    The review focused on the unsuccessful campaign of Conservative candidate Kenny Chiu in the riding of Steveston-Richmond East and the party’s larger efforts in the Vancouver area.

    It says the evidence uncovered did not trigger the threshold to initiate a formal investigation under the Canada Elections Act.

    Investigators therefore recommended that the review be concluded.

    A summary of the review results was shared with the Canadian Security Intelligence Service and the RCMP. The review says both agencies indicated the election commissioner’s findings were consistent with their own understanding of the situation.

    During the exercise, the commissioner’s investigators met with Chinese Canadian residents of Chiu’s riding and surrounding ones.

    They were told of an extensive network of Chinese Canadian associations, businesses and media organizations that offers the diaspora a lifestyle that mirrors that of China in many ways.

    “Further, this diaspora has continuing and extensive commercial, social and familial relations with China,” the review says.

    Some interviewees reported that this “has created aspects of a parallel society involving many Chinese Canadians in the Lower Mainland area, which includes concerted support, direction and control by individuals from or involved with China’s Vancouver consulate and the United Front Work Department (UFWD) in China.”

    Investigators were also made aware of members of three Chinese Canadian associations, as well as others, who were alleged to have used their positions to influence the choice of Chinese Canadian voters during the 2021 election in a direction favourable to the interests of Beijing, the review says.

    These efforts were sparked by elements of the Conservative party’s election platform and by actions and statements by Chiu “that were leveraged to bolster claims that both the platform and Chiu were anti-China and were encouraging anti-Chinese discrimination and racism.”

    These messages were amplified through repetition in social media, chat groups and posts, as well as in Chinese in online, print and radio media throughout the Vancouver area.

    Upon examination, the messages “were found to not be in contravention” of the Canada Elections Act, says the review, citing the Supreme Court of Canada’s position that the concept of uninhibited speech permeates all truly democratic societies and institutions.

    The review says the effectiveness of the anti-Conservative, anti-Chiu campaigns was enhanced by circumstances “unique to the Chinese diaspora and the assertive nature of Chinese government interests.”

    It notes the election was prefaced by statements from China’s ambassador to Canada and the Vancouver consul general as well as articles published or broadcast in Beijing-controlled Chinese Canadian media entities.

    “According to Chinese Canadian interview subjects, this invoked a widespread fear amongst electors, described as a fear of retributive measures from Chinese authorities should a (Conservative) government be elected.”

    This included the possibility that Chinese authorities could interfere with travel to and from China, as well as measures being taken against family members or business interests in China, the review says.

    “Several Chinese Canadian interview subjects were of the view that Chinese authorities could exercise such retributive measures, and that this fear was most acute with Chinese Canadian electors from mainland China. One said ‘everybody understands’ the need to only say nice things about China.”

    However, no interview subject was willing to name electors who were directly affected by the anti-Tory campaign, nor community leaders who claimed to speak on a voter’s behalf.

    Several weeks of public inquiry hearings will focus on the capacity of federal agencies to detect, deter and counter foreign meddling.

    In other testimony Tuesday, Conservative MP Garnett Genuis told the inquiry that parliamentarians who were targeted by Chinese hackers could have taken immediate protective steps if they had been informed sooner.

    It emerged earlier this year that in 2021 some MPs and senators faced cyberattacks from the hackers because of their involvement with the Inter-Parliamentary Alliance on China, which pushes for accountability from Beijing.

    In 2022, U.S. authorities apparently informed the Canadian government of the attacks, and it in turn advised parliamentary IT officials — but not individual MPs.

    Genuis, a Canadian co-chair of the inter-parliamentary alliance, told the inquiry Tuesday that it remains mysterious to him why he wasn’t informed about the attacks sooner.

    Liberal MP John McKay, also a Canadian co-chair of the alliance, said there should be a clear protocol for advising parliamentarians of cyberthreats.

    This report by The Canadian Press was first published Sept. 17, 2024.

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    NDP beat Conservatives in federal byelection in Winnipeg

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    WINNIPEG – The federal New Democrats have kept a longtime stronghold in the Elmwood-Transcona riding in Winnipeg.

    The NDP’s Leila Dance won a close battle over Conservative candidate Colin Reynolds, and says the community has spoken in favour of priorities such as health care and the cost of living.

    Elmwood-Transcona has elected a New Democrat in every election except one since the riding was formed in 1988.

    The seat became open after three-term member of Parliament Daniel Blaikie resigned in March to take a job with the Manitoba government.

    A political analyst the NDP is likely relieved to have kept the seat in what has been one of their strongest urban areas.

    Christopher Adams, an adjunct professor of political studies at the University of Manitoba, says NDP Leader Jagmeet Singh worked hard to keep the seat in a tight race.

    “He made a number of visits to Winnipeg, so if they had lost this riding it would have been disastrous for the NDP,” Adams said.

    The strong Conservative showing should put wind in that party’s sails, Adams added, as their percentage of the popular vote in Elmwood-Transcona jumped sharply from the 2021 election.

    “Even though the Conservatives lost this (byelection), they should walk away from it feeling pretty good.”

    Dance told reporters Monday night she wants to focus on issues such as the cost of living while working in Ottawa.

    “We used to be able to buy a cart of groceries for a hundred dollars and now it’s two small bags. That is something that will affect everyone in this riding,” Dance said.

    Liberal candidate Ian MacIntyre placed a distant third,

    This report by The Canadian Press was first published Sept. 16, 2024

    The Canadian Press. All rights reserved.

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    Trudeau says ‘all sorts of reflections’ for Liberals after loss of second stronghold

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    OTTAWA – Prime Minister Justin Trudeau say the Liberals have “all sorts of reflections” to make after losing a second stronghold in a byelection in Montreal Monday night.

    His comments come as the Liberal cabinet gathers for its first regularly scheduled meeting of the fall sitting of Parliament, which began Monday.

    Trudeau’s Liberals were hopeful they could retain the Montreal riding of LaSalle—Émard—Verdun, but those hopes were dashed after the Bloc Québécois won it in an extremely tight three-way race with the NDP.

    Louis-Philippe Sauvé, an administrator at the Institute for Research in Contemporary Economics, beat Liberal candidate Laura Palestini by less than 250 votes. The NDP finished about 600 votes back of the winner.

    It is the second time in three months that Trudeau’s party lost a stronghold in a byelection. In June, the Conservatives defeated the Liberals narrowly in Toronto-St. Paul’s.

    The Liberals won every seat in Toronto and almost every seat on the Island of Montreal in the last election, and losing a seat in both places has laid bare just how low the party has fallen in the polls.

    “Obviously, it would have been nicer to be able to win and hold (the Montreal riding), but there’s more work to do and we’re going to stay focused on doing it,” Trudeau told reporters ahead of this morning’s cabinet meeting.

    When asked what went wrong for his party, Trudeau responded “I think there’s all sorts of reflections to take on that.”

    In French, he would not say if this result puts his leadership in question, instead saying his team has lots of work to do.

    Bloc leader Yves-François Blanchet will hold a press conference this morning, but has already said the results are significant for his party.

    “The victory is historic and all of Quebec will speak with a stronger voice in Ottawa,” Blanchet wrote on X, shortly after the winner was declared.

    NDP Leader Jagmeet Singh and his party had hoped to ride to a win in Montreal on the popularity of their candidate, city councillor Craig Sauvé, and use it to further their goal of replacing the Liberals as the chief alternative to the Conservatives.

    The NDP did hold on to a seat in Winnipeg in a tight race with the Conservatives, but the results in Elmwood-Transcona Monday were far tighter than in the last several elections. NDP candidate Leila Dance defeated Conservative Colin Reynolds by about 1,200 votes.

    Singh called it a “big victory.”

    “Our movement is growing — and we’re going to keep working for Canadians and building that movement to stop Conservative cuts before they start,” he said on social media.

    “Big corporations have had their governments. It’s the people’s time.”

    New Democrats recently pulled out of their political pact with the government in a bid to distance themselves from the Liberals, making the prospects of a snap election far more likely.

    Trudeau attempted to calm his caucus at their fall retreat in Nanaimo, B.C, last week, and brought former Bank of Canada governor Mark Carney on as an economic adviser in a bid to shore up some credibility with voters.

    The latest byelection loss will put more pressure on him as leader, with many polls suggesting voter anger is more directed at Trudeau himself than at Liberal policies.

    This report by The Canadian Press was first published Sept. 17, 2024.

    The Canadian Press. All rights reserved.

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