The Shape Of The Economic Meltdown

What will the current economic meltdown mean for life in Hong Kong? I don’t really know and can’t claim to offer either a scientific or thoroughgoing analysis. However, there are a few threads that I’ve been noting lately.

First, people are spending, but very cautiously. The discounts in the annual sales are deep and many stores have kept the sale signs up for longer than normal. It’s not unusual at the moment to see “up to 80% off” signs along with offers for multiple purchase (free gift with two items or extra discount for three or more items). This isn’t limited to consumer goods, but is also visible in the luxury market (and, yes, there is some really high quality desirable stuff for sale). In recent weeks the malls and larger stores have looked conspicuously empty, but people are now shopping, post Chinese New Year. That said, there’s still loads of good bargains left, which is unusual.

The ex-pat population has not left en-mass, yet. There have been departures, but the question on most people’s lips seems to be “how many.” The summer will really be the test, as companies plan for the new economic reality and juggle the need to seek international growth versus the costs of staying afloat in their home economies.

The travel bargains have yet to materialise. Interestingly, travel costs are still high and there has not been a strong offering of travel and holiday bargains in the region. My suspicion is that were they can, resorts will simply downsize or go into maintenance mode to cut costs, rather than offering too many cheap rooms and packages – at least until they hit a cash crisis themselves.

Rents have dropped and construction is grinding to a halt. Development in Macau was the first to see a big hit, with many projects shut quickly and workers dismissed. Here in Hong Kong there is a scramble to renegotiate rents (domestic and corporate) as prices slip well back from recent highs. It’s pretty common to hear people talking about 30% drops in rental, as a starting point.

Pollution is still terrible. Lots of factories might be closing, but it hasn’t cleaned up the local skyline much. Then again, a lot of population is local traffic and with the government unwilling to move public transport to cleaner fuels (If Delhi could do it…) we will still choke, recession or no.

No-one seems to expect the economic situation to improve much until 2011 at the earliest.