Hong Kong is redoubling its efforts to implement a Covid-Zero strategy that has failed almost everywhere else, battering its economy and threatening its status as an international financial center, just as much of the world has learned to live with the virus.
While countries from the United States to Australia are gradually easing restrictions on the pandemic, Hong Kong is enforcing its toughest measures since the coronavirus first emerged more than two years ago. From Thursday, public gatherings of more than two people will be banned, while private gatherings will be limited to two households. Violators will face fines of at least HK$5,000 (US$642).
Many health experts say these restrictions are unlikely to prevent the spread of the highly infectious omicron variant. On Wednesday, daily cases jumped to more than 1,000, a record high, compared with just 14 three weeks ago. Researchers at the University of Hong Kong said that number could reach 28,000 in March.
The result has been growing frustration among local residents, expatriates and business leaders as the government is seen as pursuing futile policies to appease China’s ruling Communist Party. Analysts at Fitch Ratings this week became the latest to cut their 2022 forecasts for Hong Kong’s economy, saying the city’s delayed pandemic recovery makes it the weakest of the 120 economies it tracks.
“I believe most government officials know that maintaining Covid Zero is impossible, but there is nothing they can do because they have to follow China’s policies,” said Danny Lau, honorary chairman of the Hong Kong Small and Medium Enterprises Association. “Hong Kong is becoming more and more like a ghost town.”
According to the Communist Party’s flagship newspaper, changing tactics is not an option. The People’s Daily commented on Monday that Hong Kong must adhere to a zero epidemic policy because any move to coexist with the virus will seriously damage the city’s development and the health of its residents. The central government is “highly concerned” about a fifth wave “raging” in Hong Kong, according to a statement late Thursday night.
Mainland officials and experts will meet with their Hong Kong counterparts in Shenzhen this weekend to discuss the worsening outbreak and measures to contain it, the South China Morning Post reported earlier on Friday. Citing sources in Beijing, the paper said China was ready to send thousands of medical and laboratory personnel and millions of test kits.
Hong Kong will seek permission to build a Wuhan-style temporary isolation facility where all initial positive cases can be housed, HK01 reported on Thursday, citing unnamed people.
While nearly 82 percent of the city’s residents aged 12 or older had received at least one dose of the vaccine, that number fell to 35 percent of residents 80 or older, making them more vulnerable to serious illness. A Hong Kong government representative reached by Bloomberg had no immediate comment.
It has been a painful few years for the former British colony. The city experienced its worst violence in decades in 2019 as pro-democracy protesters and police engaged in street fights. The emergence of Covid in 2020 and the implementation of rules limiting public gatherings to four people have helped to quell further protests. Later that year, China implemented a national security law that ended the effective opposition.
While the city’s closed border policy and strict quarantine rules for returning residents mean Hong Kong remains coronavirus-free overall, it has come at a heavy price in terms of tourism, business and freedom of travel.
According to the city’s tourism bureau, tourist arrivals to Hong Kong were “close to zero” last year, compared with more than 65 million in 2018. On February 1, only 282 passengers made it to the once bustling international financial center via the route. All ports, according to immigration data compiled by activist investor David Webb.
“Hong Kong is in the worst possible situation, it’s closed to the rest of China and the rest of the world,” said Douglas Arner, a law professor at the University of Hong Kong and an expert on Hong Kong’s financial system.
The city’s $344 billion economy is under pressure. Last month, DBS Group Holdings Ltd cut its growth forecast for this year to 2.4 per cent from 3 per cent, citing the government’s Covid-Zero policy and an “astonishing” decline as residents permanently leave the workforce. Morgan Stanley, Goldman Sachs Group Inc and Bank of America also lowered their outlooks in January ahead of the government’s announcement of tougher restrictions.
Economists have called for more fiscal support in the government’s upcoming budget on February 23 to cushion the impact of restrictions. Bank of America noted that demand remained weak last quarter despite government stimulus. Fitch said such policies would delay the city’s return to a balanced budget.
While the unemployment rate has fallen to 3.9% from a 17-year high of 7.2% in February 2021, the new restrictions will burden Hong Kong businesses, especially in the retail, tourism and logistics sectors.
Businesses were feeling the pain even before the latest outbreak. According to real estate agency Midland Industries Ltd, 11% of commercial space in Hong Kong’s four main shopping districts was vacant in the third quarter, compared with 7% in the same period in 2019. Retail sales in December were 26% lower than expected levels three years ago before the unrest.
Alan Zeman, chairman of Lan Kwai Fong Group, the main landlord in the city’s bar district, said the latest restrictions had devastated the business of bars and restaurants. “As we’ve seen around the world, I don’t think it’s really possible to get it down to zero cases with omicron.”
Stringent border controls are pushing up prices for the city’s 7.5 million residents, who rely almost entirely on imported food. Flight bans in eight countries, including the US and the UK, have restricted the availability of fruit, flowers and food. To make matters worse, anti-virus controls in mainland China meant truckers could not re-enter the city this week, causing supplies of fresh produce to drop by as much as 70%.
Bloomberg Economics says…
Tighter social distancing rules are bad for growth, and without a “dynamic clean-up” it will be difficult to reopen the border with mainland China to boost local retail and tourism. We have lowered our GDP outlook for Hong Kong in 2022, but still see downside risks to further downgrades. Capital flight is less of a concern as it has nothing to do with social distancing and Hong Kong’s local economy has never been a key factor in capital flows.
Eric Zhu
The surge in cases means that the elaborate system Hong Kong used to quell early outbreaks is no longer sustainable. Cross-border truck driver Cui Weijie waited nearly three days to be taken to the isolation facility after being told he had been in close contact with a positive case. He slept in his taxi to avoid the potential spread of the virus. He called the government several times but was told they were understaffed and needed to wait.
“I know it’s bad, but I don’t know how they can be so busy that they can’t even send someone to pick up close contacts,” the 45-year-old said.
An increasingly overloaded healthcare system is forcing governments to ease some of the world’s strictest measures. Just over a month ago, more than 200 diners at a restaurant were sent to quarantine camps due to large gatherings. The camp is now used to house confirmed patients with mild symptoms, while close contacts can be quarantined at home. So far, three people have died in the outbreak, all over the age of 70.
With Covid Zero, Hong Kong is trying to do what other cities have done without months of complete lockdown, and the omicron variant has failed to do the same.
Anders Yuen, president of the Hong Kong Nursing Staff Association, said the government’s strategy was of little significance when it came to omicron, and a review of it should be considered.
“This approach only works when there are very few Covid cases,” Yuen said. “It’s totally unsustainable when there are more than 1,000 cases a day.”
Bernard Chan, the financier and convener of the executive committee of Hong Kong’s chief executive Carrie Lam, said a city-wide Chinese-style shutdown was unlikely.
“I don’t think we’ll ever be able to completely block,” Chen said in an interview with Bloomberg Television on Wednesday. “We can’t do it in Hong Kong.”
Once the vaccination rate reaches 90% of the target population, there is hope for the government to ease restrictions. The University of Hong Kong’s Arner said China could also use Hong Kong as a petri dish for how it eventually transitions to coexistence with the virus.
“The central government has an opportunity to use Hong Kong as an experiment to see how to live with the virus,” Arner said. “Eventually, the country will have to open up, at least in a small way, and you might as well be in a largely isolated area from the rest of the country. Hong Kong to do an experiment.”
So far, Hong Kong officials have reiterated that they will stick to the same approach. The government has repeatedly made clear that reopening the border with mainland China is the city’s top priority. Unless Beijing abandons its own Covid-Zero policy, it cannot happen until the city eliminates the outbreak.
The risk for Hong Kong is that by slowing the spread, rather than eradicating the virus, it will only prolong the outbreak — potentially pushing the city to the brink of collapse.
“If you don’t get to zero and it’s smoldering slowly in the population, then the transmission will happen over a longer period of time rather than a sharp rise,” said SV Mahadevan, director of South Asia outreach at the Asia Center. Health research and education. “You can’t hide from it forever. Eventually we’ll all get it.”
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