Hong Kong's reluctance to open its border is hurting the city's businesses

Small business owners facing potential ruin after being forced to shutter their operations for months on end. PHOTO: AFP

HONG KONG (BLOOMBERG) - Sparks cascade into the night sky as welders work on two office towers arising in Hong Kong's waterfront banking district. Owned by companies controlled by the city's two richest men, the high-rise construction projects radiate confidence in the future of finance hub.

On the streets below, optimism is in short supply. The city, which hosted 65 million visitors in 2018, has been effectively closed to the world since March 2020. There is little sign of the border with mainland China opening this year. Strict Covid-19 restrictions - such as forcing restaurants to shut at 6pm - curbed consumer spending.

In February and March, retail sales plunged more than 12 per cent from a year earlier. The economy contracted 4 per cent in the first quarter, one of its worst performances in the past 30 years.

Behind the figures is the human cost: small business owners facing potential ruin after being forced to shutter their operations for months on end and residents choosing to emigrate rather than take the risk of their children's schools closing again.

Uncertainty over future policy is the enduring theme of many interviewed by Bloomberg News for this story. Quelling such doubts will be key if Mr John Lee, the city's next leader, is to revive the city's economy when he takes over on July 1, the 25th anniversary of the return to Chinese rule.

Ms Elizabeth Chan has experienced the economic pain first-hand. The government ordered the closure of her beauty salon business along with gyms, bars, cinemas and theme parks in early January for the second time in two years. While the move did little to blunt the spread of Omicron, it has almost driven her business into the ground.

She has closed two of her three Elite Skin & Hair salons and reduced staff to 15 from 50. Salons were allowed to open last month, but Ms Chan estimates about 20 per cent of her clients have left the city.

"We are very worried, our clients are worried," said Ms Chan. "From an accounting point of view, we should close down the business. It has gone past the point of survival."

Mr Anthony Yu opened The Galley, an airplane-themed restaurant in the city's Tai Kok Tsui district, before the pandemic brought Hong Kong's air traffic to a halt. In 2018, the last year before civil unrest and Covid-19 curbed travel, the airport handled about 75 million passengers. Last year, it was 1.4 million, a drop of 98 per cent.

Due to onerous quarantine rules for travellers, the highly rated restaurant is now the closest many can get to being in the sky. Diners sit in plane seats next to oval windows, being attended to by staff dressed in aircrew uniforms.

"Customers say 'because we can't travel, we are dining in your restaurant so we get a closer feeling to it'," said Mr Yu. "People even bring their pets."

Social distancing rules crushed his business - which also includes a Las Vegas-themed bar, hot pot restaurant and takeaway outlet. Sales plunged 90 per cent in the first three months of the year as the government banned evening dine-in and limited the number of diners per table to two.

The government has since eased rules to allow restaurants to stay open till 10pm and allowed eight per table. But Mr Yu is not optimistic. A major concern for business owners is the potential for restrictions to be reimposed in the event of another wave.

'No clear future'

"The economy will not quickly return to normal," he said. "All of us are under big pressure because we can't see a clear future."

Small and medium businesses employ about 45 per cent of the workforce in Hong Kong's private sector, making them crucial to the economy. Hong Kong's unemployment rate climbed to 5 per cent in the first quarter, a nine-month high. About 470,000 people applied for pandemic-related unemployment relief, 57 per cent more than the authorities expected, the government said in mid-April.

As the rest of the world moves past Covid-19 restrictions to living with the virus, Hong Kong's approach of closing businesses, restricting everyday activities and keeping travellers out looks increasingly out of step.

Governments except China have abandoned Covid-19-zero policies in the face of Omicron, while Asian nations are rapidly dismantling travel restrictions aimed at limiting the spread of the virus.

New Zealand leader Jacinda Ardern said on Wednesday (May 11) the country will fully reopen its border in July, two months earlier than planned. Japanese Prime Minister Fumio Kishida pledged last week to relax virus-related border controls in line with other wealthy countries in June. Singapore and Thailand both eased entry rules for vaccinated travellers last month.

Hong Kong is moving in a more liberal direction than before, certainly compared with mainland China, where Covid-19-zero is firmly pursued.

This month, the financial hub ended a two-year ban on visits by all non-residents and eased some restrictions on inbound flights. Hotel quarantine for inbound travellers has been halved to seven days. Most remaining social distancing rules will be eased later this month.

Yet the quarantine rule means the city is still effectively closed to visitors. Mr Simon Murray, the former Glencore chairman who built his career in Hong Kong, does not want to return until restrictions are lifted.

"I don't fancy coming and sitting in a hotel for seven days under lock and key," said 82-year old Mr Murray, a former French Foreign Legionnaire. "A knock on the door reminds me of foreign legion prison."

Hong Kong is "falling behind" as the rest of the world reopens, Cathay Pacific Airways chairman Patrick Healy said at the airline's annual general meeting on Wednesday.


There is plenty of room for Hong Kong to ease international border controls. Infections have continued to decline even as the government loosened rules. New daily cases are below 300, from more than 50,000 at the peak in March. Vaccination rates continue to climb. About 86 per cent of the population aged three and up have had two doses.

It is not clear what the prerequisites are for reopening the border with the mainland, Hong Kong leader Carrie Lam said this week.

Mr Hayman Chan, a third-generation tailor, used to drive to his workshop in neighbouring Shenzhen several times a day before the pandemic. He has not been back to the mainland since last year, when he did 21 days of quarantine.

"It takes a very long time to make an order, and a longer lead time means less business. It is just a massive headache," said Mr Chan, who is chief executive officer of Hondsyork, which specialises in selling suits online for global clients. Mr Chan has closed two of his three premises and cut staff to six from 20 as business declined. "It can't get any worse," he said.

Back in Hong Kong's financial district, construction continues on the buildings owned by Mr Li Ka Shing's CK Asset Holdings and Mr Lee Shau Kee's Henderson Land Development. Yet demand for office space is falling. The city recorded just HK$7.8 billion (S$1.4 billion) of commercial property transactions in the first quarter, compared with a quarterly average of about HK$30 billion in 2018, Cushman & Wakefield data shows.

"I have been working in this industry for more than 25 years," said Mr James Mak, a district sales director in Midland IC&I and who helps broker sales of office floors. "This is the worst."

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