Blog
Outlook for 2021
Entering Year 2021, I wish you all prosperity and good health. A new year marks a new beginning. I wish this new year will bring us new hope and new opportunities.
Over the past two years, the Hong Kong economy has suffered successive shocks from China-US's tension, the local social incidents, and the COVID-19 pandemic, resulting in negative growth for two consecutive years for the first time on record. Entering 2021, the situation may remain difficult but signs of turnaround will gradually emerge. The economy is envisaged to continue to face considerable challenges in the first half of the year, but it can hopefully show stronger recovery momentum in the second half and will likely resume positive growth for the year as a whole. Yet, the speed and strength of the recovery will hinge on a number of external and internal factors, with the development of the pandemic being the most critical uncertainty.
Before the epidemic can be effectively contained, relatively intensive anti-epidemic measures will need to remain in place, which will inevitably pose pressures on the local consumption sentiment and economic activities. Cross-border movement of people and tourism activities may also take a longer time to resume. Enterprises are still facing a difficult operating environment at the moment, while employment and income conditions are unlikely to show significant improvement soon. This implies that the economy will still face considerable challenges in the first half of this year.
However, with the epidemic prevention and control work at different levels yielding effects and mass vaccination being carried out in phase as expected, the effectiveness of epidemic control is expected to gradually improve. As such, Hong Kong's economic recovery can hopefully gain a stronger momentum in the second half of the year.
Having experienced this once-in-a-century pandemic, we need to observe carefully and summarise the lesson, and ponder how to move towards a better tomorrow amid the crisis. In the past year, many companies’ operating models and personal consumption behaviours have undergone structural changes, shedding light on future economic trends.
With the advent of smartphones, the growth in network coverage and bandwidth, and the change in consumer habits, online shopping has become an auxiliary option for business and consumption in recent years. In the past year, as people stayed home for longer period of time due to anti-epidemic reasons, online shopping has swiftly turned from an auxiliary option to mainstream, or even the preferred choice.
Take the Mainland as an example. In the first three quarters of 2020, total retail sales value fell by more than 7% (totalled RMB27.33 trillion). Yet, sales through online channels saw an increase of nearly 10% (involving more than RMB8 trillion). If we take a closer look, online retail sales of physical goods even increased by 15%, accounting for 24% of total retail sales in the Mainland. The respective share widened by nearly 5 percentage points year-on-year.
In fact, this trend is not unheard of in Hong Kong. We probably shopped online more frequently in the past year. Imagine if consumers, motivated by their prior positive shopping experiences, choose to shop more via online channels, this will definitely affect the positioning, service and demand of physical stores. However, be it physical stores enhancing their online sales channels and services, or e-commerce platforms expanding its usage, both would need to better integrate sales in virtual and physical space. It would also lead to a change in demand for logistics support and employees skills.
The need to stay at home for anti-epidemic purpose has also given rise to work-from-home and study-from-home routines, as well as home entertainment. Related equipment sales and content purchases, like video streaming platforms and online conference software have become more common. The emergence of the “Stay-at-home economy” has brought opportunities to internet-related industries, but at the same time posed challenges to traditional industries. From online to offline, production to shipment, and consumption to distribution, etc., all these changes will further accelerate the degree and depth of computerisation and digitalisation of various industries. Therefore, firms must make good use of information technology platforms and system applications to seize development opportunities when the economy recovers.
This is why we have been emphasising the promotion of innovation and technology (IT) as the core driving force of our future economic development. To achieve the vision of an international innovation and technology hub, we must enhance our IT’s infrastructure, support system and ecosystem, and support traditional enterprises to expand the application of technology and data management. This is not only about the competitiveness of enterprises, but also the growth momentum of the Hong Kong economy.
On the other hand, the epidemic has accelerated the trend of deglobalisation, which may lead to changes in the current industrial and supply chains ecology. As a small and open economy, Hong Kong must get well prepared for it. In the face of protectionism and trade barriers, the HKSAR government is actively expanding the network of free trade agreements to ensure that Hong Kong’s goods and services can enter different markets with better conditions. At present, we are seeking actively to become the first batch of economies to join the Regional Comprehensive Economic Partnership Agreement (RCEP) after it enters into force.
We all hope that the economy can recover from the epidemic this year, but in reality there are still many risks. We must therefore remain vigilant. Uncertainties such as the development of China-US relations and geopolitics will certainly continue to require close monitoring. Many governments around the world have drastically increased their expenditures in response to the epidemic, leading to a much higher debt level in many economies. We have to pay attention to the financial risks that may arise. Financial stability is the prerequisite for stable economic and social development. This is why we have repeatedly emphasised that while adopting countercyclical measures to support the economy, we must maintain the prudence and sustainability of public finance, allocate resources in a targeted and effective approach, and carefully control our expenditures. Only by taking both short and long term goals into consideration can Hong Kong’s development progress steadily.
On the road to revitalising the economy, our Country is definitely the strongest support and backing force for Hong Kong. This year is the first year of the “14th Five-Year Plan”. Our Country’s development will rely on reform and innovation as the fundamental driving forces, and the establishment of a new development pattern will gather pace, featuring “dual circulation”, which takes the domestic market as the mainstay while enabling internal and external markets to boost each other. As long as we grasp the gist of such development pattern and rightly position ourselves, it will surely speed up the economic recovery of Hong Kong after the epidemic. Stepping into the domestic circulation, the Guangdong-Hong Kong-Macao Greater Bay Area will be an important entry point for Hong Kong. Promoting the development and success of the Greater Bay Area has also become the key to Hong Kong’s own success. Hong Kong has an obvious role as an “intermediary” and "facilitator” in the development of the country’s external circulation, leveraging on its competitive edges in finance and international business and trade networks and providing professional, business and high value-added services that are in line with international standards. Actively participating in the development of domestic and international dual circulation will help create a wider room for Hong Kong’s development.
January 3, 2021
