The Economist - USA (2020-02-08)

The EconomistFebruary 8th 2020 Leaders 13

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s theyrepaytheirdebttosociety,manyHongKongprison-

ersareputtoworkmakingusefulitemslikeroadsigns,uni-

forms,furniture—andthesurgicalmasksthatnowobscurethe

facesofalmosteveryoneonthecity’ssubduedstreets.Tohelp

stopthespreadoftheWuhancoronavirus,whichhasinfected

over28,000peopleworldwide,prisonerswillnowbeemployed

roundtheclock,boostingmaskproductionbyasmuchas60%.

That,sadly,isoneofthefeweconomicventuresthatisstill

expandinginthisthrice-struckcity.Itsgdpshranklastyearfor

thefirsttimeina decade,thankstothetradewarandanti-gov-

ernmentprotests.Thecoronavirus nowposesathirdthreat.

SomeeconomistshaveslashedtheirgrowthforecastsforHong

Kongbymorethanforthemainland(seeFinancesection).

HongKong’seconomicfateisofinternation-

alconcern.Vastsumsofglobalcapitalflowin

andoutofitsassetmarketsanditsborder-strad-

dlingbanks.Somespeculatorsnowfretaboutits

financialresilience,notingitsexorbitantprop-

ertymarket,wherepriceshavetripledinten

years,andtop-heavybankingsystem,whichhas

assetsworth845%ofgdp. Asprotestsintensi-

fiedlastyear,betsagainstHongKong’scurrency,

whichhasbeenfirmlypeggedtothedollarsince1983,became

unusuallypopular.Thecity’smonetaryofficialsproclaimedno

reasontoworry.Butthatisthekindofthingyouhavetosayonly

whenotherssuspectthatit isnotentirelytrue.

ThefearaboutHongKong’sdomesticeconomyiswarranted.

Muchofthecity’slivelihooddependsontheeconomicvirtuesof

opennessandpropinquity.Itexcelsasbothanentrepotanda

rendezvous,wherepeoplefromfar-flungplacescangatherin

jam-packedproximity.Itthrivesonhumaninteraction.Butso

doesthevirus.Thuseffortstoimpedethedisease,suchasdis-

couragingvisitorsandgatherings,alsoparalysetheeconomy.

Unfortunatelythegovernmentlacksauthorityjustwhenit

needsit.Bysogravelymishandlingtherecentsocialunrest,it

lostthepublic’strust.Itnowstrugglestoconvincepeoplethatit

isdoingallitshouldtostopthedisease.Somehospitalworkers

havegoneonstrike,demandinga completeclosureoftheborder

withthemainland(seeChinasection).Othersarefuriousabout

theshortageofmasks.A morecrediblegovernmentmightadvise

peoplethattheydonotneedtowearoneunlesstheyareill.But

suchadvicewouldbescornedinHongKong.Ithasrunoutof

masksbecauseitsgovernmenthasrunoutoftrust.

ThesejustifiablefearsforHongKong’slocaleconomydonot,

however,extendtoitsbanksoritscurrency.Preciselybecauseits

propertymarketanditsfinancialsystemhavebecomepartially

divorcedfromitslocaleconomy,theyaresomewhatinsulated

fromdomestictravails.Anditsbankshavegrownsobigpartly

becausetheyservemainlandfirmswithglobal

ambitions,whosefortunesaredecidedoutside

HongKong.Mostlendersarewell-capitalised

andmortgagelendingistightlycontrolled.

HongKong’scurrencypegisalsoheavilyfor-

tified.Foreign-exchangereservesaretwiceas

largeasthemoneysupply,narrowlydefined.In

principle, the bankswould runout ofHong

Kongdollarstoselltothemonetaryauthority

beforeitwouldrunoutofAmericandollarswithwhichtobuy

them.Inpractice,interestrateswouldspikelongbeforethen.

Thatwouldmakeholdingthecurrencymorerewardingand

bettingagainstitmoreexpensive.Itwouldalsoinflictpainon

theeconomy.Forthepegtosurvive,thegovernmentwouldhave

toenduretheagonylongerthanspeculatorscouldenduretheex-

pense.DuringtheAsianfinancialcrisisin 1997 (whenovernight

interestratesbrieflyreached280%),HongKongshowedhowfar

it waswillingtogo.Thepeg’ssurvivalbackthenhasmadeit more

likelytosurvivefuturetests,too.HongKonghasbuilta reputa-

tionforcompetenceandintegritywithinternationalinvestors.

Whata shamethatthegovernmenthassquandereditsreputa-

tionforthoseveryqualitieswithitsownpopulation. 7

Three strikes

HongKongGDP

%changeona yearearlier

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  162015 17 201918

  
  

UBSforecast

Hong Kong’s economy is in peril. Its giant financial system and its currency peg are not

The economic fallout in Hong Kong

I

n the past13 months Congo and Malawi have both held rotten

elections. In Malawi tally sheets arrived at a central vote-

counting station having been altered with Tipp-Ex, a correction

fluid. The incumbent president, Peter Mutharika, narrowly

“won”. In the Democratic Republic of Congo an independent

tally organised by Catholic bishops has suggested that an oppo-

sition leader, Martin Fayulu, won about 60% of the vote, three

times as many as Félix Tshisekedi. But Mr Tshisekedi was de-

clared the winner and sworn in as president in January 2019.

What happened after these two pilfered polls was very differ-

ent, however (see Middle East & Africa section). In Malawi this

week the constitutional court overturned the result and ordered

a new vote to be held within 150 days. This is only the second

time in African history that a court has nullified a dodgy general

election. It is a triumph for the rule of law. It shows that local

judges can be stricter than foreign election monitors. And it

gives Malawians hope that they can choose their own rulers.

No such luck in Congo. The top court there rubber-stamped

the brazen ballot burglary a year ago. And the American govern-

ment, among many others, followed suit. The administration’s

Africa experts wanted to denounce Congo’s stolen poll, but were

overruled by others closer to President Donald Trump.

A tale of two elections

Democracy is upheld in one African country and trampled in another

Congo and Malawi