Assessing the Economic Impact of Hong Kongs Occupy Central Movement

The Occupy Central (OC) movement was officially launched on Sept. 28, starting with members from the Occupy Central with Love and Peace (OCLP), the HK Federation of Students and Scholarism groups staging a sit-in in Central and Admiralty that blocked traffic in key commercial and business districts in Hong Kong. The objective of this campaign is to display the organizers’ determination to have “real” universal suffrage for the chief executive (CE) election in 2017, and more importantly, to demonstrate their discontent over the National People’s Congress’ decision to require that CE candidates be screened by a nomination committee, which is expected to be composed of pro-China members, and therefore lacking broad-based representation.

Our assessment

Below, we attempt to provide an assessment of the outcome of the OC movement and its impact on the various aspects of the economy under three separate scenarios:

Scenario 1

The Hong Kong government performs a violent crackdown

We think this scenario is unlikely. After the tear gas incident, which was perceived as violent, we have observed a change in the attitude of the police. They have become more accommodative toward the protesters, and their response has been more restrained. We feel that the Hong Kong government is very conscious of the public disapproval over the police’s actions and does not want the press and international community to portray the police as using force against peaceful demonstrators fighting for democracy.

On the campaigners’ part, we believe the majority of them realize that this is a long-term pursuit and that hostility will not yield a turnaround in Beijing’s decision overnight. Reaching an opportunity for dialogue with the Hong Kong government will be a first step toward a constructive outcome. In the process of trying to achieve this, the movement may attempt to test the government’s tolerance.

As a result, when “sensible” demonstrators meet “restrained” police, a sharp deterioration of the current situation is unlikely, in our view.

Scenario 2

Dialogue between the campaigners and the Hong Kong government fails, no resolution is reached, and the demonstrators lose public support and sympathy. In turn, the police step in and restore order quickly. Status quo remains.

This seems quite possible at this stage in time. Though this is a less-than-perfect outcome for the protesters, at least public order would be restored and everything would go back to business as usual.

Scenario 3

A dialogue between the campaigners and the Hong Kong government yields some positive results, and both parties declare they have reached a “win-win” situation.

We assign a relatively high probability of this outcome. We have seen the Chief Secretary Carrie Lam’s tone soften, and she has offered to meet with student leaders to discuss electoral reform. Government officials have also reiterated that there is room for discussions over key issues, such as how the formation of the nomination committee can offer better public representation. We believe the government is willing to offer some sort of moderate compromise after all, and that they are working toward a deadline to get Beijing’s proposal passed by the Legislative Council and start the second phase of the consultation process by Oct. 8.

Having said that, the current situation is very fluid, and emotional eruptions have started in certain parts of the occupied areas among the demonstrators and some anti-OC protestors. Fighting has broken out and resulted in some people getting injured. This is sad, but at the same time we believe it was inevitable, as maintaining full control over a movement of this scale is realistically a difficult task. However, we are still hopeful that the overall situation will remain peaceful. We have also seen some blocked areas in Causeway Bay and Tsim Sha Tsui being cleared out without the use of force, which is positive.

Impact on the economy

The sectors that are most affected in the immediate term are retail, restaurants and hotels. The China National Tourism Administration has stopped signing off on package tours to Hong Kong from Oct. 1 to 7 (and up to Oct. 10 for some regions). As Chinese visitors traveling via package tours accounted for 30% of total Chinese visitations year-to-date (January to August), a loss in retail sales in the near term is certain.

On a longer-term basis, we believe the stoppage of package tours is only temporary and does not point to a structural change in the Chinese government’s policy toward Hong Kong. We also disagree with some suggestions that this may even end up with China cutting the Individual Visitors Scheme (IVS). Our opinion is that the IVS policy should not be viewed merely as a “gift” from the Chinese government, but part of China’s bigger scheme of integrating Hong Kong with the mainland. Over the years, we have witnessed aspects of trade, finance and people flows being opened up. Cutting off tourism does not fit in with the overall plan.

On a fundamental basis, with Hang Seng Index (HSI) constituent stocks that have pure Hong Kong exposure (i.e., excluding all Chinese and multi-national companies) accounting for only 20% of the total market cap, we do not think this will lead to a broad-based earnings downgrade of the HSI.

Impact on 2014 Hong Kong gross domestic product (GDP)

Despite retail sales being disrupted, we believe the other core GDP components, such as trade and fixed capital investment, will not be impacted. As such, we maintain our 2014 GDP growth forecast at 2.0%.


Since early 2013, the pro-democracy camp has been petitioning the Chinese and Hong Kong governments to create an electoral system that satisfies the international standards of universal suffrage. These standards, they argue, include an equal number of votes, an equal weight for each vote and no unreasonable restrictions on the right to stand for election. It also stipulates that the final proposal for the electoral reform be decided by means of a democratic process. On the other hand, the Chinese government has repeatedly declared that the chief executive (CE) must conform to the standard of “loving China and loving Hong Kong” to ensure that the chosen CE will not be a candidate with an anti-Beijing stance.

To that end, the Hong Kong government, strongly backed by Beijing, reiterated that CE nominees have to be screened by a "broadly representative nominating committee," and there was no provision for civic nominations. The position was reaffirmed in a State Council decision announced on Aug. 31, 2014.

Sequence of events

At the time of this writing, the OC movement has continued for more than a week with the situation evolving on a daily basis. The following provides a recap of the major events:

Sept. 28 — The Occupy Central (OC) movement was officially launched. Large crowds of protesters took to the streets and occupied key financial areas in Admiralty and Central.

Sept. 29-30 — Police attempted to disperse the crowds by firing tear gas at the public. However, not only did they fail to regain control of the districts blocked by the campaigners, this action provoked public anger and criticism over the use of unnecessary violence, and earned the OC movement more supporters. A new crowd gathered in major shopping and commercial district Causeway Bay.

Oct. 1— Students demanded that Chief Executive C.Y. Leung step down and that Beijing retract its decision on the 2017 CE nomination process.

Oct. 2 — Chief Secretary Carrie Lam offered to meet with representatives of the Federation of Students to discuss political reform.

Oct. 3 — Street violence broke out among the demonstrators and anti-OC protesters in another shopping and commercial district called Mongkok.

Important Information

The Hang Seng Index includes the largest companies of the Hong Kong stock market and is considered the main indicator of the overall market performance in Hong Kong.

China remains a totalitarian country with the following risks: nationalization, expropriation, or confiscation of property, difficulty in obtaining and/or enforcing judgments, alteration or discontinuation of economic reforms, military conflicts, and China’s dependency on the economies of other Asian countries, many of which are developing countries.

The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.


All data provided by Invesco unless otherwise noted.

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