What If Hong Kong Falls? The Worst-Case Scenario for Travel

What if Hong Kong falls? As in lost forever. Or it becomes another mainland city like Shenzhen or Shanghai.

It’s outside of the realm of possibility for many, but as the worst protests since the 1997 British handover rage on, it is still a question on people’s minds, particularly those in travel. The unspoken worry as protests escalate in Hong Kong is that Beijing will lose patience, clamp down hard once-and-for-all, and the one-country, two-systems bill is no more.

Even as two days of violent protests at Hong Kong’s airport calmed on Wednesday and flights resumed, it was not hard to think of hospitality and tourism companies re-thinking new investments in Hong Kong, or relocating some operations altogether to other Asian cities.

It’s a worst-case scenario, and the common view is it won’t come to fruition. For one,  China’s understanding of its own power and influence has changed since, say, the crackdown at Tiananmen Square 30 years ago: “It is more powerful, more confident, and has an understanding of the role that prosperity plays in its stability — and of the role that Hong Kong plays in its prosperity,” a recent Economist story puts forth.

But in the short-term, there is no denying that things are incredibly tough — and tense — particularly in the tourism industry. According to the Hong Kong Tourism Board, early figures show a double-digit decline in arrivals during the second half of July.

The Travel Industry Council of Hong Kong (TIC), a member organization for travel agents, says that the number of inbound bookings from various overseas markets for July and August has dropped 50 percent compared with this time last year. This drop in arrivals is both from mainland tourists and those from overseas markets, and of course has a ripple effect across all of Hong Kong’s economy, from retail and restaurants to taxi drivers. Outbound bookings are also down 15 percent, simply because “people are just not in the mood for traveling,” said Alice Chan, executive director of the TIC.

Indeed tourism professionals are in a kind of nervous wait-and-see mode, unable to make long-term pronouncements of how the industry will fare next week or month, let alone next year. Many travel agents have been asked to take leave (some unpaid) due to scant work, Chan said, while some tour escorts and guides — who rely on commission rather than salary — are simply out of work. When asked if it is actively promoting tourism to Hong Kong in new or ongoing campaigns, the Hong Kong Tourism Board said it is closely reviewing developments and will “flexibly adjust its strategies and plans as required to respond to contingencies and changes in the market environment.”

Sources have expressed some sense that the reality on the ground for Hong Kong locals (relatively normal daily life other than contained protest areas) is different than what would-be tourists are seeing in portrayed media (violent protests all over the city). However, Chan said she felt that sense had shifted somewhat in recent weeks with the incidents at the airport.

“In June or maybe in the first half of July, the protests … were confined to specific areas and we knew beforehand where these protests would take place. To most of us here, we’re still leading a normal life,” Chan told Skift. “But the situation has worsened in that now we have protests anywhere … even local people are beginning to worry. So we understand that overseas travelers would be concerned about their safety in Hong Kong.”

The negative short-term effect that these demonstrations will have on the tourism industry is not in question, but the longer term feels like anyone’s guess, says Chan.

“We really don’t know. All these violent protests have to stop first. Then we start promotion again, start to renew tourist confidence. That will take time,” Chan said. “So even if they stop maybe in these two weeks, it could take us half a year to recover. If this prolongs, it will be really quite tragic to the local industry.”

But Will It Fall?

But how tragic can it get? Hong Kong hospitality and travel companies reached by Skift declined to be interviewed, with one saying it prefers to “keep a lower profile at the moment given some Hong Kong companies are being targeted,” a reference perhaps to Cathay Pacific, which had to fall in line with Beijing’s warnings to crack down on employees who had participated in protests.

But James Lu, executive director of Hong Kong Hotels Association for 21 years from 1996 to 2017 and now semi-retired, said, “A key international city does not fall because there are too many reasons for it to reach its status and remain so for such a long time. It may have its image tarnished but the city and people who made it happen will bring it back.”

Lu flashes back to Occupy Central or the “umbrella movement” that began in Hong Kong on September 28, 2014 and believes that this, too, shall pass. He had heard the vocal thoughts of many friends in different camps and those conversations “reassured me that when all this is over, we will be looking forward with the same optimism about our future, perhaps bringing Hong Kong closer to China than ever before.”

“I am confident that this Occupy Central version 2.0 will end just like version 1.0, even though the price Hong Kong will have to pay will be much higher this time,” he said. “My only regret is to see young people risking their lives and future for something they seem to believe in but fall short of being part of the reality after 1997.”

Agreeing, Giovanni Angelini, CEO and managing director of Shangri-La Hotels & Resorts for 10 years from 1999 to 2009, and now a consultant, said, “China has made great progress in all areas and come 2047, it will be a very powerful nation and Hong Kong can play a major role.”

Hong Kong’s Evolution

To some, Hong Kong has already evolved and will continue to do so. There’s evidence right under tourism’s nose on this, for example, one can argue Hong Kong is now more a domestic than international destination, thanks to massive growth of mainland visitors since the handover due to the introduction of an Individual Visitor Scheme and multiple visa policies. Chan of TIC told Skift that in the first half of 2019, it saw a 30 to 40 percent increase in the number of mainland inbound tourists thanks to the opening of the Hong Kong–Zhuhai–Macau bridge.

Some multinationals have migrated even before the current protests, pointed out Robert Hecker, managing director, Pacific Asia Horwath HTL, and founder patron of the region’s largest and most established hospitality event, Hotel Investment Conference Asia Pacific (HICAP), in Hong Kong each year in October.

“The migration of multinationals has happened well before now and no doubt there will be more regardless of whether there’s a pause or some form of accommodation [in the current protests]. Some multinationals with strategic reasons for being there relative to their business in/with China will likely stay, as will the traditional local/traditional conglomerates and real estate companies. Our office will carry on there as well,” said Hecker.

Hong Kong will not stay the same as it was, said Hecker. It has to change and evolve according to its contractual owner China.

“Of course, I’d prefer Hong Kong to retain its existing/former self, but fate has different ideas, and there’s nothing anyone can do about it. No doubt some hope that the Hong Kong we know would find a way to continue to be, but it should not come as a surprise if it doesn’t,” he said.

HICAP 2019 is still set to take place in Hong Kong from October 23-25. “There are enquiries, but no cancellations,” said Hecker.

Just Another Gateway

Another reality is that Hong Kong’s status as gateway to China has already been diluted even before the protests, pointed out Grant Strudwick, vice president AMEA of Pinkerton, a global provider of corporate risk management solutions.

“Hong Kong will always be ‘a’ gateway to China, but its significance as ‘the’ gateway to China has already been diluted over the last 20 years by Shanghai’s growth,” said Strudwick.

Its strategic status as an open market, a democratic environment and gateway to the mainland is “already tarnished,” with current protests further highlighting the future challenges of integrating Hong Kong into mainland Chinese social and commercial norms over time, he added.

Pinkerton is seeing multinationals starting to think long-term. Said Strudwick: “Some that we are working with have started to look at a split of HQ functions to other regional locations over time. A driver for this is political risk and the associated ability to attract expat senior professionals to work in the HQs.

“Singapore continually comes up as a likely alternate location. We have not seen specific hospitality or travel companies in this mix, however we are not working closely with that sector on this matter.”

Asked if Singapore, a longtime friendly rival of Hong Kong, is offering incentives for companies to locate themselves in the city, Marco Förster, associate at Dezan Shira & Associates, a pan-Asia firm providing legal, tax and operational advisory to international corporate investors, said as far as he knows, there are none in response to rising tensions in Asia.

But, it seems, there isn’t even a need for incentives.

“Usually I get questions like: Hi, we’re a U.S .company and want to open an LLC in China. Would it be better to open a holding company in Hong Kong or Singapore? Often you would advise on Hong Kong due to it still being a leading financial hub and simply, the proximity [to China]. Singapore is often an option if the company is interested in tapping the ASEAN market as well.

“What I received just last week however was something like: Hey, we want to open a LLC in China and we’re thinking about a holding company in Hong Kong or Singapore — but pretty sure that we’re going to do it in Singapore now. Hong Kong seems too unstable,” said Förster.

Singapore’s Minister for Law and Home Affairs K. Shanmugam recently insisted that the republic does not profit from Hong Kong’s ongoing unrest.

What If?

But what if Hong Kong loses its autonomy? How will it look as a destination? What domino effects will that have on global travel and tourism?

Asked to imagine this scenario, Laura Beaton, travel and tourism analyst at GlobalData, ventured a guess: “Hong Kong will likely become less-desirable to international tourists if it loses its relative liberalism compared to mainland China. Sixty-eight percent of visitors in 2018 were from China so international tourism would be a small fraction of what it is now. The U.S. is the third largest market so there is a big chance of losing visitors because of the trade war with China. However, Hong Kong still has many popular tourist attractions so everything would depend on visa restrictions.”

Dezan Shira’s Förster pictures a shift from Hong Kong as a global hub towards other airports in the region should the SAR fall.

“Hong Kong airport is a huge transit hub connecting Asia and Oceania with the world, being the transit destination between London and Sydney, Berlin and Hanoi, or Bejing and Bali, for example.

“Singapore with its five-star airport is a big competitor. If Hong Kong should eventually fall, I would see a shift towards other airports in the region. Guangzhou Baiyun’s brand new terminal two will serve more passengers; Beijing’s new Daxing International Airport is expected to open on September 30, most likely becoming one of the busiest airports and the largest single-terminal airport in the world. The existing Beijing Capital International is already the second busiest worldwide,” he said.

But even if it falls, Pinkerton’s Strudwick believes Hong Kong will always hold importance for tourism “by deed of its history and location.”

“It’s the sporadic violent protests and flight uncertainty that is keeping tourists away right now.”

Correction: A prior version of this article named the executive director of the Travel Industry Council of Hong Kong as Alice Chau. Her surname is Chan.