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As always, Hong Kong was upbeat as families gathered to celebrate the Chinese New Year on Jan. 26. But the positive mood apparently doesn't extend to the city's business elite. Hong Kong has the dubious honor of being among the world's most pessimistic places, at least when it comes to the economy.
London-based accounting firm Grant Thornton International in January released the results of a survey of more than 7,200 corporate executives in 36 countries worldwide, asking them about their expectations for 2009 both in terms of the overall economy and their companies. When it comes to pessimism about the economy in the Year of the Ox, Hong Kong was No. 9, gloomier than the U.S. and Britain and only a bit better than Japan, the least upbeat of all.
A year ago when the Hang Seng index was soaring along with the Dow Jones industrial index and other markets, Hong Kong scored plus 81 on the Grant Thornton optimism/pessimism index. Today it's at minus 49. (The numbers show the difference between the percentage of respondents who were upbeat and those who were gloomy, with the best possible score plus 100 and the worst minus 100.)
As for expectations about their own businesses, Hong Kong executives look even more downbeat. In all six categories—ranging from expectations regarding exports, profitability, investment in new buildings, investment in plant and machinery, turnover, and selling prices—Hong Kong ranked worst of all, with the gloomiest scores for every one. "Hong Kong privately held businesses appeared to be the most depressed group across the world, with the lowest expectation over the next 12 months on all major economic indicators," the firm says.
Japan's status as the gloomiest country anywhere is a reflection of the troubles so many top Japanese exporters now have trying to sell in the recession-plagued U.S. and Europe. Making things worse for companies such as automaker Toyota (TM), they can't count on markets closer to home, with Japan having fallen into recession and China struggling. Akio Toyoda, grandson of the company's founder and newly appointed president of Toyota, told reporters on Jan. 20 the company faces "an unprecedented crisis." Adds Koji Endo, an analyst with Credit Suisse (CS) in Tokyo: "there is no question that 2009 will be the toughest year Toyota has ever faced."
Times are just as tough in Hong Kong. Since companies in the special administrative region of China are so reliant on manufacturing in the mainland or on providing logistics and financial services for customers based there, the slowdown in the Chinese economy is depressing local confidence. Last week the Chinese government reported economic growth in the fourth quarter of 2008 slumped to 6.8%, its worst year-over-year performance since 2001 and far below the 8% level that economists believe China requires to create enough jobs for its expanding workforce.
Given Hong Kong's status as a financial hub for Asia, it's not surprising the global financial crisis is taking its toll. "If you could isolate the City of London or isolate New York, you would find similar results," says Gary James, tax partner with Grant Thornton in Hong Kong. "When the finance industry is such a major part of the economy, you would expect these types of results."
That said, there is some reason for optimism, even in Hong Kong. While the situation in the city is indeed "grim," says Richard Crosby, a partner with London-based law firm Norton Rose in Hong Kong, the city can still benefit from its ties to China and other parts of Asia. "You have to look at it comparatively," says Crosby. "For Asia, it is better than anywhere else right now. People are still looking to invest here." While attorneys at the Hong Kong offices of other top U.S. and British law firms may have little work, Crosby says the 11 partners and 45 associates in Norton Rose's Hong Kong office are "working pretty hard at the moment."
And Crosby doesn't expect to see a lot of law firms pulling out of Hong Kong, either. "If you want to be doing things internationally, you have to be in this region," he says. "And for China, you have to be in Hong Kong."
Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau.