Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)

While the economy faces a challenging year, China’s reopening is a source of cautious positivity

Despite the International Monetary Fund’s (IMF) projected slowdown of growth this year to 2.7 per cent from 3.2 per cent in 2022 and its suggestion of an outlook fraught with uncertainty, the recent reopening of China resulted in an upbeat mood at the Asian Financial Forum (AFF) in Hong Kong this week.

The high-powered forum included keynote speeches from Helen Clark and former UN Secretary-General Ban Ki-moon, and brought together some 2000 delegates including politicians and policymakers, global financial and business leaders, investors and entrepreneurs from over 70 countries and regions. It was the first in-person gathering for the event after being held in a virtual format for the past two years.

Opening the Summit, Hong Kong’s chief executive John Lee acknowledged the global challenges but said the timing of the forum – just three days after resumption of quarantine-free travel to and from mainland China – provided a source of optimism.

Asian stocks traded higher following the resumption of quarantine-free travel and the end of China’s zero-Covid policy, and delegates shared this bullish view at the AFF.

When polled on expectations of the global economy in 2023, some 69 per cent said they were either optimistic or neutral. Just 31 per cent responded with a negative sentiment about the year ahead.

Chair of HSBC Holdings, Mark Tucker, said China’s reopening and the package of measures it is introducing to stabilise the weakened property market will be positive for both its own economy and the global economy more broadly, albeit with ongoing volatility and challenges associated with the escalation in Covid-19 cases.

“Hong Kong and the Greater Bay Area are likely to be the immediate beneficiaries from the mainland reopening,” said Tucker, expecting a strong recovery to be seen from the second quarter.

Even more significantly, it could potentially be the stimulus on which the global outlook for which 2023 depends on.

Tucker was enthusiastic that Asia was resilient, and had prospects for a strong rebound later in the year.

“We have seen virtually all economies in the region now recovered from the output losses incurred during the pandemic to above 2019 levels,” he said.

He highlighted that India too had become a hugely attractive market within Asia, with a strong long-term outlook, supported by the demographic dividend provided by having over two-thirds of its population of working age, along with important reforms and rapid developments in the digital economy coupled with global supply chain shifts.

“This could be the basis for a 20-30 year runway for growth, as was the case for China in the 1990s,” he said. “The same is still true of Singapore and across many Asean markets more generally.”

In contrast, he said a recession is widely expected in the United Kingdom and the EU with challenges from high inflation driven in part by higher energy prices and the war in Ukraine. Both are contributing to a cost-of-living crisis and squeeze on real incomes.

“The US economy is proving more resilient than those in Europe, and I don’t expect a hard landing,” he said. “I expect any US recession to be much shallower than those in Europe.”

“All of this means I am more optimistic about the second half of 2023. I expect inflation to slowly come under control. The markets are hoping that rates peak in the first half of the year so that any recession is shallow, regionally limited and resolved quickly.”

Chair of Agricultural Bank of China – one of China’s ‘big four’ banks – Gu Shu, shared this encouraging position, telling the forum the US is now facing lighter inflationary pressure, and inflation in the eurozone is expected to peak later this year.

“The need to continue raising interest rates weakens,” he said. “We estimate that in 2023, the pace of interest rate hikes will slow down.

“However, with rising food prices and a shortage in labour supply, the high current interest rates and tight monetary policy is likely to continue for some time.”

Navigating the polycrisis

The forum included a focus on how countries and financial institutions can tackle the looming polycrisis – a term coined to describe the multiple interrelated economic, political, and ecological shocks upending the global economy.

Panellists stressed it will be essential to work closely together to navigate the polycrisis, especially due to the many global issues that will need closer cooperation among countries to solve including the food, energy and cost of living crises, supply chains, climate change and the ongoing pandemic.

Luxembourg’s Finance Minister Yuriko Backes told the forum that while Covid tested the limits of globalisation and exposed several weaknesses, particularly in supply chains, the wrong conclusion for countries to draw from the crisis would be that we need a general decoupling from other economies.

“There is a worrying wider trend toward deglobalisation and protectionism in Europe and also elsewhere, and it is therefore important that efforts to increase autonomy do not translate into widespread market and technology fragmentation.”

Protectionism risk

Backes said there is a risk Europe’s open strategic autonomy, China’s dual circulation strategy which also aims to increase self-reliance, or the ‘Buy America’ rules introduced in the US could lead to a collective decoupling of markets and increased protectionism.

In Asia, multilateralism is on the rise. The world’s largest free trade deaL the Regional Comprehensive Economic Partnership (RCEP) between Asia-Pacific nations including New Zealand, has just reached its first anniversary in force and continues to grow to reach its full potential.

But Antony Leung, group chair of Hong Kong conglomerate Nan Fung Group, said the elephant in the room is the ongoing rivalry between the United States and China, which brings with it trade protectionism and puts wider global cooperation at risk.

“As a result, we are seeing that the world may be facing ‘one world, two systems’ – one being the US-European system, and then the rest of the world,” he said.

-Tim McCready was a guest of the Asian Financial Forum