When Shenzhen, Macau and Hong Kong all experience an economic slowdown

After 2 consecutive quarterly negative YoY change of GDP, the Government of Hong Kong has declared a recession. However, the government put the blame on the social unrest for the recent economic slowdown, without providing scientific evidence. This article provides both longitudinal and cross-sectional evidence that proves them otherwise.

Longitudinally, the slowdown has been commenced much earlier than the first date of the recent social unrest due to the anti-extradition movement. Figure 1 shows the fact that the slowdown has commenced since mid-2018. The annual growth rate started declining continuously from 4.6% in 2018Q1 to 0.4% in 2019Q2, and it finally dipped into -2.9% in 2019Q3.

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Figure 1 Annual Growth Rate of HK GDP 2017Q1–2019Q3. Source: Trading Economics

The QtQ change of GDP shows more clearly the starting quarter of the slowdown. The first negative QtQ change of GDP was in 2018Q1 and there were finally 2 consecutive negative QtQ changes of GDP in 2019Q2 and 2019Q3 (Figure 2).

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Figure 2 Quarterly Growth Rate of HK GDP 2017Q1–2019Q3. Source: Trading Economics

The timing is more likely to be related to the global recession and the US-China Trade War. Yiu (2019a) has cited the IMF’s analysis of the global recession, and Yiu (2019b) has analyzed the slowdown of each of the components of the GDP of Hong Kong, which show more clearly the causes are external. For example, there is a sharp reduction in imports and exports of goods (likely to be the consequences of the US-China Trade War), and continuous negative growth of retail sales since early 2019, which is much earlier than the social unrest.

Further to the longitudinal analysis, this article is going to analyze cross-sectionally the comovement of GDP growth rates of 3 cities in the Greater Bay Area, namely Shenzhen, Macau and Hong Kong. All the 3 cities have been experiencing GDP slowdown, Shenzhen’s GDP YoY change has recorded the slowest GDP growth in the past 27 years. Macau has also recorded a consecutive 3 quarters’ negative growth rates of GDP. In other words, Macau’s economy has undergone a recession one quarter earlier than Hong Kong.

It can hardly be coincident that all the 3 neighboring cities’ slowdowns are due to different reasons. If they are caused by the same factor, then it confirms the hypothesis that the cause of the Hong Kong’s economic slowdown is an external factor instead of an internal one.

More importantly, the annual growth rates of GDP of Macau and Hong Kong have been comoved for years. The correlation between the two is found to be reasonably high. In other words, there must be some external factors that apply to both cities that drive the comovement of their GDP changes.

Figure 3 compares the annual changes in the GDP of Hong Kong and Macau over the past decade. The blue curve is for Macau and the orange curve is for Hong Kong. The GDP YoY curve of Macau is more volatile than that of Hong Kong. It shows that Macau has experienced negative growth for three consecutive quarters since 2019, which indicates that Macau has been under a recession one quarter earlier than Hong Kong, and the fall was at a magnitude of about -4%.

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Figure 3 Annual Growth Rates of Macau and Hong Kong’s GDP 2017Q1–2019Q3. Source: Trading Economics

As we all know, the core economic sectors of Hong Kong and Macau are very different. The only similarity between the two economies is the high dependence of the Chinese economy. Hong Kong’s economy is mainly dependent on China’s trade and finance, while Macau is more dependent on China’s tourism and asset investment. Interestingly, with such a big difference in their core economic contributors, their GDP growths have been synchronized for years, it confirms that they are affected by the same external factors. Since Shenzhen, Macau and Hong Kong are nearby cities within the Greater Bay Area, and are all highly dependent on Mainland China’s economy. The synchronized slowdowns of the 3 cities indicate that the causes are likely to be related to China’s economic slowdown, rather than three different internal reasons each specific to one city. (Readers are welcome to write the comparison with Shenzhen’s data)

The most important of all is the strong correlation between the GDP growths of the two cities. Figure 4 is the scatter plot of the two data series. Within just the past 12 quarters, their correlation coefficient has exceeded 90%! Figure 4 also reports the explanatory power of the best fit line for the data, it achieves a very high figure of 82%.

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Figure 4 Scatterplot of the Annual Growths of Macau and Hong Kong’s GDP 2017Q1–2019Q3.

Since both the longitudinal and cross-sectional analyses of GDP pinpoint to the external factors that cause the economic recession in Hong Kong, the proposed solutions tackling the problems by the Hong Kong government must target the real causes. A wrong diagnosis would result in a wrong prescription, which can be fatal. If the problem lies in China’s economic slowdown and the US-China Trade War, then it is deadly wrong to solve the problems by storming the social unrest by violence. Instead, the government should help promote US-China trade negotiations by facilitating the complete implementation of the Sino-British Joint Declaration in Hong Kong, particularly the universal suffrage, so as to reduce the conflict between the two countries.

Macau is the world’s highest per capita GDP city, and Shenzhen is one of the highest GDP cities in the Greater Bay Area. Hong Kong is the freest city and one of the major financial centres in the world. All three cities have very unique strengths for their economic successes. It is almost impossible to be coincident that the three cities would experience a slowdown in economic growth at the same time due to different internal reasons. Unfortunately, people are fond of stories that relate the economic data to some recent events without doing empirical analysis. Propaganda machines take that advantage to fool the crowd by telling their misleading stories. It is therefore important to carry out scientific analysis to study the causes of the recession, so as to make a correct diagnosis and effective prescriptions.


Yiu, C.Y. (2019a) Why Global Recession 2020? A Review of IMF’s (2019) World Economic Outlook Report, Medium Nov 6. https://medium.com/@edwardyiu/why-global-recession-2020-a-review-of-imfs-2019-world-economic-outlook-report-part-1-391722a34faf

Yiu, C.Y. (2019b) Hong Kong runs ahead of the world to jump into the global recession first, Medium Nov 1, https://medium.com/@edwardyiu/hong-kong-runs-ahead-of-the-world-to-jump-into-the-global-recession-first-bf30fb1c4e23

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ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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