Tea and tear gas: Hong Kong’s shops on the economic front lines

Hong Kong, China: Lo Bak Jun and his family have been running their successful tea house in Hong Kong for about three decades. He puts in approximately 70 hours a week, but despite the hard work, business is suffering.

“It’s gotten worse since June this year. Business this year is the worst in 30 years for the shop,” Lo told Al Jazeera.

Lo’s parents started the Kam Yuen Tea House in the early 1990s when Hong Kong’s economy was booming. But now, the city is in recession, tipped over the edge by more than six months of unrest and a protracted trade war between the United States and China.

Small businesses like his are on the financial front line, as tourists stay away and retail sales plunge.

He sells traditional and specialist Chinese teas such as Jasmine, Tieguanyin and Pu’er at the teahouse. He warmly welcomes customers, inviting them to sample different brews, and is happy to host regulars for hours who sip and chat.

“Some tourists will sit here all day and drink all the tea they are given.”

In the past, at least one tour group would visit the shop a day. Now, days go past without a single foreign customer.

Government data shows Hong Kong visitor numbers were down 56 percent in November from a year earlier, after a 44 percent drop in October when tourism is usually thriving around China’s national Golden Week holiday.

Lo misses his foreign customers but says he relies on locals for most of his business. For every 20 Hong Kong dollars ($2.57) spent by a tourist in his shop, a Hong Kong local would spend approximately 100 Hong Kong dollars ($12.85). “Hong Kong people love tea,” says Lo.

Kam Yuen Tea House is in the bustling residential and commercial neighbourhood of Sai Ying Pun, west of Hong Kong’s central business district.

Beijing’s liaison office is on a parallel road nearby.

The area was the scene of some of the first provocative acts last year  by protesters, who vandalised the Chinese emblem and threw eggs at the building. The police response was harsh, with liberal amounts of tear gas and mass arrests. It was the start of an escalation in violence that has seen protesters fighting and throwing petrol bombs while police use rubber bullets, bean bag rounds and even occasionally live gunfire to quell the unrest.

Lo says he had to close the shop twice when protesters passed by. But he is sympathetic. “The students are polite,” he continues, “the government needs to do better.”

It all started earlier in 2019, when the Hong Kong government tried to rush through a new extradition bill. People protested over concerns it would give Beijing a legal avenue for political persecution, but it also stoked deeper resentment over a lack of universal suffrage in Hong Kong.

Growing frustration, shrinking economy

There is also pent-up frustration over stagnating living standards in a city with some of the world’s most expensive real estate, making Hong Kong one of the least affordable places to live on the planet.

The protests against the bill evolved early on into five key demands including the release of protesters arrested during early demonstrations, an independent investigation into harsh police action against protesters and the right to fully vote for legislators and the Chief Executive, the head of Hong Kong Special Administrative Region.

After a tumultuous six months, the extradition bill is out, but Chief Executive Carrie Lam remains in.

The unrest has resulted in economic losses amounting to about two percentage points of Hong Kong’s gross domestic product (GDP) – the sum of all finished goods and services produced in an economy – according to Financial Secretary Paul Chan.

The economy entered its first recession since the 2008-2009 global financial crisis. Recent official estimates showed the economy contracted by 3.2 percent in the third quarter.

As the government sees it: “Local social incidents dealt a very severe blow to an economy already weakened by a synchronised global economic slowdown and US-Mainland trade tensions.”

Economists forecast the loss of tourism will have a significant impact on Hong Kong’s annual GDP.

Iris Pang, Greater China economist with ING Wholesale Banking told Al Jazeera “The direct impact of loss of tourism should amount to three percent of GDP. Indirect damage is that the impact of unemployment and underemployment due to the loss of tourism activities will appear in GDP data gradually. These impacts include fall in local consumption.”

ING forecasts that Hong Kong’s GDP most likely contracted by 2.2 percent in 2019, and will shrink by a further 5.8 percent in 2020.

Chief Executive Lam and her embattled government have drip-fed a series of initiatives to support the economy. The latest for small and medium businesses is four billion Hong Kong dollars ($514m) in stimulus measures including subsidies on water and sewage bills, an instalment system for profits and salaries tax, and training programs.

There are about 340,000 small and medium enterprises (SMEs) in Hong Kong, which employ approximately 1.3 million people – or 45 percent of the workforce – in the private sector. In a place known for ease of setting up a business, SMEs make up more than 98 percent of all business establishments.

The Trade and Development Council says government support is vital: “The new round of measures will help ease the cash flow of SMEs, which will help restore confidence in affected industries by enabling them to continue their business.”

Hong Kong-based Shanghai Commercial Bank Head of Research Ryan Lam told Al Jazeera his analysis shows the government’s measures could help boost Hong Kong’s GDP by 0.2 percent. “It is meaningful, because SMEs are likely to spend funds instead of stashing them under the pillow during a recession.”

But for small business owners, like Lo, the government subsidies are not making any difference, especially while there is no end in sight to the unrest: “The students have made demands, but the government is not doing anything about it. So it’s not going to stop.”

Hong Kong’s entire retail sector is feeling the pinch with data showing overall sales fell 23.6 percent in November compared with the same month in 2018. It was the tenth consecutive month of falling sales, and was only marginally better than the record 24.4 percent year-on-year plunge in October.

Hardest hit were sales of jewellery, watches, clocks, and valuable gifts, which plummeted by 43.5 percent in November; medicine and cosmetics sales slumped by 33.4 percent while clothing fell by 31.9 percent. Even food, alcoholic drinks and tobacco sales dropped by 11 percent.

‘Chasing an elephant with a pop gun’

Enzio von Pfeil, economist and financial adviser with St James’s Place Wealth Management in Hong Kong, told Al Jazeera the lack of government action to address social ills – expensive housing, income disparity, antiquated education and a lack of competition – is the real problem.

“Government measures are akin to chasing an elephant with a pop gun.”

There is also the continued uncertainty with the US-China trade negotiations to consider.

“It’s all going to be pretty gloomy. The structural forces of Hong Kong’s domestic problems, the cyclical forces with worsening economic times, and random forces of Trump’s political antics,” Pfeil said, referring to the US president’s negotiating tactics.

Tommy Wu, senior economist at Oxford Economics, told Al Jazeera: “Retail sales and tourist-related sectors are experiencing their worst performance in over a decade and will remain under huge strain as a result of the plunge in inbound tourism and weak domestic sentiment,”

“This will lead to a spike in unemployment in 2020,” said Wu.

Back at Kam Yuen Tea House, Lo says he understands people just do not have the same spending power they used to have.

“If I had the money, I would leave Hong Kong.” He adds: “Just kidding, I’m staying.”

Lo may be staying but he is having to adjust to a new normal in Hong Kong that has made business and everyday life much harder.

“Everyone is heartbroken about Hong Kong, ” he says. “I’m not even going to look at the news today.”