As Hong Kong approaches the release of its latest Policy Address on Wednesday, all eyes will be on how the Hong Kong Special Administrative Region government addresses the city’s ongoing economic transformation. Chief Executive John Lee Ka-chiu has been actively engaging with various sectors to gather insights and proposals. In the lead-up to the finalization of the Policy Address, key areas such as the nighttime economy, social reforms, local governance, youth development, and new productivity drivers have surfaced as focal points for revitalizing Hong Kong’s economy.

Since the outbreak of the COVID-19 pandemic, Hong Kong’s economy has entered a phase of transition. As Lee described, the city is navigating a period of restructuring, marked by both opportunities and obstacles. Data reveal that in the first half of 2023, Hong Kong’s total retail sales were down by more than 20 percent compared with the same period in 2018. Visitor spending, once a cornerstone of the local retail sector, declined significantly from HK$167.1 billion ($21.5 billion) in 2018 to just HK$71.3 billion in 2023.

The shift in consumer behavior, both locally and globally, has been profound. The pandemic altered the way people shop, dine and engage with the city. Even after quarantine restrictions were lifted, many residents have not returned to pre-pandemic spending patterns, particularly during evenings. Tourists, too, have shifted their preferences from the traditional “shop-and-eat” model to more-immersive, experience-driven activities. This pivot has reshaped the city’s economic dynamics.

In addition to the pandemic’s impact, geopolitical tensions continue to weigh heavily on Hong Kong’s economic outlook. As an open and highly connected economy, Hong Kong remains vulnerable to external shocks, from global trade disruptions to volatility in capital markets. This uncertainty complicates efforts to revitalize key sectors, including retail and tourism.

Compounding the issue is the ongoing labor shortage. Despite government efforts to ease the strain by introducing measures like the Enhanced Supplementary Labour Scheme, businesses are still grappling with high operational costs. Wage floors, retraining levies, and recruitment fees for imported labor have all contributed to increased costs, without necessarily boosting competitiveness.

Not all indicators paint a grim picture. Hong Kong’s economy shows signs of resilience in other areas, with wage growth remaining moderate and unemployment hovering near record lows, signaling almost full employment. However, these positive metrics have not quelled concerns about the overall economic outlook. While bustling streets and crowded markets might suggest robust activity, deeper structural issues remain.

The growing trend of “northbound consumption”, where residents travel to the Chinese mainland for leisure and shopping, presents both a challenge and an opportunity for Hong Kong. Each weekend and during public holidays, thousands of people leave the city, accounting for 5 to 10 percent of the population. This outward flow raises questions about the local market’s capacity to adapt and thrive.

Revitalizing local enterprises 

Amid these shifts, one of the key challenges for the upcoming Policy Address is how to reinvigorate local consumption and investment confidence. With the external environment remaining uncertain, targeted measures to support local small and medium-sized enterprises are seen as essential. The government needs to introduce policies that help these businesses upgrade and transform, ensuring they remain competitive in a global market that is increasingly driven by innovation and technology.

There has been a growing consensus that Hong Kong must harness the potential of large-scale events to stimulate economic activity. Cultural festivals, exhibitions and entertainment spectacles are viewed as effective tools of boosting the economy. The idea is to select events that resonate with Hong Kong’s unique character, offer strong economic returns, and have long-term growth potential. By focusing resources on these flagship events, Hong Kong could maximize the economic impact of its limited resources.

As Hong Kong prepares for its next phase of development, the focus will undoubtedly be on how to balance tradition with innovation, ensuring that the city remains competitive while adapting to new global realities

To make this work, there must be a well-established calendar of events. The goal is for both mainland and overseas visitors to associate certain dates with iconic Hong Kong festivals, drawing them to the city consistently. This would help solidify Hong Kong’s position as a hub for tourism and culture.

As technology continues to transform industries worldwide, Hong Kong is no exception. The upcoming Policy Address may also explore opportunities to enhance the city’s tourism sector by integrating artificial intelligence. The idea of creating an “AI tourism concierge” could be an innovative way to offer visitors seamless support, from event recommendations and transport information to booking services. Such a system could not only improve the tourist experience but also position Hong Kong as a forward-thinking destination.

Additionally, with the rise of eco-tourism and adventure travel, there are calls for the government to develop more diverse tourism products, such as island getaways, nature-based experiences and water sports. These initiatives could help Hong Kong capitalize on its natural assets while expanding its appeal to a broader range of tourists.

On the labor front, addressing wage policies is crucial. Drawing lessons from regional competitors like Singapore, Hong Kong may need to reassess its wage structure, particularly for imported labor. Relaxing some of the rigid requirements around wage floors could help reduce operational costs for businesses, enhancing the city’s competitiveness.

In the financial sector, recent tightening of corporate lending has raised concerns, especially for small and medium-sized enterprises. Banks appear to be pulling back on credit just when many businesses need it most. While the government and the Hong Kong Monetary Authority have taken steps to address this, further action may be required to ensure that SMEs have the liquidity they need to navigate these uncertain times.

Economic stimulus

Some voices in the business community have suggested more-radical approaches to boosting economic growth. For instance, the idea of legalizing gambling has been floated as a way to draw in international visitors and stimulate new sectors of the entertainment industry. While such proposals have historically been met with resistance, the argument is that, in a time of economic uncertainty, bold moves might be necessary to ensure Hong Kong’s long-term prosperity.

Regardless of the challenges, there remains a strong sense of optimism about Hong Kong’s future. The city’s unique advantages — its legal system, proximity to the mainland, and established global connections — continue to position it as a critical gateway between East and West. The upcoming Policy Address is expected to outline how Hong Kong can leverage these strengths to further integrate with the Belt and Road Initiative and strengthen its role as a global financial and trade hub.

As Hong Kong prepares for its next phase of development, the focus will undoubtedly be on how to balance tradition with innovation, ensuring that the city remains competitive while adapting to new global realities.

The author is chairman of the Asia MarTech Society and sits on the advisory boards of several professional organizations, including two universities.

The views do not necessarily reflect those of China Daily.