Zero-COVID policy shakes Hong Kong’s economy and its ‘soul’

Perry Lam felt confident that his business had weathered the worst of the pandemic. Several rounds of bar closures in Hong Kong had dimmed the city’s vibrant nightlife, threatening to destroy his brewery. But things seemed better late last year.

After the government’s relentless effort to stamp out the virus, there were no local infections, bars began ordering kegs of his lager again, and money was coming in. “You saw the silver lining,” said Lam, 34.

That changed this month when omicron started spreading, and officials returned to the trusted zero-COVID playbook that Hong Kong shares with mainland China. Restaurants were forced to shut down by 6 pm Small animals were culled. Flights from eight countries were suspended. Imports came to a standstill.

Hong Kong is chasing the same dogged virus strategy as China, hoping this will strengthen ties to Beijing and allow it to declare victory over COVID-19. But in the process, a place once known as “Asia’s World City” has cut itself off from the outside world, crushing an economy reliant on international trade at a time when the global supply chain is already deeply strained.

Now, local businesses that held on through several outbreaks are trembling as their high-flying metropolitan hub transforms into what feels more like another isolated Chinese city.

Hong Kong has reported around 300 cases of omicron, most detected from overseas visitors during their quarantine. In recent days, however, local infections have jumped and emerged from unexpected origins, putting health officials on edge. In all, it has recorded 13,096 virus cases and 213 deaths since the start of the pandemic.

These low numbers have been too much for Beijing’s zero-tolerance line, a seeming prerequisite for Hong Kong to reopen its border with China — a top priority for local officials who are under pressure to make the former British colony more like the mainland.

The fallout for local business has been staggering. Economists at Wall Street banks have lowered their estimates of the city’s economic growth for the year. Fitch, the ratings agency, warned that the ban on foreign travel would severely threaten Hong Kong’s economic future.

In the days after the city announced its latest virus measures, several small businesses, including a rotisserie chicken chain, a popular wine bar, a craft beer shop and a gastro pub, said they would close. Lam said he is determined that H.K. Lovecraft, his brewery, is not next.

“I’ve tried to hold out as long as possible,” he said, “but we are losing money.”

Just a few years ago when he was studying to become a brewmaster in Germany, Lam had much bigger dreams: “I wanted to have something that belongs to Hong Kong, that is locally made,” he said.

He returned to the city and, with his own money, built a brewery with special equipment shipped from Germany. If he had known what was to come, he might have waited, he said. “It seems like it’s not getting any better, and there have been times when I have been pondering how we should proceed.”

Even before the latest round of virus measures in Hong Kong, the cost of shipping malts and hops had become a challenge for many brewers. When the pandemic put pressure on the global supply chain, prices soared.

Ships stuffed with raw materials remain stuck at sea. There are more delivery trucks than there are drivers.

Ian Jebbitt, who started a Hong Kong brewery called Gweilo Beer in 2015 with his wife and a friend, said before the pandemic he used to pay around 2,000 euros for a container of hops. “I just agreed to pay 15,500 euros,” he said, or more than $17,500.

The rising costs of goods, rent and labour, as well as the lockdown measures, have made Hong Kong one of the hardest markets in which to operate, said Jebbitt, who has expanded his business to other markets, including Britain and Australia. “I am surprised there haven’t been more casualties.”

The Hong Kong Association of Freight Forwarding and Logistics said the city’s 21-day quarantine and the effort to stamp out omicron have created a deficit of aircrew that will most likely cause prices to go up by 30% to 40% in the coming weeks.

Carrie Lam, the city’s chief executive, has acknowledged the problem and warned that the cost will be felt by everyone. “We almost have no goods entering via cargo flight,” she said last week.

Motorino, a popular pizzeria with two locations in the city, is running out of tomato sauce.

A pallet of the sauce left Naples, Italy, several months ago but has been delayed four times, said Syed Asim Hussain, co-founder of Black Sheep Restaurants, the group that owns Motorino and 28 other restaurants.

The number of diners is dwindling, too.

When he calculated his daily revenue across all restaurants after the new pandemic restrictions were announced, Hussain said it was less than what one of his restaurants brought in at lunchtime just a month ago.

In the background, Hong Kong is still navigating the aftermath of the 2019 pro-democracy protests that divided the city and his 1,000 employees.

At Carbone, another one of Hussain’s Italian restaurants, December was punctuated by farewell dinners for people leaving the city, rather than raucous holiday parties. “No one in business school teaches you how to deal with two black swan events like this,” he said.

Another obstacle to relaxing COVID-19 restrictions is the city’s vaccination rate, which is low compared with many developed countries. Only 70% of residents are fully vaccinated, with many saying they are suspicious of the government.

The estimated loss for the current virus measures, which are expected to last for several more weeks, is at least $1.2 billion over a four-week period, according to Tommy Cheung, a legislative councillor who represents the catering sector in Hong Kong.

“This isn’t going away like SARS,” he said, referring to severe acute respiratory syndrome, which devastated Hong Kong in 2003 and helped shape the city’s response to COVID-19. “This is one tunnel where I don’t see the light at the end. All these restaurants that ask me to their ribbon cutting, I keep saying that, ‘You guys are too damn brave.’ ”

Carrie Lam last week announced a $500 million pandemic relief fund for restaurants, retailers and travel agencies, but many businesses say it won’t be enough.

Rob Cooper, who owns four restaurants under the Enoteca Group, said he received four rounds of government support between November 2020 and May 2021 but managed to break even in this year only because of generous landlords and some savings.

Now that fewer chefs and other restaurant workers are willing to move to Hong Kong and brave the quarantine, he is unsure he will be able to survive another outbreak under the zero-COVID policy.

“We’ll never open up,” Cooper said. “The next variant is around the corner. That’s just science, isn’t it? How do you open up an economy if everything is imported? The rest of the world is riddled with omicron.”

For Hussain, a fifth-generation Hong Konger, losing the small mom and pop restaurants, diners and outdoor eateries that make his home so vibrant will irrevocably change the city.

“The old-timers assure me that we are going to be OK. But I worry as a restaurateur, as an entrepreneur,” he said. “I worry about the soul of the city.”

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