Chinese stocks hit multi-year lows during party congresses in New York and Hong Kong

Hong Kong's Businesses in Flux as Recession Bites, Chinese Tech Stocks Plummet

The city's businesses are grappling with a recession, just a day after Hong Kong's Chief Executive John Lee announced a substantial investment to attract global talent and companies back to the city. This downturn is primarily due to a slide in Chinese tech stocks, with major players like Alibaba and Tencent suffering significant losses. Investors are also apprehensive about the economic outlook in China following Xi Jinping's speech at the 20th Communist Party Congress, where he showed no signs of softening the country's persistent COVID-19 policy or easing regulations on various industries, which have both hampered the growth of the world's second-largest economy.

Hong Kong's Challenges

Hong Kong's economic difficulties are driven by several factors that include demographic pressures, economic recession from COVID-19, the weakening tourism and retail sectors, and a sluggish property market.

1. Demographic Challenges:
2. An aging population and shrinking workforce are making it challenging for the city's economy to sustain itself. Welfare and healthcare spending have skyrocketed, adding 34.2% in the past five years, totaling HK$343.7 billion in 2024-2025[1].
3. The pandemic has inflated healthcare costs further, reaching HK$284.1 billion in 2022-2023, equivalent to 10% of GDP, with pandemic-related expenses amounting to HK$44.5 billion[1].
4. COVID-19 and Tourism:
5. The pandemic has affected travel, leading to a decline in tourism and retail activities, causing a 14.7% drop in retail sales in April 2024 alone[1]. Tourist arrivals remain far from pre-pandemic levels, reaching only 60% in 2023, altering tourist spending habits from luxury shopping to cultural experiences[1].
6. Northbound Consumption and the Shrinking Domestic Market:
7. Changing shopping habits among Hong Kong residents have taken a toll on local retail and dining industries. The "northbound consumption" trend, where people travel to mainland China for weekend shopping, drained away local consumer spending[1].
8. Hong Kong's Property Market:
9. The property market in Hong Kong is in a state of recession. Land sales have fallen short of targets, generating just HK$37 billion by October 2024, only 11% of the HK$330 billion goal. Stamp duty revenue also decreased by 40%, mirroring a decline in property transactions[1].

Chinese Tech Stocks Suffer

The downturn in Chinese tech stocks is influenced by multiple factors, including US restrictions on AI chips and the market's response to new competitive offerings and innovations.

1. US Restrictions on AI Chips:
2. The US has capped the supply of high-powered AI chips to China due to national security concerns, causing major losses for Silicon Valley's Nvidia, with shares declining by 17% and a market value loss of nearly $600 billion[2].
3. China's Innovative Responses:
4. Despite limitations, China has demonstrated its capacity to develop independent AI technology, like DeepSeek, which can run on cheaper chips. This innovative move has questionned the global perception that China is lagging behind in the AI race.
5. Investment Opportunities:
6. The potential earnings of Chinese tech firms through the deployment of AI models, including those from Alibaba and Baidu, has encouraged investors to reconsider valuations, leading to an impressive 30% surge in the Hang Seng Tech Index over the past month[5].

These factors contribute to the current challenges in Hong Kong's businesses and the significant losses in Chinese tech stocks during the 20th Communist Party Congress in China.