Money

Global businesses feeling heat from Hong Kong's protests

Cost of tumult showing up in earnings

(CNN) - Political turmoil is making it harder for global companies to do business in Hong Kong.

For nine consecutive weeks, pro-democracy protests have engulfed Asia's premier financial center, forcing stores to close, disrupting public transportation and undermining economic growth.

The cost of the tumult is showing up in the earnings of a rising number of big companies. Disney, HSBC, Prada, Swatch and Cathay Pacific are among the businesses taking a hit.

With another round of demonstrations kicking off Friday and due to run through the weekend, the business community is warning of more fallout from violent clashes between police and protesters.

Speaking Friday, Hong Kong officials warned that the disruption could have a more lasting impact on the city's economy than the outbreak of the deadly SARS virus in 2003 that slashed the lucrative tourist trade. Hong Kong just reported its weakest quarter of growth in a decade.

Business groups have condemned the escalating violence in recent weeks.

"It has not only affected Hong Kong's reputation as an international financial center, but also the small and medium size enterprises, and most importantly undermined the safety and livelihood of ordinary Hong Kong people," Hong Kong's General Chamber of Commerce said in a statement earlier this week.

The city is home to seven Fortune Global 500 companies, and operates as an Asian base for many multinational corporations and major banks who prize its semi-autonomous legal system and close ties to mainland China.

Companies have reported "serious consequences from the disruption," including lost revenue, disrupted supply chains and shelved investments, the American Chamber of Commerce in Hong Kong said last month.

Travel sector hit

Some countries have warned their citizens about traveling to Hong Kong, where the city's international airport has become a focal point for protests, hundreds of flights have been canceled and thousands of aviation workers have gone on strike.

Preliminary government data shows that visitor numbers dropped in July, with a sharp decline in arrivals in the second half of the month, a spokesperson for the Hong Kong Tourism Board told CNN Business.

Cathay Pacific, Hong Kong's flagship airline, said Wednesday that protests had affected its passenger numbers last month, and were continuing to "adversely impact" future flight bookings.

In another headache for Cathay, China's aviation authority issued a directive Friday banning any staff who have supported the protests from working on flights to and from the mainland. From Sunday, the airline will have to submit details of all crew members to China for approval.

"We are treating it seriously and are following up accordingly," Cathay Pacific said in a statement.

Concerns for the broader tourism industry are growing, as travel companies suggest their outlook for August and September "has dropped significantly," according to the tourism board.

Intercontinental Hotels said this week that revenue per room — an industry metric used to assess hotel occupancy and daily room rates — fell in the first half of the year, in part due to the ongoing political dispute.

Marriott and Disney both expect their businesses to be affected this year.

"In Hong Kong, we have seen an impact from the protests. Obviously, they are significant," Disney CEO Bob Iger said in an analyst call Tuesday.

"While the impact is not reflected in the results that we just announced, you can expect that we will feel it in the quarter that we're currently in, and we'll see how long the protests go on."

Retail casualties

Swire Properties, a real estate developer that owns several major shopping malls, said Thursday that the city's protests have had "some effect" on retail sales. Its shares were down more than 3.5% Friday.

July and August mark a "peak season" for summer retail sales, and if protests continue, shop owners expect "business to be greatly affected," said Annie Yau Tse, chairman of the Hong Kong Retail Management Association.

Most of the group's member companies indicate that their sales have "dropped by single or double digits" since protests began in June, she said in a recent statement.

Global luxury brands are among those being hurt.

Prada said in an earnings call last week that sales had been "negatively impacted by social unrest in Hong Kong," while Switzerland's Richemont, the owner of Cartier, noted that sales in Hong Kong had "retreated" in part due to the rallies. Swatch, another Swiss watchmaker, has pointed to "political turbulence" as the reason behind a decline in sales in Hong Kong.

'Confidence' wavering

HSBC, one of Hong Kong's biggest banks, has had to temporarily close some of its local branches because of the protests.

In an earnings call this week, chief financial officer Ewen Stevenson warned that the company could be more affected if the crisis continues.

"Do we expect some impact in the second half? Yeah, inevitably there will be," he said. "If the current situation continues for a prolonged period of time, it will impact confidence."

The protests are beginning to jeopardize the city's image as a global business hub and favored gateway to China, experts have warned.

Currently, for example, Hong Kong enjoys a higher credit rating than mainland China, but this rests on the city's "governance standards, rule of law, policy framework, and business and regulatory environments" remaining "distinct from those of mainland China," Fitch Ratings analysts said recently.

The possibility that Chinese authorities may look to take a firmer hand in Hong Kong affairs could threaten these unique differences.

The pain could spread through the local economy. Last week, the government released preliminary GDP data showing what it called "subdued" economic performance in the second quarter.

"I don't think this will be a short-term crisis. It looks like it will be a medium-to-long [term crisis]," said Davide De Rosa, chairman of the European Chamber of Commerce in Hong Kong.

Laura He, Jadyn Sham, Lily Lee and Chris Liakos contributed to this report.


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