Hong Kong - The Dragon Has Two Eyes

Hong Kong is one of my favorite places on earth – a bustling metropolis with a great airport, spectacular views overlooking Victoria Harbor, an insatiable appetite for business, and most people speak English.

Hong Kong is also a major center for supply chain and logistics operations with its deep-water port and air freight consolidation centers. But for the past four months, Hong Kong has been embroiled in weekend protests that have become increasingly more violent and crippling the supply chain and logistics infrastructure.

This week, Hong Kong's CEO, Carrie Lam, gave in to one of five demands made by protestors regarding extradition of accused criminals to China. But this concession is unlikely to stop protests in the future over what Hong Kongers consider unfair treatment by China.

Hong Kong, a Special Administrative Region (SAR) of the People's Republic of China and with over 7.4 million people, is one of the most densely populated places on earth. Formerly a British Crown Colony, the UK transferred Hong Kong to mainland China in 1997. In return, China guaranteed Hong Kong’s economic and political systems for 50 years after the transfer, a policy known as “One Country, Two Systems – a Two-eyed Dragon.”

Now, this idea of the two-eyed dragon is being tested.

In June, Hong Kong protests erupted in response to a proposed Chinese extradition amendment allowing for the extradition of fugitives from Hong Kong to mainland China. This was only one of five demands made by the citizens of Hong Kong, who are fiercely protecting their right to remain independent from Beijing. Hong Kong and China have two separate and very different judicial systems. The protests purportedly have attracted 1.5 million Hong Kong protestors each weekend.

Several times the protestors have disrupted flights and cargo operations at the Hong Kong airport, the world's busiest cargo airport. The airport has been shut down on some weekends, and access roads and bridges to and from the airport have been blocked.

If you have warehouses or cargo operations in Hong Kong, you should be working with your forwarders and freight carriers to develop alternate routes and shipping schedules. Shifting logistics routes and operations is complicated and will take time. For the moment, Hong Kong air consolidations might be better on week days, when protestors are quiet and the airport is likely to be open.

The more important question may be: what will happen in the future. If there continues to be conflict between the government and judicial systems of Hong Kong and China, there may be more protests in the future. If you are sourcing or manufacturing in China, it may be time to consider consolidating air shipments in Shenzhen or Guangzhou, cities on the mainland China side, just a short distance from Hong Kong. Shenzhen's deep-water port is ranked number three in the world, above Hong Kong at number five.

Both the Shenzhen and Guangzhou airports have outstanding air cargo operations. Guangzhou airport is the second busiest airport in China.

The escalating trade war between the U.S. and China is causing many companies to move sourcing and manufacturing to other Asian countries. With these changes comes new logistics and warehousing requirements – perhaps setting up operations in alternate cities such as Taipei, Manilla, and Singapore - places close to new manufacturing sites.

One thing we know for sure: the world is experiencing turbulent trade and political times, and with this comes uncertainty. It is best to have alternate plans, so that if necessary, you could shift your operations quickly and effectively.

China's reaction to the global trade wars and the protests in Hong Kong is likely to be patience.

The Chinese have a saying, “to eat bitterness,” as a way of explaining perseverance through times of hardship. The Chinese are prepared for the long term and are likely to out-wait the protestors in Hong Kong and the turbulent trade war with the U.S.

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