Recent Economic Troubles

Britain experienced a 20.4% month-on-month contraction, with a further 5.8% drop in March, which left the economy in tatters, eroding eighteen years of growth, in a mere two months. The vital services sector, which makes up the bulk of the English economy, was 24.2% down as compared to the pre-pandemic days. The manufacturing sector, which was severely affected by the social distancing norms, saw a functioning of 22.3% lower than its levels in February. Taking into account the following figures and the fact that the total economic output underwent a decline by 24.5%, the Organisation for Economic Cooperation and Development has said, “Britain, with its huge services industries which have been hit hard by the social distancing measures, could suffer the worst downturn among the countries that it covers, with an 11.5% contribution this year. Official figures have hinted that the economic impact brought about by the Virus is so devastating that the GDP may not recover till 2024.”

On that note, the Annual Fiscal Report published by the Office of Budget Responsibility, says that as the government winds down its furlough wage subsidy, unemployment in the country would rise sharply. This unemployment would be the product of the redundancy brought upon 10 to 20 percent of the 9.4 million jobs covered under the furlough scheme. Against this backdrop of rising unemployment, the economy is predicted to be 3 percent smaller than the predicted size for the year 2025. Economists, trade unions and businesses have warned against a long and uphill road towards recovery and one marked with substantial economic turbulences. The slight economic improvement in May was a result of the release of pent up demand, rather than an optimistic sign of economic recovery. The UK economy might display short term signs of improvement, but this may not last long, owing to the permanent scarring caused by the pandemic and the decline of the government’s fiscal support as the restrictions are eased gradually.

Hopes of an Economic Recovery

However, with the relaxation in the restrictions, Britain is seeing a ray of hope, as the economy is recovering faster than it was predicted to do so. Even if we assume the continuation of some restrictions, the British GDP is expected to grow by 6.5% by 2021. British economists and most notably the Chief Economist of the Bank of England, Andy Haldane has emphasized a recovery pattern, which he sees the British economy follow post this crisis. The pattern that Haldane has been expounding can be termed as the V-shaped recovery, where rapid economic growth is experienced following a steep downturn in economic activity. Expectations of a more rapid recovery, than what had previously been predicted, has led markets to achieve one of the strongest quarters on record. A prime example of this is the FTSE 100, in the UK rebounding by 9.1% over the quarter.

The biggest factor contributing to recovery, is the sooner than expected, materially faster and strong consumer spending. However, the Bank of England has emphasized the fact that the most important thing for the country to avoid is a repeat of high unemployment rates, as experienced in the 1980s. However, there persists the fear also mentioned by the Bank of England, that a rapidly growing economy may fuel the fire of inflation.

Job Retention Scheme

In an effort to plan for a speedy economic recovery, the UK government has diverted tremendous efforts coupled with an array of resources to preserve jobs. The government is of the belief that by doing so it prevents the long process of reattaching individuals to employers and jobs, allowing people a simple return to their work once restrictions have been relaxed. Within the scheme, the government pays for 80% of the employees’ salaries. In the month of May, the number exceeded 8.5 million, effectively bringing in 30% of the private sector workforce under the government’s monetary protection. Experts have predicted that had it not been for the Job Retention Scheme, the country would have experienced an unemployment rate of about 20%. However, the problem has not altogether been avoided as even with the scheme the unemployment levels are said to rise to 8% in the second half of the year. This is especially true for large cooperations who will have to make tough decisions regarding redundancies, owing to the lack of demand in the long term.

Conclusion

However, the return to pre-pandemic levels of activity is going to be severely affected by the permanent scaring done to the economy. Numerous businesses have failed in the time since the world pandemic began and many more are predicted to fail during the recovery phase when demand and revenue are still weak. This is due to the simple reason that during times of recovery businesses tend to look for additional working capital to finance inventories and growth, but recent trends have shown that banks might not be willing to extend loans to those businesses which they might consider weak or too vulnerable to economic shocks. Across Europe, we estimate that default rates in the speculative-grade category alone could rise to 8.5% by March 2021, from 2.7% in April. The following statistics provide a sufficient indication of the failure rates in the UK. Business failures have a knock-on effect on the economy. This happens when businesses fail, train relationships will end, supply chains will be broken and the production capacity will shrink. These factors deter the economy from growing back to its full potential and achieving the economic levels as seen during the pre-pandemic days. For the long term, things are still not very clear, there is a high possibility of the world adapting in such a manner that we see the emergence of new businesses, that might replace the struggling ones right now, and boost the capacity and long term growth potential.

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About the New Law

The new security law came into force on 30th June 2020. It contains 66 Articles that deal with subversion, secession, terrorism and collusion with external forces. Although the law covers the aforementioned laws, their definitions can be interpreted broadly to cover various types of speech and forms of organizing. Life imprisonment can be awarded for calling on foreign governments or publishing views which are considered anti-Beijing. So, can be awarded for making statements undermining the ruling authority. 

Some of the key provisions under the law are-

1. To vandalize public property would be considered terrorism;
2. Breaking away from the country, colliding with foreign governments, using violence against persons or property, going against the central government is punishable with life imprisonment at maximum;
3. Beijing would establish a new security office in Hong Kong which won’t be under the local jurisdiction;
4. Those convicted under this law won’t be allowed to stand for public offices;
5. Companies can be fined if found guilty;
6. The new security office can transfer cases to mainland china for trials;
7. Neither the judicial offices nor the public bodies would have the authority to interpret the law, the power rests with Beijing authorities when the law conflicts with any Hong Kong law;
8. People can be wire-trapped and put in surveillance if authorities suspect them for breaking the law;
9. Trials can take place behind closed doors;
10. The law would also apply to outsiders

A Threat to Hong Kong?

The people of Hong Kong are afraid of their freedom under the law. Beijing has said that people should protect their rights and liberties while safeguarding the nation’s authority. Reports show that the people have started deleting posts from the fear of being prosecuted under the new law. The city is the only common law jurisdiction in China, but now it is feared that it won’t be independent anymore and would look like Mainland China.

On 1st July, Hong Kong completed 23 years of Handover by Britain to China. Usually observed by a long march, thousands of people gathered to protest and were arrested for crimes that did not exist a day before. Around 370 people were arrested, out of which 10 were arrested for the new law which protects Beijing from challenging political activities. The law threatens the cultural scene and civil liberty that exists in Hong Kong which makes it different from the rest of China. 

Many people from Hong Kong wish to emigrate, a task which was promised to be made easier by Britain. The British government informed that some Hong Kongers would be allowed to live in Britain for five years and then would be allowed to apply for citizenship. Not only the citizens but international organizations are also evaluating their future in the city because the new law said that the government would strengthen the management of foreign NGOs and news agencies. Many Activists have deleted their accounts from social media platforms like twitter and telegram fearing their past activities might lend them in trouble. 

Joshua Wong, who is perhaps the best-known activist, announced that he is quitting from his youth political group named Demosisto which was founded in the year 2016, citing concerns for his safety. After that, three other leading members left the group leading to an announcement of the disbanding of the group altogether. News agencies have been asked by authors to take down their posts. The central government assured that the law is to bring stability but chaos seems to be all around the place.

What is the Motive of China?

Hong Kong was handed over to China in 1997 over a small agreement- a mini-constitution for Hong Kong called the basic law and a ‘one country, two systems’ principle. They are supposed to protect certain freedoms of Hong Kong which no other part of China has. Under Article 23 of the basic law, Hong Kong was supposed to enact a security law that did not happen. 

Last year, Protests over an extradition law turned violent and resulted in an anti-China movement. China does not wish to have it again. The law punishes protestors to protect the authority. 

India’s Stand on the Law

Amid the ongoing tensions on borders with China, India on Wednesday made statements stating that it hoped that the relevant parties would address the concerns “properly, seriously and objectively” while not naming china. The statement was made by India’s representative at the ongoing UN human rights council in Geneva. India urged the security council to seriously address the matter of recent developments in Hong Kong, as it is home to substantial Indian Community.

 Standing up for Hong Kong is in India’s interest both diplomatically and politically because as per sources Hong Kong is India’s top trading partner as opposed to China and India shares a history with Hong Kong since the early 19th century- be it, Indian soldiers, fighting for the city or entrepreneurs adding to the dynamics of their market.

China and India are currently amid a military stand-off on borders in 45 years. India lost 20 soldiers last month, in a clash with the Chinese troops. India has remained silent over protests at Hong Kong over several years, so a statement by India is significant.

Last Friday, the UN independent experts in a joint statement asked the human rights council to hold a session to monitor abuses like “Moves against people of Hong Kong”.

Conclusion

The new law introduced by China to protect the government in power is being demonstrated as an end of Hong Kong by the critics. It increases Beijing’s power on the city-state threatening freedom of people residing in Hong Kong. Arrests under the new law have been made on grounds that did not exist until a few days ago, forcing citizens, multinational organizations, news forces etc to ponder over their future. Even if China claims the new law’s power to bring back stability, the current situation seems to be creating fear while dominating the rights the city enjoys. 

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