To Nobel economics laureate Milton Friedman, Hong Kong was his favourite economy, or a kind of free-market utopia. The former British colony’s free market economy had helped spur the entrepreneurial spirit of its residents. Enter the city’s success story.

With market forces prevailing, scenes of shops and restaurants closing down, followed almost immediately by new outlets open for business, are the norm of the city’s freebooting capitalism. Thanks to a largely vibrant economy despite certain cyclical downturns, the closures of dining outlets and shops have not caused jitters in the society.

Changes that have emerged in the city’s service sector following the end of the Covid-19 pandemic early this year,  however, have raised concerns about a shrinking economy. And the market is not to be blamed.

The story of Castelo Concepts, the dining group founded by the late restaurateur Wayne Parfitt, is indicative of the profound changes.

Last week, the group closed nine of its eateries across Hong Kong after creditors pressed its investors into liquidation. Four restaurants were shut in Sai Ying Pun. They are Jaspa’s Kennedy Town, K Town Bar & Grill, St. Bart’s and Ollie’s Cafe. In Sai Kung, Jaspa’s, Pepperonis and Piccolos shut down, while Little Lucie’s and the Wagyu Lounge ended operations in Happy Valley.

Half a dozen restaurants will continue to serve unaffected because they operate under different structures, according to a statement issued by the group. They are St. Bart’s in Clear Water Bay, Tai Hang Bar & Grill in Tai Hang, and Zaks, Figo’s and MooFish in Discovery Bay.

Like most, if not all, in the dining industry, businesses of the group’s restaurants were dealt a double blow in the past four years, namely the social unrest in 2019 and the Covid-19 pandemic that unfolded in 2020. Targeted at the expat circle, they faced a loss of customers as expatriates who left the city during the pandemic were slow to return. Some may never come back.

The shrinking business of the dining group is part of the story of Hong Kong seemingly in decline in the aftermath of a set of social, political and economic shocks caused by the 2019 political unrest and the Covid pandemic.

The political shock has prompted hundreds of thousands of young and middle-aged Hongkongers, many of whom with their children, fleeing the city for a better life. In a sign of the mass departure of expatriates and high-income families, classes in international schools and local elite schools saw a high drop-out rate of students.

The new wave of migration of middle- and upper middle-class families has hit schools markedly with high percentages of drop-out students in kindergartens, primary and secondary schools. It has begun to take its toll on the economy, in particular consumption in dining.

A much-anticipated rise in inbound tourism has helped the economy bounce back with a 2.7 percent growth in the first quarter of this year. Still, it was slower than expected. The service sector remains weak as reflected in the number of vacant commercial units in major tourist districts such as Tsim Sha Tsui.

As migration of the middle- and upper-middle income families began to hit businesses such as restaurants run by the Castelo Concepts group, a rise of residents crossing the border to have meals and entertainment started beating the catering and retail sector as a whole.

Immigration figures show the number of Hong Kong people paying short trips to Shenzhen and other Greater Bay Area cities for dining and entertainment was higher than those from the mainland traveling to the city.

Social media has been flooded with tips and guides on value-for-money services for Hongkongers in the neighbouring cities.

Intriguingly, pro-Beijing and pro-establishment media outlets have been enthusiastic in luring Hongkongers to travel to other cities in the area for better food and services. While talking highly of the catering and entertainment services in the mainland cities, some commentators have bad-mouthed the city’s dining as too expensive, lacking new ideas and that its quality of service is low.

Together with the surge of migrated “leavers”, the wave of “going-north” Hongkonger spenders have slowed the rebound of the catering and retail sector.

Hong Kong has been renowned for its colourful, glittering nightlife. The city’s lights have grown dim and colours worn thin despite the official rhetorics of Hong Kong returning to normalcy. Contrasting the change of nightlife across the border in a special report, an online media has described Shenzhen as a “city that never sleeps.”

That is an embarrassing Hong Kong story for the Government to tell, and a difficult one to sell.

▌[At Large] About the Author

Chris Yeung is a veteran journalist, a founder and chief writer of the now-disbanded CitizenNews; he now runs a daily news commentary channel on Youtube. He had formerly worked with the South China Morning Post and the Hong Kong Economic Journal.