Amid months of unrest followed by the US-China trade war, Hong Kong's economy slipped into a recession last year.
Hong Kong's businesses also fragmented into two groups: one pro-protests with yellow label, and another pro-police with blue label.
All the chaos hindered the investment flows into the territory of one of the Asian Tigers – Hong Kong, said the United Nations Conference on Trade and Development (Unctad) in a report on Monday.
Due to political instability in the financially autonomous state, the Foreign Direct Investments (FDI) nearly halved to $55 billion last year, the report said.
As the US-China trade war eased, the FDIs could rise marginally in 2020 on the back of modest growth but the uncertainties lingering over Hong Kong and Brexit issues may hinder the rise.
The escalating tension in Hong Kong affected the foreign investments badly last year. In 2019, global FDI flows were estimated at $1.39 trillion, down one percent from a revised $1.41 trillion in 2018, said the report.
Hong Kong, an Asian financial hub, has been attractive for FDIs since after the opium war. Under the Chinese model known as "One country, two systems" after coming out of the British colony in 1997, Hong Kong enjoyed a high degree of autonomy and freedom.
But in June last year, protests raged over the passing of the "bill of extradition of criminal suspects of Hong Kong in China" in fear of losing judicial independence and the state's freedom. Though the bill was eventually withdrawn, the protests continued and intensified against the administration controlled by Beijing.
"The US-China tariff war caused divestment of $48 billion in Hong Kong last year," Unctad's Senior Director of Investment and Enterprise James Zhan told Reuters.
He went on to say that competition from Shanghai and Shenzhen in China as well as Singapore for high-end foreign investments also affected the FDI inflows to Hong Kong.
The Economist Intelligence Unit last year forecasted the global sales would decline to 2.2 percent in 2020 compared to 2.5 percent in 2019 due to trade war, Hong Kong unrest, Brexit and increased online competition – by the shift from retailers to online platforms.
However, the truce between the US and China showed a hope of boost in export and FDIs globally. But the uncertainties over Brexit, Hong Kong unrest shrunk the FDI flows.
Meanwhile, FDI inflow to Britain shrunk by 6 percent to an estimated $61 billion last year, the Unctad report said.
The foreign investment to the European Union as a whole dropped by 15 percent to $305 billion due to economic slowdown in many countries, says the report.
Another reason is that the EU and some other countries have tightened their FDI entry screening over 'national security concerns', Zhan told Reuters in fear that this could deter foreign investment in technology.
The report also found FDI flows to developed economies fell by 6 percent last year to an estimated $643 billion and remained at a historically low-level at half of their peak in 2007.
However, the foreign investment flows to the US, the largest recipient of FDIs, were stable at $251 billion. But the US tax reform has reduced the US outward FDI flows since 2017.
Flows of FDIs to developing economies remained stable at an estimated $694 billion, led by China with a flat $140 billion, says the report.
In the world of globalisation, tensions in one financial hub affect the other parts of the globe.
The year 2020 has just begun. If the prevailing tensions do not stop in the Asia's important financial hub – Hong Kong, it may affect the global investments and growths.