HONG KONG (BLOOMBERG) - Hong Kong is facing its worst coronavirus outbreak ever, and the city is woefully unprepared for the surge.

With local infections growing to 560 in about two weeks, the Asian financial hub has been caught off-guard by the sudden eruption of infections, close to half of which are untraceable.

While other places in the region like Australia are also facing aggressive resurgences, their hospital bed vacancies and testing capabilities appear to outstrip those of Hong Kong's.

And unlike in Japan and the United States where mostly young people are becoming infected, Hong Kong's outbreak is affecting an older group of patients than before, raising the likelihood of more cases turning critical. The median age this time is 55 years old, up from 40 in previous waves, and clusters are forming in nursing homes.

Although the government is now scrambling to boost testing, quarantine and hospitalisation facilities, the city's long stretch of seeming to have dodged the coronavirus bullet - daily local infections never went above 28 before this month - has left its defences low.

While Hong Kong reacted quickly to the emergence of the coronavirus late last year in China and immediately implemented mask-wearing and social distancing, complacency set in by spring, and restaurants and bars filled up as restrictions were relaxed.

Loopholes in the management of foreign arrivals, lax quarantine requirements and limited testing allowed the virus to seed unseen across the community.

A CAUTIONARY TALE

Once widely considered a successful example of containment, Hong Kong's turn for the worst is a cautionary tale that more severe outbreaks may lie ahead in the global pandemic and that governments must stay prepared.

"Perversely, the more successful you are, you get the impression oh we don't have the virus, we don't have to worry about thinking of the basic precautions," said Prof Peter Collignon, a professor of clinical medicine at the Australian National University Medical School in Canberra.

"The more successful you are, the more you don't keep on doing the things you need to do and so it comes back."

The virus's resurgence is yet another blow to the city's economy, which is mired in its deepest recession on record.

Joblessness has surged to the highest level in more than 15 years, and Hong Kong is under pressure from the deteriorating relationship between the United States and China after Beijing imposed a national security law in the city.

Its total outbreak of 1,958 cases is still far smaller than those experienced in countries like South Korea, Singapore and mainland China, but the city's medical system is already coming under strain. Officials said the situation is critical, as isolation beds and wards in public hospitals have now reached 80 per cent capacity.

"Since there are more elderly patients during this wave of outbreak, isolation beds might be used up much sooner than in March," said Mr Ian Cheung Tsz Fung, chief manager at the Hospital Authority, in a radio interview on Tuesday (July 21). "This week is crucial."

The city also lacks the ability to conduct rapid, widespread testing - a strategy used effectively to halt new outbreaks in China and South Korea. Only around 10,000 virus tests can be supported daily by public facilities at present, Chief Executive Carrie Lam said on Sunday.

Australia's Victoria state, whose population size is a fifth smaller than Hong Kong's, is testing over 20,000 people a day now as it fights its own resurgence.

LOOPHOLES, LAX RULES

The high share of untraceable infections in Hong Kong's outbreak - known as "cases of unknown origins" - has pushed the government to implement broad social distancing measures, closing down bars and gyms and limiting restaurant dine-in hours.

Officials have warned that stricter measures are likely if growth does not ebb.

The hidden chains of transmission in the community were likely seeded by overseas arrivals who were allowed to enter Hong Kong's borders without a 14-day quarantine or virus testing, said Prof David Hui, a professor of respiratory medicine at the Chinese University of Hong Kong.

Between February and May, around 200,000 people received this exemption, according to government data, including air and sea crew, as well as importers bringing food supply into the city.

Some of the people who skipped quarantine could have infected local taxi drivers who then spread it to the community, Prof Hui said.

The exemption of air and sea crew from testing or quarantine is practised only by a handful of countries like Cambodia, Indonesia and Kazakhstan, according to Universal Weather and Aviation Inc, a company that collects data and provides services for the global aviation industry.

Other major aviation hubs such as Singapore and Taiwan maintain strict rules over the travel and layover of crew members and prevent them from mingling with local populations.

On Sunday, the government said that the exemption policy "is essential to maintain the necessary operation of the society and the economy, and to ensure an uninterrupted supply of all daily necessities to the public".

Lax quarantine guidelines potentially spread the outbreak further.

Travellers entering Hong Kong are given two hours to go from the airport to their residences for a 14-day quarantine. Local media outlets have reported on instances of people shopping at wet markets during that window.

In contrast, travellers arriving in South Korea, where virus containment is widely lauded, are transported by special bus to their quarantine locations, with drivers clad in hazmat suits.

Since this new outbreak started earlier this month, Hong Kong began mandating virus testing for incoming air and ship crew, although they are still exempted from 14-day quarantine.

FALSE SENSE OF SECURITY

As lax measures presented opportunities for the coronavirus to re-emerge, a rapid easing of social distancing measures aided its spread.

For six weeks in May and June, Hong Kong residents returned to pre-pandemic life, thronging bars and beaches. Restaurant customer limits were lifted in mid-June, and nursing homes started allowing visits again in May.

Nursing home clusters have emerged, with both residents and staff becoming infected, in a parallel to devastating outbreaks in other countries like the US.

In one facility in Hong Kong, more than 76 per cent of the elderly residents were infected as of July 9.

With cases growing, officials warned that a complete lockdown may have to be implemented, something the city of 7.5 million people, where apartments are the smallest in the world, has not experienced before.

A lockdown will add significant strain on the economy, which shrank by a record 8.9 per cent in the first quarter.

"The government did relatively well in handling the previous two waves of outbreak. But the relaxation of measures was too lenient and gave citizens a false sense of security, causing a huge outbreak this time," said CUHK's Prof Hui.

"This situation is grim."