This article is the second in our three-part series, The Future of Hong Kong, looking at how much has changed since the first protests against Beijing’s extradition bill two years ago.
After Hong Kong was ravaged by protests Cindy stayed loyal to the place she called home, clinging on to her job in the commercial hub’s financial district.
But when China’s communist government passed a sweeping National Security Law to punish protesters and bring the city in line with the mainland, including censoring what teachers can say in classrooms and suppressing media outlets, she knew time was up for her and her children.
“I think the main reason for most people leaving Hong Kong is the future of the next generation. They don’t want their kids to grow up in this kind of environment,” says Cindy, in her early 30s, now in Spain.
“I don’t think I would have a family in Hong Kong if I still lived there… because of the education. The politics has an influence on everything in your life.”
One month ago, she packed up her life in Hong Kong. Friends and former colleagues have also left the city for destinations including Taiwan, while her family members are also planning to leave.
Some people have sold their properties and opened overseas bank accounts, for fear of not being able to get their money out of the city under potential future capital controls.
Alexandra Wong, an activist known as Grandma Wong, waves a British Union Jack flag outside the High Court in Hong Kong on March 6
Cindy always wanted to try living abroad, but was prompted to do it sooner by “the uncertainty, the insecurity about the next change in policies. You don’t know. That’s made people want to leave now".
That uncertainty over how Beijing will fundamentally change Hong Kong clouds over its future as a financial hub, which stands central to its identity and relevance on the international stage. It has raised the question of whether foreign, multinational businesses will still be able to flourish in Asia’s World City. Last year the Hong Kong Stock Exchange ranked as the world’s second largest IPO market, raising a total of HK£389.9bn from 140 listings, according to KPMG, and beaten only by New York’s Nasdaq.
On Thursday the city was removed from the annual Heritage Foundation index of the world’s freest economies, a list it has topped for all but one of the past 26 years. It was a source of pride for the local government which would send out official press releases congratulating itself on its reputation. The authors said that while Hong Kong "offers their citizens more economic freedom than is available to the average citizen of China… developments in recent years have demonstrated unambiguously that those policies are ultimately controlled from Beijing".
Many worry the city’s sweet spot for international business — of a separate political and legal system left over from British rule, yet sitting just 50km south of mainland China — will come under threat.
“There is definitely a lot of business continuity planning going on, risk assessment and so on, I think both down to Covid and the delicate social situation here,” said Mark Tibbatts, managing director of recruitment firm Michael Page, Hong Kong and Taiwan.
“To be honest we have not seen any seismic announcement from any organisations, not seen any large scale move. From what I understand, the costs involved in moving a large operation from Hong Kong to somewhere like Singapore, are extremely high.”
International institutions are mostly taking a ‘wait-and-see’ approach, according to the city’s business leaders, financial services consultants and recruiters, but planning ahead in the event they need to downsize or up sticks and move elsewhere.
Polling by Lynton Crosby’s CT Group of Cantonese-speaking locals in the week from Jan 23 — seen exclusively by the Daily Telegraph — found financial service professionals thought it less likely that expats would move to and foreign companies invest in the city over the next few years.
More than 60pc of members who responded to a recent survey by the American Chamber of Commerce in Hong Kong thought the city’s business environment was unstable and had worsened in the past 12 months, pointing at the new law and Covid as main concerns. Less than a quarter thought it would get better over the next year.
While most businesses expected to keep Hong Kong as their regional headquarters for the next three years, the survey found businesses are already downsizing because of concerns about its future as a major financial centre, as well as because of cost cutting.
Just under half of respondents are worried Beijing’s tightening political grip for doing business over the next 12 months, while a third felt the city has become less competitive as an international business hub.
Despite concerns and behind-the-scenes risk assessments, the vast majority have stayed silent on the implementation of the National Security Law for fear of retribution. Many executives declined to speak to the Telegraph for this story, fearing repercussions.
Riot police stand guard in front of an HSBC Holdings
In the most stark demonstration yet of what might happen if a company does not toe the party line, Hong Kong’s flag carrier Cathay Pacific was caught in the crossfire in 2019 as Beijing cracked down after some staff drew attention for joining the anti-government protests. Three dozen Cathay staff are believed to have lost their jobs or resigned — from cabin crew to the chairman, John Slosar — and all were warned they could lose their jobs if they supported or participated in protests. It came after China threatened to essentially cut it off from mainland airspace, which would have put an end to a fifth of the airline’s daily flights. Ultimately, in August 2019, Cathay and its parent Swire announced they "strongly supported" Hong Kong’s government and called "for the restoration of law and order" in the city.
It’s a dilemma many companies have found themselves faced with. HSBC, which publicly backed the National Security Law, has been dragged into the geopolitical spotlight after freezing some pro-democracy activists’ accounts, sparking fierce criticism from the West for being too cosy with Beijing and a grilling by MPs of chief executive Noel Quinn. Since then it has only doubled down on the world’s second largest economy, it’s money maker, with plans to invest an extra $6bn (£4.3bn) in Asian markets like China and Hong Kong over the next five years and relocate several top executives to Hong Kong.
As worries mount, some companies have already started moving their data centres out of the territory in case privacy is compromised.
“Nobody wants to keep any more [data] in the mainland than they have to”, said a Partner at one of the Big Four in the city.
“It’s not a rush to the exit but saying that look, this is shifting things in a few years and maybe more quickly than we might have thought. Let’s have a look at what our options might be if we have to move part of the business or data or other things to Tokyo or Singapore or somewhere else.”
Recruiters say companies have also been actively localising, hiring Hongkongers and mainlanders with the ability to speak Mandarin for the best part of 10 years. However, Beijing’s crackdown — as well as the Covid-19 pandemic separating expats from their families at home — are catalysts for Hong Kong’s changing composition as a cosmopolitan city.
Many simply don’t want to raise their families in modern Hong Kong.
A local Hong Kong banker, who spoke on the condition of anonymity, left a six-figure salary to come to the UK under the British National (Overseas) visa, which allows some Hongkongers to work and study Britain. He was primarily motivated by concerns about his children’s education.
“Hong Kong has fallen out of favour in terms of a place individuals want to relocate to," according to one financial services recruiter. "Three years ago you could call someone up in London, New York…and most people would have entertained the conversation.”
“Whereas now, especially most people in the West — America and in the UK — if they’ve been watching the western coverage of the Hong Kong protests, that has been putting a lot of people off.”
They added the family-friendly environment in Singapore is acting as a pull for candidates.
Michael Page’s Mr Tibbatts said of Hong Kong: “I definitely think a PR job will be necessary”.
Tokyo and Singapore are expected to benefit, though both come with their own complications of a lack of proximity to China, differing infrastructure and difficulties obtaining visas for imported workers.
Justin Tang, head of Asian research at United First Partners, says most banks that have a presence in Hong Kong will also have a base in Singapore for differing products, but doubts that a sudden exodus is imminent.
“Unless we see something really drastic in China, Hong Kong, the likes of what we are currently seeing now on the streets of Myanmar, it’s going to be a slow burn if it’s going to happen,” he says.
Changing rules in China, meanwhile, means some foreign firms are growing their operations in the mainland, potentially chipping away at Hong Kong’s role as the gateway. Last year Beijing allowed full foreign ownership for securities firms, having relaxed the rules towards majority ownership in 2018.
Hong Kong in 1900
Goldman Sachs in December signed to buy out its China joint venture partner — Goldman Sachs Gao Hua — which would make it the first Wall Street Bank to have full control of a mainland securities business. It would boost its stake from 51pc.
Credit Suisse has said it wants to do the same, while JPMorgan increased its ownership to 71pc in November after buying another 20pc stake.
In Hong Kong, all eyes are on whether the territory’s judiciary loses its independence for multinationals to feel safe in taking disputes to arbitration or writing contracts. That, say business leaders, would be a gamechanger.
Until then, however, insiders say it is set to continue thriving as a financial centre buoyed by facilitating the flow of capital between China and the West, increasing listings by mainland firms and its role in the Greater Bay Area.
One recruiter said they had seen a “huge” expansion of US hedge funds in the territory this year, adding “Asia is their biggest plan and the biggest part of the biggest plan is China. None of them, even US funds, are hiding away from that”.
The city’s stock exchange remains one of the only routes into mainland markets with investors in Hong Kong, Shanghai and Shenzhen able to trade cross-border shares via the Stock Connect since 2014.
The number of mainland Chinese firms going public in Hong Kong is rising as a way to access foreign capital. Their market capitalisation in the city’s stock market surged to 80pc at the end of last year, from 42pc just 15 years ago, reported Nikkei Asia Review. This was sparked in part by a rule change to allow companies with dual class shares to list as well as secondary listings from the US as rhetoric turned under Donald Trump, then the US president.
All of the over a dozen interviewed financial services professionals based in the city agree that Hong Kong’s importance as a gateway into China will remain until its judicial independence breaks down or China’s financial markets open up.
“Critically there has to be somewhere else for business to go and I think that would require the global markets to have confidence in the alternative mainland stock exchange, including robustness of infrastructure, reporting, legal system, listing rules, the requirements around due diligence of IPOs,” the Big Four Partner said.
“Either Hong Kong continues in the long term, or somewhere else is sufficiently liberalised to replace it. But none of that happens anytime soon, which is I think the final conclusion of why we don’t see [Hong Kong] going away [as a financial hub] and it needs to continue to play its role”.
Read part one in the series here
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