close
International headquarters

As China tightens its grip, Hong Kong’s luster as a ‘global city’ fades | Business and economy

Hong Kong, China – German entrepreneur Joseph loved his life in Hong Kong. When he wasn’t busy with his logistics business, he enjoyed walks along the waterfront promenade, weekend brunches in upscale Soho, and foot and back massages for relief. the daily stress of life.

But less than two years after setting up his business in Hong Kong, Joseph decided in January he saw no future in the city and moved to Singapore.

“Many potential investors are hesitant to invest in Hong Kong because they no longer believe it is a safe place to start a business,” Al. Jazeera told Al Jazeera.

“I can see the city has changed before my eyes. Hong Kong has been one of the most cosmopolitan cities, but protests and COVID restrictions mean that this advantage is fading…Investors don’t feel legally secure as they don’t know if there are still neutrality in Hong Kong’s legal system, while China’s legal system is full of gray areas. There is enough uncertainty in business, why do we want more?

As Hong Kong marks the 25th anniversary of its return to Chinese sovereignty on Friday, the city’s status as an international financial and trading center is in doubt like at no time since the handover.

Hong Kong celebrates 25 years since the city’s return to Chinese sovereignty [File: Joyce Zhou/Reuters]

Tens of thousands of residents have left the former British colony as Beijing’s tightening authoritarian control and tough pandemic restrictions aimed at aligning with China’s ‘zero-COVID’ strategy radically reshape life in the town.

More than 120,000 people, locals and expats, left in 2020 and 2021, with tens of thousands more expected to follow this year.

In a survey conducted by the American Chamber of Commerce in Hong Kong last year, more than 40% of expats said they were planning to leave or considering doing so, mainly due to concerns about a draconian migration law. national security imposed by Beijing in 2020, strict COVID restrictions that limit international travel, and a bleak outlook for the city’s future competitiveness.

At the same time, fewer professionals are moving to the territory, with the number of work visa applications falling from 41,592 in 2018 to 14,617 in 2020, according to government data.

INTERACTIVE_HONGKONG_CHINA_GDP_JUNE30_2022

From humble beginnings as a fishing village, Hong Kong has blossomed into an international business center with a vibrant stock market often ranked alongside Singapore, London and New York.

After Hong Kong was ceded to Britain under the Treaty of Nanking that ended the First Opium War in 1842, the territory became a regional center for financial and commercial services.

During the 1970s and 1980s, the city shifted from manufacturing to financial services as factories, initially staffed by cheap workers from mainland China, sought cheaper labor from overseas.

Under the “Open Door” economic reforms launched by Chinese President Deng Xiaoping in 1978, the city’s integration with China deepened, spurring vigorous international trade and investment.

Five years later, the Hong Kong dollar was officially pegged to the US dollar, after uncertainty over the future of the then colony caused the currency to depreciate sharply.

The soldiers salute with the Chinese and British flags
Under the terms of Hong Kong’s return to China, Beijing has promised to preserve the city’s way of life for at least 50 years [File: Dylan Martinez/Reuters]

Under the terms of Hong Kong’s return to China in 1997, Beijing promised to preserve the city’s way of life, including civil liberties and political liberties not available in mainland China, for at least 50 years under the principle ” one country, two systems”. .

Those freedoms, however, quickly waned amid a sweeping crackdown on dissent that all but wiped out the city’s pro-democracy opposition and forced the closure of independent media outlets and dozens of civil society organizations.

Hong Kong’s new chief executive, John Lee, has pledged to boost Hong Kong’s reputation as a global financial hub, without offering a timetable for the city’s reopening to the world.

Lee, a former security chief who ran unopposed in an election tightly controlled by Beijing, hailed the national security law for restoring order and stability and described the implementation work of “one country, two systems” since the transfer as “a resounding success”.

But for international companies, the uncertainty created by the law, which has led to more than 200 arrests and instituted significant changes to the legal system inherited from the British, has become a major source of anxiety, according to Michael Davis, a former lawyer. professor at the University of Hong Kong.

“The vague national security law creates considerable uncertainty about acceptable behavior by international companies,” Davis told Al Jazeera.

“The pressure on the courts that accompanied the enforcement likely reduced trust in the rule of law, which has always been the city’s hallmark for attracting international business.”

Davis said international companies are also under pressure to support Beijing’s policies “while these companies are under pressure in the democracies where they operate not to support such repressive policies, at the risk of being shut out of the market.”

Medical staff monitor queues at the airport
Hong Kong’s strict quarantine rules have prompted an exodus of expats from the city [File: Bloomberg]

For Joseph, who ran the Asian operations of a logistics company before starting his own company, the attractiveness of Hong Kong is undeniable.

“Hong Kong had many advantages, such as easy cash inflows and outflows, and the legal system is close to the British common law system,” he said. “It was politically and judicially stable. At the time, my old company could choose [to set up the Asia headquarters] between Singapore and Hong Kong, and we chose Hong Kong because it was the gateway to China.

Hong Kong’s strict COVID restrictions, which once included a 21-day mandatory hotel quarantine for inbound travellers, have further damaged the city’s appeal.

Despite billing itself as the ‘global city of Asia’, the territory remains one of the few places outside China to quarantine arrivals, while its ‘circuit breaker’ policy of suspending flight routes linked to COVID cases routinely leaves travelers stranded abroad.

“This [policy] increases the cost for expats to visit family in foreign countries,” Vera Yuen, a lecturer in economics at the University of Hong Kong, told Al Jazeera.

“The quarantine requirement was later changed to seven days, but the circuit breaker policy was maintained. It was too late to keep these people in Hong Kong, especially compared to much of the rest of the world, where quarantine measures are no longer in place. As uncertainty reigns, another outbreak may again lead to stricter measures. They decided to move to a place that gives them more personal freedom.

Many local residents have also lost hope in the city.

Ip, a 30-year-old financial worker, said he planned to move to the UK in the near future due to the “increasingly undesirable environment”.

“I work in a British company, but many British and European colleagues have quit and gone back to their home countries,” Ip told Al Jazeera, asking to be identified only by her surname. “I think Hong Kong companies will lose their international character.

“Over the long term, the asset management industry may experience lower demand due to lower asset inflows. Coupled with a dubious [national] education here for my future children and the city’s lack of innovation over the past 25 years, I want to leave Hong Kong,” Ip added.

Shanghai-Hong Kong Stock Connect logo on a screen with a man using a mobile phone in front
Hong Kong’s financial system is increasingly integrated with mainland China [File: Brent Lewin/Bloomberg]

Whatever the future of Hong Kong, there is no doubt that it will be more closely linked to China. Already, more than half of the companies listed on the Hong Kong Stock Exchange (HKEX) are from the mainland.

Yuen, an economics professor, said China hopes to use Hong Kong to achieve economic goals, including the internationalization of the renminbi (Chinese currency) by “hosting RMB-denominated bonds and being an offshore trading hub in RMB”.

“Hong Kong’s stock market is increasingly dominated by mainland companies,” she said.

In 2014, the Shanghai-Hong Kong Stock Connect was launched to provide mutual access to stocks between the Hong Kong and mainland markets, followed by an expansion two years later to include Shenzhen, allowing mainland investors to access small businesses in Hong Kong.

In 2018, a change in weighted voting rights rules led to a surge of business listings in mainland China, including e-commerce giant Alibaba Group in November the following year. Last year, Wealth Management Connect was launched to provide access to investment products between Guangdong province, Hong Kong and Macau.

As Hong Kong’s freedoms and international character have suffered, the city’s growing alignment with China has been accompanied by growing wealth. Since 1997, the city’s economy has more than doubled, with gross domestic product (GDP) reaching $368 billion in 2021 – although GDP fell 4% in the first quarter year-on-year, restrictions related to the pandemic weighing on growth.

Davis, the law professor, predicted that Beijing would invest in Hong Kong to create a “dominant position” for mainland businesses and “undermine the traditional importance” of local and international companies.

For Joseph, the days when Hong Kong was the gateway for foreign companies to access China are over.

“If I want to start a company to do business in China, I would start one in Shanghai instead,” he said.

Rodney N.

The author Rodney N.