Hong Kong, China – German entrepreneur Joseph loved his life in Hong Kong. When he’s not tending to his logistics company, he enjoys strolls along the boardwalk, weekend lunches in the upscale Soho district, and foot and back massages to relieve life’s daily stresses.
But less than two years after starting his business in Hong Kong, Joseph decided in January that he saw no future in the city and moved to Singapore.
“Many potential investors are hesitant to invest in Hong Kong because they don’t think it’s a safe place to start a company anymore,” the 28-year-old professional, who asked not to be named, told Al Jazeera.
“I see the city change before my eyes. Hong Kong used to be one of the most cosmopolitan cities, but the protests and restrictions against COVID mean that advantage is fading… Investors do not feel legally secure because they do not know whether there is still neutrality in Hong Kong’s judicial system, while the legal system in China is full of gray areas. There’s enough uncertainty in business, why do we want more?’
As Hong Kong marks the 25th anniversary of its return to Chinese sovereignty, the city’s status as an international financial and business center is in doubt as never before since the handover.
Hong Kong is marking 25 years since the city returned 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 strict pandemic restrictions aimed at aligning with China’s “zero COVID” strategy dramatically change life in the city.
More than 120,000 people, both local and expatriate, 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 of Hong Kong last year, more than 40 percent of expats said they planned to leave or were considering it, mostly due to concerns about the draconian National Security Law imposed by Beijing in 2020, a 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 figures.
From humble beginnings as a fishing village, Hong Kong has transformed 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, which ended the First Opium War in 1842, the territory became a regional center for financial and commercial services.
In the 1970s and 1980s, the city shifted from manufacturing to financial services as factories originally staffed by cheap workers from mainland China sought cheaper labor abroad.
Under the “Open Door” economic reforms initiated by Chinese President Deng Xiaoping in 1978, the city’s integration with China deepened, spurring vigorous international investment and trade.
Five years later, the Hong Kong dollar was officially pegged to the US dollar after uncertainty over the then-colony’s future caused the currency to sharply depreciate.
Under the terms of Hong Kong’s return to China, Beijing 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 and political freedoms unavailable in mainland China, for at least 50 years under the principle of “one country, two systems”.
However, these freedoms quickly diminished amid a sweeping crackdown on dissent that effectively wiped out the city’s pro-democracy opposition and forced the closure of independent media and dozens of civil society organizations.
Hong Kong’s new chief executive, John Lee, pledged to strengthen Hong Kong’s reputation as a global financial center without offering a timetable for reopening the city 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 of “one country, two systems” after the handover as “extremely successful”.
But for international companies, the uncertainty created by the law, which has led to more than 200 arrests and introduced significant changes to the city’s storied legal system inherited from Britain, has become a major source of concern, according to Michael Davies, a former law professor at the University of Hong Kong.
“The unclear national security law causes significant uncertainty about acceptable behavior for international companies,” Davis told Al Jazeera.
“The pressure on the courts that has accompanied enforcement has likely eroded confidence in the rule of law, which has historically been the city’s hallmark for attracting international business.”
Davis said international firms also face pressure to support Beijing’s policies, “while at the same time these companies face pressure in the democracies where they operate not to support such repressive policies, at the risk of being excluded from the market.”
Hong Kong’s strict quarantine rules are spurring an exodus of expats from the city [File: Bloomberg]
For Joseph, who ran a logistics firm’s Asian operations before starting his own company, Hong Kong’s fading appeal is undeniable.
“Hong Kong had many advantages such as easy inflow and outflow of funds, and the legal system is close to the common law system of Britain,” he said. “It was politically and judicially stable. At the time, my former company was picky [to set up the Asia headquarters] between Singapore and Hong Kong and we chose Hong Kong as it was the gateway to China.”
Hong Kong’s strict COVID restrictions, which once included 21 days of mandatory hotel quarantine for arriving travelers, have further damaged the city’s appeal.
Despite branding itself as “Asia’s World City”, the territory remains one of the few places outside of China to quarantine arrivals, while its “circuit breaker” policy of suspending flights linked to COVID cases regularly leaves travelers stranded abroad .
“This [policy] increases the cost for expatriates to visit their family in foreign countries,” Vera Yuen, an economics lecturer 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 detain these people in Hong Kong, especially compared to much of the rest of the world where quarantine measures no longer exist. As uncertainty prevails, a new outbreak could lead to tougher measures again. They decided to move to a place that gave them more personal freedom.”
Many locals have also lost hope in the city.
Yip, a 30-year-old finance worker, said she plans to move to the UK in the near future because of the “increasingly unwelcoming environment”.
“I work in a British company, but many British and European colleagues have resigned and returned to their home countries,” Yip told Al Jazeera, asking to be identified only by her last name. “I think Hong Kong companies will lose their international character.
“In the long term, the asset management industry may see less demand due to less asset inflows. Coupled with questionable [national] education here for my future children and the lack of innovation in the city over the past 25 years, I really want to leave Hong Kong,” added Yip.
Hong Kong’s financial system is becoming increasingly integrated with mainland China [File: Brent Lewin/Bloomberg]
Whatever the future holds for Hong Kong, there is no doubt that it will be more closely tied to China. Already, more than half of the companies listed on the Hong Kong Stock Exchange (HKEX) are from the mainland.
Yuen, the economics professor, said China hopes to use Hong Kong to achieve economic goals, including the internationalization of the renminbi (the Chinese currency) by “accepting RMB-denominated bonds and as an offshore RMB exchange center.”
“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 equity capital between the Hong Kong and mainland markets, followed by an expansion two years later to include Shenzhen, allowing mainland investors to have access to smaller companies in Hong Kong.
In 2018, a change in weighted voting rules led to a wave of listings by mainland Chinese companies, including e-commerce giant Alibaba Group in November next year. Last year, it launched Wealth Management Connect to provide access to investment products between Guangdong Province, Hong Kong and Macau.
While Hong Kong’s freedoms and international character have suffered, the city’s growing rapprochement 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 — though GDP shrank 4 percent in the first quarter year-on-year as pandemic restrictions weighed on growth.
Davis, the law professor, predicted that Beijing would pour investment into Hong Kong to create a “dominant position” for mainland companies and “undermine the traditional prominence” of local and international businesses.
For Joseph, Hong Kong’s days as a gateway for foreign firms to access China are in the past.
“If I want to start a company for Chinese business, I would start one in Shanghai instead,” he said.
Add Comment