Hong Kong is changing and now it appears to be losing its sheen in the wake
of the imposition of national security law by the Beijing government and
corollary issues. Besides the allegations of deterioration in human rights, there
are other important factors making it difficult for the Asian financial hub to
retain its fabled allure. One of them is related to business and the economy.
Many companies and the best of global talent are leaving Hong Kong. The
Purchasing Managers’ Index (PMI), which is a measure of the prevailing
direction of economic trends in manufacturing, has fallen to 11-year low,
which shows contraction in Hong Kong’s economy.1 Global rating agencies
have reduced projected GDP growth in 2022 from earlier 3 percent to 1.5
percent now.2 On the political front, the European Union has passed a
resolution condemning the deterioration of human rights and freedoms.3 This
drives the leading financial city toward becoming non-sovereign entity. And
China’s ‘Zero-Covid’ policy is making things worse further. All these factors
may lead Hong Kong to the risk of losing its high status.
Notwithstanding the local protests and the international pressure, the Beijing
government forcefully imposed the national security law in Hong Kong. This
however led people of Hong Kong as well as foreign companies located in the
financial hub to panic. This resulted in an exodus as concerns over the city’s
autonomy and the rising influence of the communist Chinese government
started growing. Many companies moved their headquarters and regional
offices elsewhere. 4
Hong Kong’s population reduced by 1.2 percent in a year
from the imposition of the national security law while visa applications for the
financial services sector declined by 23 percent in 2021.5
“This place is sheer
lunacy – so many people are leaving. Even Bank of America just announced
huge downsizing to shake things up,” said a Hong Kong-based finance industry
American Chamber of Commerce in Hong Kong (AmCham) said about 53 per
cent of firm leaders, who are its members, considered leaving Hong Kong.6
“The Hong Kong I have known for 20 years has been going, going and gone.
A new Hong Kong is emerging. Now it’s a very painful period of time,” Tara
Joseph, President of the AmCham.7 While Hong Kong is witnessing brain drain,
other countries are exploiting the situation by welcoming the talent leaving
the Asian financial hub.
The frustration over political crackdowns and
stringent governing laws are driving the local Hong Kongers to leave the city.
There are reports that 90,000 people left the city between June 2020 and June
2021, leaving its population at about 7.39 million. And many of them are
preferring neighbouring Taiwan. “With everything that’s happening in Hong
Kong, the strict quarantine rules and the National Security Law, banks and
companies across the broader financial services sector are looking at their
footprints in the region and where they want people-based,” said Hong Kong
based Simon Roberts, Chairman for Asia at an executive search firm Sheffield
Haworth.
The turmoil of the past two-three years in Hong Kong now has been
aggravated by the current Zero-Covid policy of the Beijing government. The
strict lockdowns, curbs on public movement, and forced and long quarantines
have had a negative impact on the economy of Hong Kong. Small businesses
are hit very hard. Despite full vaccination of staff, gyms, beauty parlours,
swimming pools among others are forced to shut down while restaurants
cannot remain open after 6 pm. “We are burning through cash every day,”
said Pinky Yeung, a gym trainer.
The Zero Covid policy has even created
problems with the supply of essential food commodities including vegetables
in Hong Kong.
The strict Covid restrictions may lead Hong Kong not to open until 2024,
warned the European Chamber of Commerce. “We anticipate an exodus of
foreigners, probably the largest that Hong Kong has ever seen, and one of the
largest in absolute terms from any city in the region” said a draft report
prepared by the chamber. These concerns will deter foreign investment
besides moving local businesses elsewhere. Even the Bank of America is
considering shifting its staff from Hong Kong to Singapore. The growing
insecurities about the stringent laws curtaining basic freedom and the exodus
of foreign companies are not good news for Hong Kong. There will be a dent
in the city’s international appeal and thus to its vibrant economy.