The Hong Kong government’s PR machine is fighting a rising chorus of negative publicity about the number of people from the financial community who are leaving the territory.
Banks and asset managers from the US, Europe and Australia are all understood to be scaling back their Hong Kong operations as the territory maintains its strict travel and quarantine restrictions.
A 21-day quarantine for international arrivals (reduced last week to 14 days) and a ban on flights from the UK and the US has hampered their ability to manage and develop their business in Asia from a Hong Kong base.
Hong Kong’s population declined 1.2% between mid-2020 and mid-2021, with more than 75,000 people leaving the city, according to Hong Kong’s Census and Statistics Department. Visa applications for the financial services sector were down 23% in 2021.
One in four members recently surveyed by the American Chamber of Commerce in Hong Kong said they were likely to leave. Most cited international travel restrictions as the leading factor.
The European Chamber of Commerce also weighed in, predicting that if Hong Kong continues to be cut-off: "We anticipate an exodus of foreigners, probably the largest that Hong Kong has ever seen.”
A PERFECT STORM
The Covid situation combined with the erosion of basic freedoms enforced by the National Security Law (NSL) has created a perfect storm that threatens Hong Kong’s status as the pre-eminent financial centre in the region.
Financial services companies have been reluctant to comment on their contingency plans, for fear of upsetting relations with Beijing, but with so much activity going on behind the scenes, moving staff to Singapore and Australia, the information was bound to come out.
“This place is sheer lunacy - so many people are leaving. Even Bank of America just announced huge downsizing to shake things up,” one Hong Kong-based finance industry senior executive told AsianInvestor.
Various global media reported this week that Bank of America, the second-largest US bank by assets, has started a review of its Hong Kong business to identify workers who can be relocated to Singapore. Another US bank, Wells Fargo is also seriously considering a shift to Singapore.
In the face of this exodus, Hong Kong’s Financial Services Development Council (FSDC) has just published the findings of a survey of top executives. Interviews were conducted with 30 top executives from the asset management, insurance and banking sectors, plus the emergent fintech area, where Hong Kong hopes to compete with neighbouring Shenzhen.
Respondents reported that recruiting the most qualified candidates from overseas was becoming increasingly difficult. Other rival centres such as Singapore, Seoul and Tokyo, were seen as well
placed and increasingly eager to compete with Hong Kong.
Singapore is the obvious alternative destination, with low corporate and income tax rates, but the report said that residential work passes can be difficult to obtain.
“While it is clear that international institutions currently operating under Hong Kong juris-
diction are not yet planning to leave en masse, they are eagerly looking for policy responses
that satisfy their questions about Hong Kong’s ability to hold onto its position as a world-
class financial centre.”
The report states that this Illustrates Hong Kong’s future as credible financial centre “is not considered to be dependent on political developments”. That remains open to question; Covid will hopefully disappear, eventually, but the NSL will not.
FILLING IN THE BLANKS
The FSDC report does not even mention the NSL and, in that respect, the report is significant as much for what it doesn’t say as for what it does.
For example: “international institutions…are not yet planning to leave en masse” - without explaining why they might actually be considering this.
Or: “The challenge will be to find ways to ensure that Hong Kong continues to be a popular posting for expatriates” - without explaining why that is an issue.
The report says respondents were confident that Hong Kong’s position would hold steady, at least over the mid-term, “and looked to a number of core financial strengths that would continue to play a valuable part in securing Hong Kong’s future; the continuing existence of the rule of law, a tax friendly regime, an independent judiciary and well-functioning markets.”
"I do fear the rule of law is being harmed and if that does get worse then it's game over (for Hong Kong)," said the finance industry senior executive spoken to by AsianInvestor.
Three aspects of the current situation troubled respondents to the survey: the high costs of operating businesses in Hong Kong, competition for talent and the obstructions to small businesses, particularly in the fintech area.
It was widely agreed that a major drawback to a Hong Kong presence is the cost of establishing and maintaining business operations, in particular the high costs of commercial and residential real estate.
“However, on balance given the benefits of being based in Hong Kong, these costs are considered to be worth absorbing.”
Given the stark reality of widespread disillusionment among many long term Hong Kong expatriates, it is not surprising that several disagree with the report’s conclusions.
“It is not true to say that there are no fund management companies that are considering leaving Hong Kong, to go elsewhere or leave the region,” veteran fund industry executive Stewart Aldcroft told AsianInvestor.
“It would be likely that most companies are currently unwilling to increase their presence in the Hong Kong market. They may still look to open in China, Singapore, Taiwan or Thailand, all of which are places attractive to the fund management community, because sales volumes and opportunities are good,” he added.
Aldcroft recognises that Hong Kong is going to struggle to be a popular choice for Western expatriates as things stand.
“Singapore is far better in PR and media management than Hong Kong, yet it has many similar restrictions and in some instances more draconian policies. The Hong Kong Government really needs to do something about improving the public image projected globally, but I suspect this is unlikely to occur until the Covid business is almost over and a degree of normality returns.”
One Hong Kong-based financial services executive, whose family are overseas waiting for Covid restrictions to lift, gave AsianInvestor his own personal perspective.
“The quality of Hong Kong life for my family has deteriorated to such an extent that they have little desire and incentive to return.
“I’m still a believer in Hong Kong for business, but the landscape has changed so much that where it once ticked the boxes on both the professional and personal front, that’s no longer the case. It places greater personal pressure which may affect the decision for some to remain or not.”