Why Some Hong Kongers Are Leaving But Big Money Isn’t

China has effectively crushed Hong Kong’s pro-democracy movement over the past year, calling into question the civil liberties and rule of law that helped make the city an international financial hub. Yet even as the U.S. government warns businesses about the risks -- and many activists and others in the former British colony seek to emigrate -- signs of an investor exodus are harder to find. For many global businesses Hong Kong is still the main gateway to the lucrative mainland market. How long this divergence between business and politics can continue is an open question.

1. What are the banks doing?

Global financial institutions have flagged plans to hire staff in the city to grab a bigger slice of business in China’s Greater Bay Area, a region that includes megacities Shenzhen and Guangzhou. Citigroup Inc. for example, plans to pull out of 13 markets across Asia and Europe but not Hong Kong, where it will establish a regional wealth hub and hire hundreds of new relationship managers and private bankers. Employment in the finance and insurance sectors rose in 2020 while BlackRock Inc. and Bank of America Corp.’s have both said tensions won’t affect their operations in Hong Kong.

2. What about the stock market?

The city has won some high-profile initial public offerings since China imposed a national security law on Hong Kong in mid-2020, following a year of sometimes violent pro-democracy protests. That includes the $5.4 billion listing of short-video service Kuaishou Technology, the world’s biggest since Uber Technologies Inc. in 2019. With China closing loopholes and putting in new rules that make it harder for firms to go public in the U.S., Hong Kong could see an influx of new IPOs. Shares of the Hong Kong exchange operator have surged. The biggest inflows of investor money since 2010 pushed a measure of liquidity in the financial system to a record in October, while mainland capital has also come in at a record pace via stock exchange links in Shanghai and Shenzhen.

3. What’s the danger?

There’s plenty to worry about. One of the key draws for investors is Hong Kong’s independent judiciary and clear regulatory framework, legacies of its time under British rule. Those attributes have helped underpin business confidence and reassure investors that legal disputes would get due process. Any erosion would be viewed with alarm. While the security law has led to prosecutions of opposition politicians and activists to stifle dissent, it hasn’t been invoked in any major company disputes. Still, the Biden administration in July published a warning about the risks of doing business under Hong Kong’s “new legal landscape,” citing concerns including data privacy and access to critical business information. Also likely coming soon: a law that could expose companies operating in Hong Kong that follow U.S. sanctions to the possibility of asset seizures and expensive lawsuits in local courts. Such a move could put multinationals between a rock and a hard place.

4. Is anyone leaving?

Hong Kong’s population fell 0.6% in 2020, the first annual decline in 18 years, and anecdotal evidence suggests departures have continued. Many head for the U.K., which opened a new pathway for residency and eventual citizenship for Hong Kong residents. Social media has been filled with pictures of long check-in lines and fully laden baggage carts for flights to London in an otherwise deserted airport. Media reports tell of a generation disillusioned with how the security law has changed the former British colony. Expats are also thinking of relocating. More than 40% of members responding to a survey in May by the American Chamber of Commerce in Hong Kong said they might leave amid concerns about the security law as well as the government’s handling of the Covid-19 pandemic, including flight bans and lengthy, mandatory quarantines. Hong Kong officials have dismissed suggestions of a brain drain, saying that talented mainlanders are waiting to take the place -- and jobs -- of people who leave.

5. What could push more out?

Perhaps if China introduced measures affecting the way people live and work. The government has used the security law to stifle dissent but it hasn’t imposed harsh internet restrictions or currency controls that exist in mainland China. That means everyone from ordinary citizens to rich bankers have access to global news sites, social media and have the ability to move their money anywhere. A Hong Kong dollar pegged to the U.S. dollar has helped ensure the local currency is freely convertible, unlike the Chinese yuan. And while China hasn’t generally targeted the finance sector, there’s a risk of regulatory shock as China seeks to rein in its homegrown technology giants, moves that could yet spill over into Hong Kong.

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