International companies are being forced to reconsider their future in Hong Kong as China’s crackdown on civil liberties and the freedom of media and tech companies continues to gather pace, according to leading business figures in the region.
With businesses already facing restrictions because of the pandemic, the introduction of the national security law last year and the government shutdown of the pro-democracy Apple Daily newspaper have sparked its biggest-ever exodus of people and rocked confidence in a city once synonymous with vibrant economic activity.
Some companies have already announced they are leaving, such as the media outlet Initium, which is relocating to Singapore. In an open letter, executive editor Susie Wu said it would continue to operate on an online, decentralised basis “as the road to freedom becomes ever treacherous”.
Other companies might not be relocating lock, stock and barrel but they were beginning to build up their offices in Singapore, Hong Kong’s rival Asian entrepôt city, said Frederick Gollob, chairman of the European Chamber of Commerce in Hong Kong.
Hong Kong had always been seen as a safe haven, he said, because of a British-based legal system that businesses could rely on to provide a just rule of law.
But companies were reassessing their presence because of doubts about the reliability of the legal system and curbs on movement.
“There are questions over potential conflict for running businesses,” he said. “This is what I hear in the business community. Is it safe to run a data centre in Hong Kong? Is it safe to have R&D for an international company in HK? How stable is the rule of law?
“If you listen to boardrooms across the globe they cannot avoid this discussion whether or not to stay. The question is on the table. It’s something new.”
The largest number of people left Hong Kong for good last year since records began, according to official data. The exodus of nearly 90,000 people reduced Hong Kong’s population by 1.2% to 7.39 million, the city’s census and statistics department said, compared with steady population growth over the preceding decade.
Gollob believes the number of people leaving will be even higher this year, in what he called a “dangerous development” for Hong Kong.
David Lesperance, a lawyer based in Europe who specialises in helping wealthy people relocate from Hong Kong, China and other jurisdictions such as Saudi Arabia where they feel they and their families may face a sudden change in their legal status, has seen a big increase in demand for his services since Beijing started to flex its political muscle in Hong Kong.
Many so-called high-net-worth individuals expected the crackdown to come, he said, but were caught by surprise when the mainland authorities used the pro-democracy protests in Hong Kong that blew up in 2019 to push through the national security law and arrest dozens of activists for alleged sedition.
“My clients are now starting to assume there is no difference between Hong Kong and China,” he said, noting that the national security law had formalised some of China’s previous, arbitrary detentions, such as the snatching of billionaire Xiao Jianhua at the Four Seasons hotel in 2017.
Lesperance said enquiries doubled with the push for the extradition bill in 2019, then doubled again with the protests, and had spiked again in the wake of attacks on tech billionaires such as Jack Ma on the mainland and the media tycoon and Apple Daily owner Jimmy Lai in Hong Kong. More high-net-worth individuals were beefing up their escape plans to cover areas such as taxation, domicile and family law.
“It’s getting more and more difficult to move. A lot of families had nothing in terms of a plan, so they think of it as fire insurance – you don’t get it because you want a fire but because it’s a potential problem.”
‘Sit and wait’
Despite the blows that Hong Kong has suffered to its reputation as a good place to do business, there remain many compelling reasons why the city has not seen any prominent multinational companies pull up sticks completely.
Gollob said that most international firms were in a “sit and wait” pattern to see what happened next in terms of new laws or further restrictions on freedoms, but the “acceleration towards China is everyone’s gut feeling”.
This more nuanced view is shared by many in the business community who always expected China to assert its authority in Hong Kong, but perhaps not so rapidly as in the past 18 months.
One senior finance industry executive said Hong Kong had seen off many existential challenges over the years, such as the 1997 handover and the Sars outbreak, but was well-practised in adapting and reinventing itself.
“There’s no doubt it’s a significant moment,” said the executive, who did not wish to be named. “We are going to be in Hong Kong for the longer term, although in time we might end up with just as many people in Singapore. Multinationals and foreign-owned firms are reassessing their situation, but are they running for the exits? I don’t think so, although on the family side it’s maybe more because of Covid restrictions.”
But that, he said, was inevitable, and the view of most professionals was that Hong Kong would just become a “more important Chinese city” as opposed to an autonomous one. Beijing’s investment in the region, cultural ties and China’s sheer economic power meant businesses would still want to be there.
“Large international companies know where their bread is buttered,” he said. “They will play the game with the Chinese government. People who ignore Hong Kong will be ignoring China and they don’t want to do that. Like it or not, they are here to stay.”