As early as a few years ago, a small number of multinational companies left Hong Kong, and they were uneasy about the increasingly close connection between this financial center and Chinese Mainland. Currently, the initial retreat of a small number of companies is evolving into a major retreat involving banks, investment companies, and technology companies.
The number of US companies operating in Hong Kong has been declining for four consecutive years. According to Hong Kong statistics, this number dropped to 1258 in June 2022, the lowest level since 2004. Last year, the number of mainland Chinese companies with regional headquarters in Hong Kong surpassed that of US companies for the first time in at least 30 years.
Coming to Hong Kong used to be quite risk-free, "said Simon Cartridge, who runs a research and publishing company in Hong Kong." Now, this is not a risk-free place. Everything needs to be marked with a question mark. "He is the author of A System Apart: Hong Kong's Political Economy from 1997 until Now.
In the years following Hong Kong's return to China in 1997, it attracted foreign companies due to its geographical proximity to China while not being too close to China in other aspects. For example, Hong Kong has an independent legal system and judiciary, and is committed to achieving Western style freedom.
But as Hong Kong tightens its national security restrictions, the Chinese government rectifies foreign-funded enterprises, the mainland economy slows down, and Sino US relations become increasingly tense, this consideration by multinational corporations has changed. Some foreign executives said that the boundary between Hong Kong and Chinese Mainland has become blurred.
Rob Jesus, founder of Serendicity Capital, said, "Hong Kong is now seen as an extension of China." Jesus moved from Hong Kong to Singapore in 2019 and founded Serendicity Capital, which invests in global technology companies.
China remains an important market, and almost no multinational corporations are planning to give up their business in China. But more multinational corporations either choose to stay in mainland China or establish their Asian centers in Singapore; Singapore has long competed with Hong Kong for its position as a financial and commercial center in the region.
A spokesperson for the Hong Kong government stated in a written statement that Hong Kong remains one of the most suitable places for business in the world, with approximately 9000 mainland and overseas companies conducting business in Hong Kong. The spokesperson pointed out that in the past five years, this number, including Chinese and foreign enterprises, has remained stable.
However, the number of companies leaving Hong Kong is increasing. Westpac, an Australian bank, has closed its Hong Kong operations, and National Australia Bank plans to do the same. According to a report by The Wall Street Journal earlier this month, three US and UK due diligence companies are relocating employees from Hong Kong. The Ontario Teachers' Pension Plan, a large Canadian pension fund, has cancelled a stock selection team based in Hong Kong. TTM Technologies, a printed circuit board manufacturer headquartered in California, USA, has also withdrawn from Hong Kong.
Alberta Investment Management Corp, a Canadian retirement fund management company, Vantage Data Centers, a US technology company, and the Cayman Islands government have all considered setting up a regional headquarters in Hong Kong, but ultimately chose Singapore. Shipping giant FedEx will relocate some regional positions from Hong Kong to Singapore, while US office furniture manufacturer Steelcase has transferred regional executives to Singapore.
Foreign investors are withdrawing from the Hong Kong stock market, and many Chinese corporate giants are listed in Hong Kong. As of Monday's close, the benchmark Hang Seng Index in Hong Kong has fallen by over 13% this year, in stark contrast to bull markets in the United States, Japan, and other regions. In addition, the real estate market in Hong Kong is also in a slump.
The strict attitude of the Chinese government towards foreign companies since the beginning of this year, as well as the export bans imposed on some bankers and executives, have made multinational companies feel uneasy.
Last Saturday, Shanghai police detained a current employee and two former employees of GroupM, a subsidiary of London advertising giant WPP, on suspicion of bribery. WPP subsequently announced the dismissal of the detained executive and is conducting an internal investigation into the matter.
Earlier this year, relevant departments in mainland China raided the offices of due diligence firm Mintz Group and expert network consulting firm Capvision, and questioned employees of consulting firm Bain. China has fined Meisi Zhizhi for allegedly engaging in unauthorized statistical investigations and accused Kaisheng Rongying of engaging in activities that violate national security regulations.
These official actions raise concerns about what type of commercial due diligence China may consider sensitive, illegal, or equivalent to espionage activities. Earlier this month, Kaisheng Rongying stated that it had completed the "rectification" under the guidance of relevant departments of the Chinese government. Meisi Smart did not respond to a request for comment.
Katherine Mansted, Executive Director of CyberCX Network Intelligence, an Australian cybersecurity company, said that some business travelers traveling to Hong Kong now carry "disposable" devices, smartphones, or laptops whose data or applications have been cleared. Although business travelers traveling to mainland China have long used such devices, Hong Kong has previously been seen as much safer.
Kurt Tong, former US Consul General in Hong Kong and current executive partner of Asia Group, a business consulting firm, said that it is difficult for the Hong Kong government to enhance its reputation without appearing disloyal to China. He said the problem is that the Hong Kong government is unable to use the most effective argument, which is' we are different from China, we are better than China '.
Alice Au, co head of the Asia board and CEO business at executive search firm Spencer Stuart, said that the tense relationship between China and the United States makes it more difficult for US multinational companies to persuade valuable employees to relocate to Hong Kong.
Qu Miaoxin explained that relocating to Hong Kong is not as attractive as before, as the risks seem high now. She also stated that the Chinese economy is no longer in a state of rapid growth, and working in Hong Kong is no longer a good job. She said this is regrettable because opportunities for better understanding will decrease.
Broadcasting technology company Caton Technology relocated its headquarters from Hong Kong to Singapore last year. CEO Ray Huang stated that as a Singaporean company, Kraton Technology is more neutral to all parties due to its main US investor and business dealings with companies in Japan, Taiwan, and Western countries.
American circuit board manufacturer TTM Technologies, which withdrew from Hong Kong this year, has stated that its customers hope to use equipment manufactured outside of China. The company is opening a factory in Malaysia.
Even some companies that cater to the needs of Chinese customers have reconsidered Hong Kong's position. Western Pacific Bank has left Hong Kong, and National Bank of Australia will do the same, but both banks retain employees in mainland China.
Following the example of the mainland of China, the Hong Kong government has taken strict measures to prevent the COVID-19 epidemic. Although these restrictions are not as strict as in mainland China, they still prompt some companies and personnel to leave. Although some people have already returned to Hong Kong, the high cost of relocation has made companies that have already left unwilling to consider relocating.
Western executives who choose Singapore over Hong Kong believe that using Singapore as a base for doing business in Asia is a better option. The main consideration for choosing Hong Kong is China, "said Evan Siddall, CEO of Alberta Investment Management. We need an Asian hub, and choosing Singapore would be more reasonable for us. "The company opened an office in Singapore this year to increase investment in the region.
Vantage Data Centers, headquartered in Denver, considered Hong Kong as a regional base, but ultimately chose Singapore. Jeff Tench, Executive Vice President of the company's North America and Asia Pacific regions, said that many customers, including large cloud service providers, have also established regional centers in Singapore.
For Western companies, Hong Kong still has many attractions, including low tax rates, developed financial markets, and world-class infrastructure. The Chief Executive of the Hong Kong Special Administrative Region, John Lee, has promised to establish closer ties with Southeast Asia and warmly welcomed the Thai Prime Minister who visited Hong Kong for three days in early October.
Hong Kong seems to have the potential to benefit from the increasingly close relationship between China and the Middle East. The Dubai Chambers, a government organization that provides support for businesses, opened an office in Hong Kong this year to encourage cooperation between the two markets.
Although the flow of information in Hong Kong is still more free compared to mainland China, a series of actions by the Chinese government have raised concerns among Western companies.
In 2020, following the outbreak of large-scale anti government protests in Hong Kong, the Chinese government implemented a national security law in Hong Kong, granting it broad powers to punish dissenters. In response, the US government announced sanctions against several politicians in Hong Kong, including Lee Ka chao, who was then the Secretary for Security and the current Chief Executive, for "undermining Hong Kong's autonomy".
This year, the Hong Kong government attempted to demand YouTube to remove a song that had become a anthem of the protest movement, which caused tension with the platform owner Google. A judge in Hong Kong has rejected the Hong Kong government's request to ban the song, but the government has appealed, believing that the judge should respect the opinions of the Hong Kong Chief Executive more.
The American Chamber of Commerce in Hong Kong stated in July this year that it had expressed concerns to the Hong Kong government that banning the song could have a negative impact on the Hong Kong business community. A spokesperson for the chamber of commerce said that its members believe that this move may harm foreign investors' views on the business environment in Hong Kong.
Representatives of the Chamber of Commerce went to Washington in July to introduce the situation of American companies operating in Hong Kong to US government officials. In a subsequent report on the trip submitted to its members, the Chamber said that some members of Congress agreed that the United States needs to continue to maintain relations with China and Chinese companies, but politicians increasingly "distrust the private sector doing business in China".
The report said: "We found that at best, politicians do not know enough about Hong Kong and its subtle relationship with the mainland of China. At worst, they generally believe that there is no difference between Chinese Mainland and Hong Kong." The Wall Street Journal read the report. The Chamber of Commerce stated that politicians have no interest or ability to separate Hong Kong from the domestic region, and cited the executive order of US President Biden on US outbound investment as an example. The executive order lists Hong Kong and Chinese Mainland as "countries worthy of attention".
A spokesperson for the Hong Kong government said that Hong Kong follows the "one country, two systems" policy. The "One Country, Two Systems" model was adopted after Hong Kong's return, allowing Hong Kong to enjoy a high degree of autonomy relative to mainland China. The spokesperson said that Hong Kong remains the only city in the world that brings together global and Chinese advantages.
Gregory May, the Consul General of the United States in Hong Kong, stated at a meeting in August that one of his priorities is to establish connections between the United States and Hong Kong through cultural and academic exchanges, striving to stabilize US China relations during complex times.
For global investment banks, Hong Kong remains an obvious place to establish branch businesses, partly because the business opportunities brought by mainland China far exceed those of other Asian countries. But now these business opportunities are decreasing.
According to Dealogic's data, the size of IPO financing in Hong Kong in 2022 decreased to $13.4 billion, a decrease of more than two-thirds compared to 2021. So far this year, the scale of new share issuance financing has been even lower, with only $3.5 billion as of October 18th. Several banks, including Goldman Sachs and Morgan Stanley, have laid off employees in Hong Kong.
According to a survey released this month by the Private Wealth Management Association and KPMG China, the size of assets managed by private banks and wealth management companies in Hong Kong decreased by 15% year-on-year in 2022, while net inflows of funds decreased by about 80% during the same period.
When discussing the stagnant Hong Kong economy, publisher Cartridge stated that Hong Kong is in a difficult situation to overcome.
He said that Hong Kong "still has the ability to bring surprises to people. There are still amazing talents here, which is expected to revitalize Hong Kong".