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A view of downtown Hong Kong / gettyimagesbank |
Industry expects city to maintain status thanks to role as entry point into China
By Kim Bo-eun
HONG KONG ― Hong Kong has been engulfed by a series of major events in recent years, which have continuously raised questions about the city's future as an international financial center.
Months of intense protests took place in 2019 against a now-shelved extradition bill, which extended into 2020 as controversy continues over the Beijing-backed national security law. Hong Kong's electoral system also became subject to greater control by the mainland. The COVID-19 pandemic then unfolded, to which the city introduced relentless measures such as flight bans and weeks of mandatory hotel quarantine upon arrival.
Hanscom Smith, the U.S.' outgoing consul general to Hong Kong, said earlier this month the policies of the governments of Beijing and Hong Kong have changed to the "detriment of Hong Kong's status as a financial hub."
"Attempting to maintain Hong Kong's unique economic and financial systems while degrading its political institutions is not a viable strategy," he said in a statement. "By constraining political and social freedoms, China will inevitably compromise the attributes that have allowed Hong Kong to develop as a global services hub."
Travel restrictions have also been placed and observed elsewhere around the world since the start of the pandemic, but most of these have been lifted for the majority of countries, as they seek to normalize business operations. But Hong Kong, which follows policies toward curbing virus spread similar to China's zero-COVID policy, has maintained quarantines for arriving travelers.
This has exasperated the business community, which continues to appeal to the government to relax the quarantine measures. The measures have led to a significant outflow of the foreign workforce from Hong Kong. Reports state that 93,000 residents left the city in 2020, with another 23,000 leaving in 2021. Singapore, which has relaxed several of its measures, has seen a rise in foreign professionals entering the city, with some coming from Hong Kong.
A business confidence survey of German companies in Hong Kong released last month shows they are less positive about the city's business environment this year than in 2021. The figure for this year was 2.3 on a scale of one to five, down from 2.8 last year. The environment was gauged based on the ease of attracting overseas talent, its appeal as a regional headquarters location and the political climate.
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Protesters carrying umbrellas march during a rally against the China-backed national security law in Causeway Bay, Hong Kong, May 24. EPA-Yonhap |
Hong Kong's Financial Services Development Council Chairman Laurence Li recently stated the city had benefited from the tendency of businesses and people staying in Hong Kong, due to the infrastructure developed over time and the human resources present ― referring to this attribute as "stickiness."
"But firms and people are increasingly willing to pay the cost (of relocating). If the roles and people are relocated, over time, they will become sticky in another place. Attracting them back will be an uphill task," he said in a report issued earlier this month.
Nonetheless, despite the continued COVID-19 quarantine for travelers, as well as concerns about China's increasing influence over the city, the business community has been in Hong Kong because of the opportunities available in China and they expect this will remain the case in the decades to come.
Over 70 of the world's top banks have maintained solid operations in Hong Kong.
Korean banks are also expanding their operations here. The Korea Development Bank (KDB) opened a new branch in April. The state-run bank's Hong Kong subsidiary dates back to 1986.
The KDB's plan is for its subsidiary to focus on investment banking services, and for its branch to mainly deal with corporate banking.
"Hong Kong offers a diverse array of financial products as a private equity hub," a senior KDB official said. "The city is becoming increasingly influenced by China, but it will still serve as a gateway to the mainland." He also noted that Hong Kong is making efforts to develop its infrastructure as a financial hub.
Hong Kong is the largest private equity hub in Asia, excluding mainland China. The number of private equity and venture capital firms here has grown steadily ― with 565 firms as of 2019, up from 412 in 2015.
Hong Kong ranked third in a Global Financial Centers index published in March by the London-based think tank Z/Yen, after New York and London.
"Hong Kong continues to perform well against a wide range of the measures used in the (Z/Yen Global Financial Centers) index, and its capitalization and expertise remain strong," Mike Wardle, CEO of Z/Yen Group and author of the index, said in an email.
"As for the future, we would expect Hong Kong to continue to offer a wide range of high-quality financial services and to act as a conduit for finance between China and the rest of the world, so long as it retains sufficient strength in skills and human capital."
In Z/Yen's survey of around 12,000 respondents in the financial sector around the world, released in March, Hong Kong was also cited as the third-most-desirable place to live and work, after New York and London, thanks to "the depth and breadth of the financial sector in the city," and "opportunity in places with large, well-established markets."
"Hong Kong will continue to be a global financial and business hub because of its low and relatively simple tax system and a strong and independent legal system," said Joseph Chow, a partner at Hong Kong-based law firm Wellington Legal.
"It is one of the most ― if not the most ― efficient metropolitan cities and it will continue to attract talent from all over the world."
The financial industry also expects Hong Kong to benefit from the Greater Bay Area initiative ― which seeks to create a major business cluster with Hong Kong, Macau and nine cities in southern China. The combined GDP of the 11 cities is $1.6 trillion, which compares with the GDP of South Korea.
Cross-border initiatives have been taken to enable investors based in the mainland, Hong Kong and elsewhere around the world to trade in stocks and exchange-traded funds listed in Shanghai, Shenzhen and Hong Kong.
Hong Kong ranks among the world's top 10 stock markets with a market capitalization of over $39.1 trillion as of June, according to the Hong Kong Exchange.