China Bulletin

Hong Kong to Become a Former Financial Hub

Hong Kong's economy is not recovering. Tough coronavirus restrictions were followed by emigration due to the National Security Law, capital flight to Singapore, plummeting share prices on the stock market and a slump in the real estate market. The outlook remains dire.

India’s stock market capitalization has recently overtaken Hong Kong as the world’s fourth largest stock market. Many surveys show that Singapore is now the leading financial center in Asia, surpassing Hong Kong in attracting the most financial inflows internationally. Online, some Mainlanders are chiding Hong Kong as the historic site of a once “international financial center”. Chinese policymakers recently arrived in Hong Kong to instruct local officials on how to revive Hong Kong’s status as a financial center, and seek to signal to the international community that Hong Kong still has the whole of China’s backing. But this hasn’t had the expected impact to boost confidence. 

The direct imposition of the National Security Law (NSL) on Hong Kong has forever changed the legal and political landscape of Hong Kong. However, that is only part of the story in Hong Kong’s economic demise. The hard Covid restrictions were the beginning of the end. In 2022, when the rest of the world began to open up, Hong Kong remained stuck in hard Covid lock down like the rest of China. The hard Covid lock down and “Zero-Covid” were part of Xi’s national policy in fighting Covid. This was to be Xi’s signature policy which Chinese are supposed to be proud of. In the “new” Hong Kong where there are no longer any opposition voices or independent media, the Hong Kong government decided that it must follow the Mainland’s Covid policies as closely as possible in order to be politically correct.

The NSL has triggered a massive wave of exodus from Hong Kong. More than 600,000 Hong Kongers have left Hong Kong since 2020. Most of them resettled in the United Kingdom, Canada, Australia and the United States. These are the solid middle classes which formed the core of Hong Kong’s society and economy. After Covid restrictions were finally lifted in 2023, the domestic economy never recovered. The Hang Seng Index is now at its historic low point in 25 years, and the property market is down by 30%. Since 2020, more than GBP 100 billion have been invested in the UK housing market by Hong Kongers buying up properties in their new home. The Hong Kong government punished those who moved to the UK by denying them the ability to withdraw their pensions in Hong Kong, but people are leaving anyway.

Wealth Leaves Hong Kong for Singapore

Wealthy Mainlanders used to park their money in Hong Kong as a safe haven from the reach of the Chinese authorities. With its low taxes, sound financial system and the rule of law, plenty of assets allocation options were available for Mainlanders to move their wealth to Hong Kong, which in turn served as springbroad for onward international transfers. Hong Kong was able to play this important role because it was seen as safe and distant enough from the Mainland. This is no longer the case. Nowadays, wealthy Mainland Chinese do not see Hong Kong as beyond the reach of the PRC authorities. As a result of the changing legal and political landscape, assets in Hong Kong are within the reach of the PRC authorities. The legal system in Hong Kong now must recognize civil and criminal judgments (which carry a monetary compensation or damages order) issued by Mainland Chinese courts. So these wealthy Mainlanders are now rushing to Singapore instead, to open private wealth management accounts with financial institutions there.

This is one of the reasons why we are seeing the massive transfer of wealth to Singapore. Despite the capital restrictions imposed by the PRC government, wealthy Chinese are desperately trying to get their money out. The sentiment is to move the money out of the country rather than to re-invest in the Chinese domestic economy. Stories of what happened to Jack Ma of Alibaba, and the owner of Evergrande (once the largest real-estate developer in China) are driving entrepreneurs away. The PRC authorities have ordered the central banks to pump RMB 2 trillion into the stock market. Wealthy property developers and businessmen in Hong Kong have been told by Beijing officials that “they must do their part” to save the economy. This is message is seen as an expectation that they will use their private wealth for the good of the nation’s and Hong Kong’s economy. This is in line with Xi’s “common prosperity” theme. So far, the stock markets in Shanghai and Hong Kong are still stuck in a rout. Xi sacked the head of China’s securities regulator to calm the markets.

Another Round of National Security Laws in the Pipeline

The Hong Kong government recently announced that it will be enacting a new round of national security laws (commonly known as Article 23) this year. The draft laws presented by the government are even more draconian than expected. For example, publishing a misleading statement with ‘external forces’ which endanger national security will become a crime. The PRC legal concept of state secrets and intelligence would be fully applied in Hong Kong. This is a broad and loosely defined concept which covers everything from military to major economic policies and figures. Going forward, analysts working for US investment banks in Hong Kong will have to be careful what they write about the economy. Parts of the internet which “endanger national security“ will be censored in Hong Kong under these new laws.

In a recent visit to Hong Kong for a friendly match, football star Lionel Messi pointedly refused to shake the hand of John Lee, the US-sanctioned Chief Executive of Hongkong. Messi sat out the whole game citing injuries. Nationalists in Hong Kong and China wasted no time in condemning Messi and Argentina for the insult.

Hong Kong’s economic future is bleak. In many ways, it is facing a perfect storm it has not seen since WWII. Hong Kong’s success was built on its ability to navigate through the geopolitical fault lines between U.S. and China. Now that U.S-China relations are at their lowest point in recent history, Hong Kong has lost its ability to play both sides. It is now firmly in China’s orbit. Hong Kong government officials and politicians are so busy condemning Western media and politicians who criticize Hong Kong, rather than trying to fix the problems. Hong Kong’s past ability to do business with all sides, together with the hard work of Hong Kongers and the rule of law, was the recipe for success. All this foundation, built over 150 years, was undermined within 3 years by turning Hong Kong back into a colony – this time run by the Communists in China.         

Anonymous is a former Hong Kong MP from the pro-democracy camp.