Hong Kong Reduces COVID Measures as Its International Shine Dims

Beijing’s preferential treatment of the city is for its own benefit, industrialist says

People walk along a promenade by Victoria Harbor in Hong Kong on Sept. 29, 2022. (Isaac Lawrence/AFP via Getty Images)

Hong Kong was saved by a group of Wall Street executives, who forced Beijing to allow the city to drop draconian quarantine policies which have lasted for two years.

In a bid to revive Hong Kong’s rapidly eroding status as a financial center due to strict quarantine policies, the Hong Kong Monetary Authority (HKMA) plans to hold an investment summit with a star cast in early November.

In August, the HKMA invited the chief executives of global investment banks, including Morgan Stanley, Goldman Sachs Group Inc., Citigroup Inc., and UBS AG.

However, some banks told Hong Kong officials that their executives from the United States and Europe will only attend if they are exempted from hotel quarantine policies.

In response, the HKMA promised to waive quarantine requirements for the summit participants. The bank executives, however, say they don’t want special treatment and a negative public perception because other employees of their firms and the rest of Hong Kong are still affected by the restrictions.

As a result, the Hong Kong government announced on Aug. 9 that it would shorten the COVID-19 quarantine period for inbound passengers from 7 days to 3 days.

‘0+3’ Plan

Then on Sept. 23, Hong Kong Chief Executive John Lee Ka-chiu further announced that starting from Sept. 26, inbound travelers would no longer be required to stay in hotels. While the mandatory three-day hotel quarantine would be dropped, they would still be banned from restaurants, and bars for three days. The new quarantine policy is known as “0+3” plan.

John Lee Ka-chiu, the new chief executive of Hong Kong attended the first Q&A session at LegCo., on July 6, 2022. (Sung Bi-lung/The Epoch Times)

Meanwhile, mainland China is still sticking to its “Zero-COVID” policy. In late September, China’s state post office, the Ministry of Public Security, and the Ministry of State Security jointly issued a circular requiring postal courier companies to strengthen security checks and sterilize all mail and express mail sent to Beijing during the Chinese Communist Party (CCP)’s 20th National Congress.

So why is Beijing being lenient with Hong Kong? Elmer Yuen Gong-yi, a Hong Kong electronics industrialist believes that it’s because the CCP needs Hong Kong’s money.

“Beijing needs Hong Kong to open up again because Hong Kong is the source of foreign exchange for the CCP,” Yuen told The Epoch Times. “Seventy percent of China’s foreign exchange comes from Hong Kong.”

“If Hong Kong remains isolated for a long time, this financial center will not be able to contribute to the CCP. The CCP is anxious to restore the freedom of travel in Hong Kong, otherwise, all financial capital companies and foreign investment banks would not dare to come to Hong Kong.”

“That’s why the CCP wants to lift all isolation policies in Hong Kong as soon as possible by November.”

People walk past a bank's electronic board showing the Hong Kong share index at Hong Kong Stock Exchange in Hong Kong on Oct. 4, 2021. (Vincent Yu/AP Photo)

Yuen said that some Wall Street executives are still dissatisfied with the current relaxed epidemic prevention policy and are asking for further relaxation.

“They are still not satisfied with the ‘0+3’plan, so the government may change it to ‘0+0’ soon,” he said. “They will only go to Hong Kong if it is reduced to ‘0+0’ by November.”

International Status at Risk

Two years of stringent epidemic prevention policies have cost Hong Kong its status as an international financial center as well as an aviation hub.

In the latest edition of the Global Financial Centres Index (GFCI 32) published on Sept. 22, Hong Kong fell from 3rd to 4th place, replaced by Singapore which rose from 6th to 3rd. The report pointed out that the severe travel restrictions in Hong Kong have affected daily business transactions.

International Air Transport Association (IATA) Director General Willie Walsh said that the CCP’s Zero-COVID policy has cost Hong Kong’s position as a global aviation hub.

“Hong Kong has lost its position as a global hub and will struggle to regain it because other hubs have taken advantage of it,” Walsh said on Sept. 21 at an IATA conference in the Qatari capital Doha.

A Cathay Pacific aircraft comes into land at Hong Kong International Airport on Aug. 11, 2021. (Isaac Lawrence/AFP via Getty Images)

Data shows that Hong Kong’s airport carried only 591,000 passengers in the second quarter of 2022, less than one-tenth of the passenger traffic at Singapore’s Changi Airport. Singapore’s airports received 7.3 million passengers last quarter.

Hong Kong has lost tremendously in other areas as well.

Since the outbreak of the CCP virus, wave after wave of Hong Kong residents has left the city. According to the Census and Statistics Department in August, about 113,200 Hong Kong residents left Hong Kong in 2021, compared to 89,200 in 2020.

Many multinational companies that have operated in Hong Kong for decades have moved their headquarters and employees out to places like Singapore and Seoul. Teachers, foreign athletes, and many of the professional elite who taught in international schools have also left.

In September, Hong Kong’s financial secretary revealed that Hong Kong could face a budget deficit of more than HK$100 billion (about US$12.7 billion) which would be the second-highest deficit on record.

Why Hong Kong is Essential

Hong Kong plays an important role in the CCP’s economy.

Firstly, Hong Kong is a center for equity financing. Mainland Chinese companies have raised $335 billion through Hong Kong listings since 1997 following the U.K. returning the city to China. Since the Hong Kong dollar is pegged to the U.S. dollar and Hong Kong has no capital controls, Hong Kong listings can be a strong currency for foreign acquisitions and investment, an advantage that Shanghai listings don’t have.

New York was once a favored alternative listing venue for Chinese companies, but it has become increasingly difficult for them to list in the United States due to multifaceted sanctions against the CCP by the United States, including the recently launched Holding Foreign Companies Accountable Act.

A man looks at a bank's electronic board showing the Hong Kong share index at Hong Kong Stock Exchange, on March 1, 2022. (Vincent Yu/Reuters)

Secondly, Hong Kong is also a center for debt financing and the biggest offshore bond issuance center for Chinese companies. Companies are able to borrow from Hong Kong with longer maturities, and they can tap into strong currency funding, according to Alicia Garcia Herrero, chief Asia economist at Natixis, a French investment bank.

Third, Hong Kong is a venue for offshore RMB trading. Hong Kong is the main offshore center for RMB lending, bonds, and trading. It’s easier for China to influence the offshore exchange rate in Hong Kong than in other offshore markets, according to Victor Shih, an associate professor of political economy at the University of California, San Diego. That means Hong Kong can support RMB if needed to help stem capital outflows.

Yuen told The Epoch Times that the CCP is using Hong Kong to earn foreign exchange. “When the CCP doesn’t need it anymore, it won’t need to give preferential treatment to Hong Kong,” Yuen said.