When Beijing’s move on Hong Kong started, the result was entirely predictable and, in fact, was widely predicted, including several times in this column.
It should have been obvious to those who work in the Forbidden City that the regime’s heavy-handed tactics in Hong Kong would drive away the international business community that made the city such an economic and financial asset to China. The leadership of the Chinese Communist Party (CCP) either didn’t know or didn’t care.
Now, the evidence is clear. Business is leaving Hong Kong wholesale, and China is the loser.
When, in 1997, Great Britain turned its former Hong Kong colony over to China, Beijing promised to keep the city much as it was. China’s leadership talked of “one country, two systems.” It seemed like a reliable promise. Hong Kong was valuable as it was. Yet, a little more than 10 years later, Beijing moved forcefully to break that promise to the citizens of Hong Kong and the world. Moves to limit the civil liberties long enjoyed by Hong Kong residents elicited mass protests in 2019. Beijing put them down forcefully.
Elements of the city’s former status remain. Money still flows more freely into and out of the city than into and out of China, but the former security from Beijing’s interference—in business and daily life—has disappeared. The city has accordingly lost its allure as a place to do business not only for foreigners but also for Chinese firms headquartered there.
The evidence of economic harm has become increasingly clear. Western and Japanese businesses in Hong Kong began to leave the city almost immediately after Beijing showed its hand. According to Hong Kong’s Census and Statistical Department, the number of regional headquarters maintained by foreign-based firms in the city dropped by 2.4 percent in the first year after the protests were quelled. As of 2022, the most recent period for which the department offers data, the number has fallen almost 9 percent from its former level. U.S. firms seem to have led the departure. By 2022, U.S. firms with regional headquarters in Hong Kong had dropped by some 30 percent from the peak. Executives report having trouble convincing valued employees to move to Hong Kong.
And, of course, it isn’t just the Americans. Two Australian banks—Westpac and the National Australia Bank—have announced their intention to depart. Tellingly, they had vowed to stay after the protests to facilitate financial flows between Hong Kong and the rest of China. They no longer see the value. A large number of Canadian and European interests also have indicated their intention to leave. The list is too long for an article such as this, and sadly, no totals are available, but the number includes financial and technology concerns. It also includes U.S. firms not counted in the 2022 total.
By the looks of the list, it appears that the pace of departures is accelerating. It is certainly telling that foreign businesspeople traveling to Hong Kong are being advised to bring only “burner” electrical devices and otherwise wipe their electronics of data and apps.
For a while, a flow of Chinese firms into Hong Kong offset the effect of foreign departures, but now, even that trend has dissipated. Since Hong Kong no longer serves as a channel through which China and the world interact and has simply become an extension of China, China-based businesses can no longer see the advantage of a regional headquarters or office in Hong Kong. They might as well stay centered in Shanghai, Beijing, or other Chinese business hubs.
Most indicative of Hong Kong’s fading glory is the behavior of its stock market. The market’s total capitalization currently stands at the equivalent of about $4 trillion, some 40 percent below its 2019 level. The flow of new listings has fallen to a mere $3.5 billion so far this year from the equivalent of $52 billion in 2020. Daily turnover now hovers around $14 billion, down 40 percent from two years ago. The Hong Kong exchange’s owner, HKEX, has seen its share value fall since 2021, including about 15 percent this year alone.
The loss of Hong Kong as a world-class financial center and business hub can only hurt China’s already beleaguered economy and precarious financial situation. Strangely, Beijing would destroy this jewel simply to gain a measure of overt political control that it was able to exert previously through covert means.
But that has been the way of the CCP under Xi Jinping’s leadership, even though it runs counter to the Party’s longer-term quest for global influence and economic hegemony. It’s a classic case of losing a war to win a battle, but that seems to be the pattern under Mr. Xi.
