Hong Kong, China – German entrepreneur Joseph loved his life in Hong Kong. When he wasn’t taking care of his logistics business, he’d enjoy walks along the boardwalk, weekend brunches in the upscale Soho neighborhood, and foot and back massages to relieve the everyday stresses of life.
But less than two years after setting up his business in Hong Kong, in January Joseph decided he saw no future in the city and moved to Singapore.
“Many potential investors are hesitant to invest in Hong Kong because they think it is no longer a safe place to start a business,” said the 28-year-old professional, who asked to be called by first name. jazeera.
“I see the city changing before my eyes. Hong Kong has been one of the most cosmopolitan cities, but the protests and COVID restrictions mean the benefit is fading… Investors don’t feel safe legally because they don’t know if there is still neutrality in Hong Kong’s legal system, while the legal system in China is full of gray areas. There are enough uncertainties in business, why do we want more?”
As Hong Kong marks the 25th anniversary of its return to Chinese sovereignty, the city’s status as an international financial and business center has never been questioned since the handover.
Tens of thousands of residents have left the former British colony as Beijing’s tightened authoritarian control and strict pandemic restrictions aimed at aligning with China’s “zero-COVID” strategy are drastically changing life in the city.
More than 120,000 people, both residents and expats, left in 2020 and 2021, with tens of thousands more expected to follow this year.
In a survey conducted last year by the US Chamber of Commerce of Hong Kong, more than 40 percent of expatriates said they plan to leave or consider leaving, mainly due to concerns over a draconian national security law passed by 2020. Beijing was imposed, severe COVID restrictions limiting international travel and bleak prospects for the city’s future competitiveness.
At the same time, fewer professionals are moving to the territory, with work visa applications falling from 41,592 in 2018 to 14,617 in 2020, according to government data.
From humble beginnings as a fishing village, Hong Kong has transformed into an international business center with a vibrant stock market often ranked alongside Singapore, London and New York.
After Hong Kong was ceded to Britain under the Treaty of Nanking that ended the First Opium War in 1842, the area became a regional center for financial and commercial services.
During the 1970s and 1980s, the city transitioned from manufacturing to financial services as factories, initially staffed by cheap workers from mainland China, sought cheaper labor abroad.
Under the “Open Door” economic reforms initiated by Chinese President Deng Xiaoping in 1978, the city’s integration with China deepened, leading to vigorous international investment and trade.
Five years later, the Hong Kong dollar was officially pegged to the US dollar, after uncertainty about the future of the then colony resulted in a sharp depreciation of the currency.
Under the terms of Hong Kong’s 1997 return to China, Beijing pledged to preserve the city’s way of life, including civil liberties and political freedoms not available in mainland China, for at least 50 years under the principle of “one country, two systems”. †
Those freedoms, however, have been quickly diminished during a sweeping crackdown on dissent that virtually wiped out the city’s pro-democracy opposition and forced the shutdown of independent media outlets and dozens of civil society organizations.
Upcoming Hong Kong Chief Executive John Lee has pledged to bolster Hong Kong’s reputation as a global financial center, without giving a timetable for reopening the city to the world.
Lee, a former security chief who ran unopposed in an election tightly controlled by Beijing, has praised the national security law for restoring order and stability and described the implementation of “one country, two systems” since the handover as “smashing.” successful”.
But for international companies, the uncertainty created by the law, which has resulted in more than 200 arrests and significant changes to the vaunted British-inherited justice system, has become a major source of concern, said Michael Davis, a former lawmaker. professor at the University of Hong Kong.
“The vague national security law creates great uncertainty about acceptable behavior for international companies,” Davis told Al Jazeera.
“The pressure on the courts associated with enforcement has likely diminished confidence in the rule of law, which has historically been the city’s distinguishing feature in attracting international businesses.”
Davis said international companies are also under pressure to support Beijing’s policies “while in democracies where they operate, these companies are under pressure not to support such repressive policies, at the risk of market exclusion”.
For Joseph, who ran a logistics company’s Asia operations before starting his own, Hong Kong’s waning appeal is undeniable.
“Hong Kong had many advantages, such as easy cash inflow and outflow, and the legal system is close to the British common law system,” he said. “It was politically and legally stable. At the time, my former company could choose [to set up the Asia headquarters] between Singapore and Hong Kong, and we chose Hong Kong because it was the gateway to China.”
Hong Kong’s strict COVID restrictions, including once a mandatory 21-day hotel quarantine for inbound travelers, have further damaged the city’s allure.
Despite billing itself as “Asia’s Global City”, the area remains one of the few places outside of China to quarantine arrivals, while the “circuit breaker” policy of suspending flight routes in connection with COVID cases regularly leaves travelers in stranded abroad.
“This one [policy] escalating costs for expatriates to visit their families abroad,” Vera Yuen, an economics lecturer at the University of Hong Kong, told Al Jazeera.
“The quarantine requirement was later adjusted to seven days, but the circuit breaker policy has been maintained. It was too late to keep these people in Hong Kong, especially compared to much of the rest of the world, where quarantine measures are no longer in place. Because there is uncertainty, a new outbreak could lead to stricter measures. They decided to move to a place where they have more personal freedom.”
Many local residents have also lost hope in the city.
Ip, a 30-year-old finance officer, said she plans to move to the UK in the near future due to the “increasingly unwelcome environment”.
“I work in a British company, but many British and European colleagues have resigned and returned to their home countries,” Ip told Al Jazeera, asking to be identified only by her last name. “I think Hong Kong companies will lose their international character.
“In the long run, demand for asset management may decline due to less asset inflows. Coupled with a questionable [national] education here for my future children and the city’s lack of innovation in the past 25 years, I really want to leave Hong Kong,” Ip added.
Whatever the future holds for Hong Kong, there is no doubt that it will be more closely linked to China. Already more than half of the companies listed on the Hong Kong Stock Exchange (HKEX) come from the mainland.
Yuen, an economics lecturer, said China hopes to use Hong Kong to achieve economic goals, including the internationalization of the renminbi (Chinese currency) by “hosting RMB-denominated bonds and creating an off-shore center of RMB exchange.” to be”.
“Hong Kong’s stock market is increasingly dominated by mainland companies,” she said.
In 2014, the Shanghai-Hong Kong Stock Connect was launched to provide reciprocal equity access between the Hong Kong and mainland markets, followed by an expansion two years later with Shenzhen, giving mainland investors access to smaller companies in Hong Kong.
In 2018, a change to weighted voting rights rules sparked a spate of listings of mainland Chinese companies, including e-commerce giant Alibaba Group in November of the following year. Last year, Wealth Management Connect was launched to provide access to investment products in Guangdong Province, Hong Kong and Macau.
While Hong Kong’s freedoms and international character have suffered, the city’s increasing alignment with China has been accompanied by growing prosperity. Since 1997, the city’s economy has more than doubled, reaching a gross domestic product (GDP) of $368 billion in 2021 — although GDP shrank 4 percent in the first quarter as pandemic restrictions weighed on growth.
Davis, the law professor, predicted that Beijing would make investments in Hong Kong to create a “dominant position” for mainland companies and undermine “the traditional prominence” of local and international companies.
For Joseph, the days of Hong Kong as a gateway for foreign companies to access China are a thing of the past.
“If I want to set up a company to do Chinese business, I would start one in Shanghai,” he said.