Hong Kong's future as Asia's financial centre | FT Film
The city's reputation as Asia's top international financial centre has been shaken by three years of protests, a political crackdown and a zero-Covid policy. The FT's Asia financial correspondent Tabby Kinder examines whether the city can remain the prime place to do business in Asia
Produced and edited by Tom Griggs. Filmed by James Goldman and Justin Weilly in Hong Kong, Petros Gioumpasis in London, and Gregory Bobillot in Washington. Graphics by Russell Birkett. Colour grading and sound mix by Coda. Additional footage from Getty, Bloomberg and Reuters
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New York, London, and Hong Kong are, by most measures, the world's top three financial centres. Other cities can claim to be part of the conversation, but if you're doing business in the west, you go to New York or London. In Asia, you come to Hong Kong.
But Hong Kong is in trouble on multiple fronts. Politics and protests, Covid and China, and the problems are forcing everyone - Hong Kongers and expats alike - to re-examine whether the city can still offer them what they need, and whether Hong Kong can maintain its status as Asia's premier financial centre.
Hong Kong is the ultimate gateway between China and the rest of the world.
The biggest thing that is going to determine Hong Kong's success is going to be the need for a capital in China.
The beating heart of Hong Kong's financial sector is a thin sliver of land between the sea and the mountains where banks and financial institutions have clustered. Retail Giants like HSBC and Standard Chartered, famous Wall Street names like Goldman Sachs and JPMorgan, and Chinese rivals like CITIC and CICC are among the dozens of banks that populate central Hong Kong. They specialise in pulling in institutional capital from around the world and deploying it into Chinese companies.
The prime recipients of these funds is Hong Kong Stock Exchange. It's the fifth largest stock exchange in the world, but what makes it stand out is that it's the best and safest place to invest in China. Where the banks go, others follow - insurers, wealth managers, stockbrokers, hedge funds, consultants, and lawyers - all taking advantage of the world's appetite for exposure to the Chinese economy while positioning themselves for the day that China opens up its capital accounts and permits access to a wallet worth $50tn.
Hong Kong is a city that is caught up in this massive geopolitical storm.
There's no way to maintain Hong Kong's reputation as the international financial centre.
When you have those type of upheavals in society, it makes it very uncertain for foreign investors to come in.
Finance is a lucrative business. Every city in Asia wants the same high-value well-paid jobs as central Hong Kong. But finance is also demanding. Yes, it requires deep pools of capital and a strong financial infrastructure, but it also requires an attractive place for people to live. And that means stable politics, a happy society, and the freedom of people to move, and the freedom of information.
Until 2019, Hong Kong ticked all of those boxes. But then long-simmering discontent with the territory's governance and its relationship with mainland China changed everything.
It all started with a bill which was proposed by the Hong Kong government suggesting that there would be extradition arrangements between Hong Kong and mainland China.
But the sense of betrayal was what triggered Hong Kong people to protest, what triggered two million people - more than a quarter of the city's population - came out.
Scenes of clashes between police and protesters, tear gas, using pepper spray, protesters throwing petrol bombs were seen for months in nearly every part of the city.
The Chinese government saw them as open rebellions, and therefore used extraconstitutional means to introduce this national security law.
Aiming at outlawing acts of subversion, secession, terrorism, and collusion with foreign forces.
Hundreds of pro-democracy campaigners and government opponents like student leaders Joshua Wong and Agnes Chow, academic Benny Tai and media mogul Jimmy Lai have been jailed. Samuel Bickett, an American lawyer, was imprisoned after an altercation with a police officer during the protests. Others, like political activist Nathan Law, have been forced to live in exile.
I left Hong Kong in June, 2020 a few days before the implementation of the National Security Law, and the law criminalised free speech. It's a crime to stand against the government now.
For some people, the National Security Law make living in Hong Kong a far riskier prospect. But for global business, the impact of the law has been nuanced.
It's hard to understand how it will be enforced, and how someone could be on the hook as a result of the National Security Law. So as a result of that a lot of businesses became more quiet, a lot less outspoken, and concerned about what could hit them at any time.
I think, to be quite blunt, the National Security Law has been reasonable for the financial sector. It's been a good thing for the financial sector, insofar as it gives certainty. And I think that certainty gives a lot of investors confidence in Hong Kong that could have been shattered, or was shattered, for some people during the protests.
Western companies will need to take into account very seriously the changes happening in Hong Kong, including the erosion of the rule of law.
The rule of law matters because it's the assumption that the courts and law enforcement operate separately to the government.
In terms of international contracts and the things that foremost concern businesses, rule of law seems intact and comfortable. But in our latest survey we've noted that pessimism has started to creep in.
I don't think Hong Kong has rule of law any more. They can easily manipulate political cases. I don't think we are far away from the date that they could also manipulate cases on commercial arguments and make favourable judgement to Beijing.
After six months of political disruption, in 2020, the Covid-19 pandemic led the Hong Kong governments to impose a fiercely isolationist zero-Covid strategy that has further thrown into question the city's future as a travel and financial hub.
We have been seeing strict social distancing rules in Hong Kong. We have been seeing strict quarantine rules of up to three weeks. We have been seeing flight bans. We have been seeing Hong Kong being increasingly isolated with the rest of the world.
The zero-Covid policy implemented in Hong Kong is one that clearly comes from Beijing.
But after two years watching the rest of the world, with the exception of China, really emerge from Covid and learn to live with it, people are really tired and fed up.
So it's created this mini exodus, which has really shifted the atmosphere.
The data show the extent of the brain drain from Hong Kong. Many Hong Kongers have fled to the UK, while expat workers have permanently or temporarily relocated to Singapore or Tokyo, or returned to their home countries. The migration has fueled conversations about whether alternative cities in Asia, that have expressed their ambitions to become global financial centres could challenge Hong Kong's dominance.
There are three other cities in Asia that can credibly claim to be regional financial hubs-- Singapore, Tokyo, and Shanghai.
Singapore has English, and is used to bringing in expatriates. And its Asia-lite in the sense that it's very comfortable for people to be there.
It's definitely a place which is seen as the sort of second option as a financial hub in Asia.
But Singapore isn't perfect. It definitely does not have the financial flows and the capital markets that Hong Kong has.
While Singapore has one of Asia's biggest wealth management sectors, its stock market is shallow and undercapitalised.
I don't think it's an alternative to Hong Kong because simply put, it doesn't have the connectivity to China that Hong Kong does.
There's people moving to Tokyo.
The idea that banks or investment banks in Tokyo are going to rival the American banks or the Chinese banks or become a financial centre threat to Hong Kong is kind of ridiculous, to be quite blunt.
Japan is the world's third largest economy, and Tokyo has deep capital markets. However, Tokyo has some big disadvantages. Its finance sector actually has closer financial ties with Europe and North America than it does with the rest of Asia, and Japan's risk-averse financial culture makes it unattractive for many investors.
At the end of the day, the Japanese financial sector is really good at raising money for Japanese banks and Japanese capital and Japanese companies. It is really bad at raising global funds for anything outside of Japan.
Shanghai is already a far bigger financial centre than Hong Kong in terms of overall value. It has Asia's biggest stock markets, and a huge market for bond trading, banking, and trade finance. The problem is that no city in mainland China can realistically play a significant international role.
China does not have an open market. It does not have the infrastructure that Hong Kong has to handle this immense flow of money and deals and people moving about freely.
Beijing demands control over the flow of both money and information. China severely limits access to media from outside its borders, while currency controls stop people from moving their money abroad.
So I think that you have to stop this competition thing, because really, every place has natural advantages. If you want to access US capital, you go to New York. You don't go to London.
In the short-term, Hong Kong's status as the gateway to mainland China appears unassailable. But in the long-term, things aren't quite so clear. In the rest of the world, financial centres thrive on freedom - of information, of people, and of capital - and that clashes with China's insistence of control.
Hong Kong is becoming, and arguably has become, a Chinese city.
A China-focused financial centre, which allows Chinese companies to list, raise money, still do business with the rest of the world on Chinese terms.
If one is willing to accept that and seize the opportunities associated with that, they have a strong future in Hong Kong. But for people expecting Hong Kong to be like it used to, then Hong Kong is gone.
One Hong Kong government official said to me China really just wants to shut that window of foreign influence in Hong Kong.
The idea of Gweilo or foreigner or expat Hong Kong is actually a funny thing. We're going to look back on this 30 years from now and wonder wow, how did it go on for so long?
As China has grown in confidence over its more totalitarian technologically-sophisticated Orwellian model, there's no need for them to keep Hong Kong as an example for them to catch the west.
We definitely haven't seen the end of the line for Hong Kong as a financial centre.
Beijing has still been giving support to Hong Kong in terms of financial services. There's still a lot of dependency on Hong Kong for its financial services, for its unique position.
There is an awkwardness for American companies when it comes to China in terms of risks and rewards. Walking away from it is simply not a choice that they have.
Is the financial sector going to be bigger here in 10 years? And they say absolutely. Unless we think China's going to stop growing, they're going to need more financial help. They're going to need to be integrated further in the global financial system, and this is going to be good for bankers here. Bankers here will still be able to make good money going forward.
Hong Kong is an incredibly resilient place, and the entrepreneurial spirit of people in Hong Kong will go a long way to keep Hong Kong as a viable financial centre, albeit somewhat diminished.
Hong Kong is still Asia's leading financial centre, even though its reputation has been tarnished, but it should come as no surprise that Beijing has tightened its grip over the city. Like it or not, ultimately, Beijing is in charge. And even though China needs international finance, in order to invest trillions of household wealth over the next few decades, it will require those intermediaries to be subservient to the needs of the Chinese Communist party.
International business in China faces a choice, play by China's rules or leave. That makes some people uncomfortable, but for others it's a compromise they're more than willing to make, especially those that see an opportunity to make far more money in China.