Nervous Multinationals Eyeing Hong Kong Exit

Hong Kong has entered the celebrated Mid-Autumn Festival with protesters who climbed Lion Rock, the precipitate cliff that towers over Kowloon, to form a spectacular chain of light signaling their determination to continue the seven-month rebellion against the central government in China.

It is clear that the crisis will continue despite the move by Chief Executive Carrie Lam to attempt to defuse it by withdrawing the extradition bill that started it all last March. Sporadic and unpredictable disruptions are expected to the city’s vaunted rapid transit system, to its prizewinning international airport at Chek Lap Kok, and to the tunnels that carry thousands of cars back and forth under the ship-strewn harbor.

The youth are determined to deny Beijing the satisfaction of waiting them out without concessions. They want an implementation timetable for universal suffrage, the denial of which kicked off the 79-day Umbrella movement that paralyzed Central in 2014, an independent inquiry into violence, and a general amnesty for the 1,000 or so colleagues that have been arrested so far in the current unrest. They consider these minimum demands.

In the meantime, many of their elders are looking to Taipei or Australia if things get worse. In the 1980s, prior to the runup to the 1997 handover, tens of thousands of Hong Kong residents sent a relative or two to decamp for Canada or Australia to gain passports as citizens to give entire families a bolthole in case of troubles like this. Those sent out were called “astronauts” because they splashed down – as astronauts once did in the ocean – and then returned to Hong Kong. They are now checking to keep their overseas status in order.

Quantifying the effect this is having on the city’s status as an international entrepot and financial center isn’t clear yet. But events have demonstrated that there are deep concerns, fueled by the forced resignation of Cathay Pacific’s CEO, Rupert Hogg, and the chairman of the board, John Slosar, over Cathay flight crew participation in the protests. China’s anger over HSBC’s investigation into Huawei Chief Financial Officer Meng Wanzhou, which led to her arrest in Canada, is also believed to have played a role in the departure of the bank’s chairman. John Flint, in August.

According to a survey by the American Chamber of Commerce in Singapore – a city that can be expected to benefit from the chaos in its fellow city state – 23 percent of surveyed Hong Kong-located multinationals are considering leaving to escape the chaos. As Asia Sentinel reported on June 13, two days after mass protest began over the extradition bill, a major Hong Kong conglomerate was the first to go when Goldin Financial pulled out of a HK$11.1 billion (US$1.42 billion) property deal on Kai Tak, the former international airport.

In addition to its intransigence on the protests, the government in Beijing is doing little to inspire confidence in Hong Kong with a continuing scheme to subsume the city into what is called the Greater Bay Area, reducing the stand-apart status that has made it unique because of its western approach to the rule of law and to the sanctity of contract, both of which are fictions in China.

The reality in that matrix will be the GBA, with a total population of 70 million people, sucking financial inputs from Hong Kong, allowing limited professional engineering, legal and arbitration project roles. It is highly unlikely that Hong Kong-based companies would profit from other cities in the region. They all have their own entities eager for the spoils. Already, Hong Kong’s port, long one of the busiest in Asia, has inexorably lost traffic to other areas in China, slipping from first place to fourth behind Shanghai, Shenzhen, and Ningbo-Zhoushan.

Importantly, however, Hong Kong still has international networks and legal credibility to raise capital, park hot money safely, and for Chinese businessmen to launder cash into real estate and equity investments. One of the features in Hong Kong that guards against the arrival of the People’s Liberation Army troops a la Tiananmen Square is the Hong Kong Stock Exchange, on which fully 50 percent of the listed companies are mainland firms. While continuing unrest drove the Hang Seng Index down from 30-,081 in mid-July to 25,281 on August 13, it has since recovered to close at 27,352 on September 13.

Showing its moxie, the Hong Kong Stock Exchange made a surprise unsolicited £30 billion bid for the London Stock Exchange this week, seeking to leverage UK stock trader fright about Brexit. It appears unlikely that the bid would succeed. It is like giving up sovereignty to China and it is doubtful that the UK would allow it. Nonetheless, it is highly unlikely that the bid would have been tendered without the approval of Xi Jinping, China’s general secretary. It may even have been suggested by the leadership in Beijing in line with its strategic ambitions to replace the US dollar as the fiat international currency.

Another is property ownership. Permanent resident status allows the offspring of senior party officials to travel freely and acquire passports elsewhere. It is still a place they can breathe freely. That may hold the government back from drastic moves which might limit or remove their private benefits.

The original 2047 promise by the late Deng Xiaoping of a light touch allowing a high degree of autonomy in what was called – with a certain amount of hope – the Hong Kong Special Autonomous Region looks likely to be truncated. Xi Jinping has no such charity.

If so, all bets are off for the city. It will be severely diminished to what was feared in 1997 at the turnover – “just another city on the Pearl River Delta.”

Singapore would benefit by default, as AmCham noted and as Asia Sentinel reported on June 18. It has no threat hanging over its status as a financial center and is a legally comfortable place for global finance. It is not a particularly comfortable place for democracy. But the fat cats of finance don’t place much notice on that. It has great restaurants, saucy hookers, a great airport and a rapid transit system as good as Hong Kong’s.