Hong Kong’s status as an international financial and business center appears to be waning.
Tens of thousands of residents have fled the former British colony as Beijing’s authoritarian rule and strict pandemic restrictions aimed at aligning with China’s “zero-Covid” strategy dramatically reshape life in the city.
More than 120,000 people, natives and immigrants, left in 2020 and 2021, with tens of thousands more expected to follow the same path this year.
In a survey conducted by the Hong Kong American Chamber of Commerce last year, more than 40 percent of expats said they were planning to leave, largely because of concerns over a draconian national security law imposed by Beijing in 2020.
COVID measures restricting international travel are a bleak prospect for the city’s future competitiveness.
At the same time, fewer professionals are moving to the territory, with the number of work visa applications falling from 41,592 in 2018 to 14,617 in 2020, according to government data.
Under the “Open Door” economic reforms initiated by Chinese President Deng Xiaoping in 1978, the city’s integration with China deepened, spurring investment and robust international trade.
Five years later, the Hong Kong dollar was officially pegged to the US dollar, as uncertainty over the then-colony’s future resulted in a sharp devaluation of the currency.
Under the terms of Hong Kong’s return to China in 1997, Beijing promised 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. ..”
However, these freedoms have declined rapidly amid a sweeping crackdown on dissent that has virtually wiped out the city’s pro-democracy opposition and forced the shutdown of independent media and dozens of civil society organizations.
Hong Kong’s next chief executive, John Lee, has vowed to strengthen Hong Kong’s reputation as a global financial center, without offering a timeline for reopening the city to the world.
Lee, a former security chief who ran unopposed in the election tightly controlled by Beijing. He welcomed the national security law for restoring order and stability and described the implementation of the “one state, two systems” law as “extremely successful”.
But for international companies, the uncertainty created by the law, which has resulted in more than 200 arrests and created significant changes to the city’s British-inherited legal system, has become a major source of concern, according to Michael Davis, a professor at the University of Hong Kong.
“The vague national security law causes considerable uncertainty about acceptable behavior for international companies,” Davis told Al Jazeera.
Davis said that international firms also face pressure to support Beijing’s policies, while at the same time these companies face pressure in the democracies where they operate not to support such repressive policies, at the risk of exclusion from the market.
Whatever Hong Kong’s future holds, there is no doubt that it will be more closely tied to China. Already, more than half of the companies listed on the Hong Kong Stock Exchange (HKEX) are from the mainland.
Yuen, an economics lecturer, said China hopes to use Hong Kong to achieve economic goals, including internationalizing the renminbi (Chinese currency) through “hosting RMB-denominated bonds and being an off-shore RMB exchange center.” .
“Hong Kong’s stock market is increasingly dominated by mainland companies,” she said.
While Hong Kong’s freedoms and international character have suffered, the city’s growing reach with China has been accompanied by rising wealth. Since 1997, the city’s economy has more than doubled, with gross domestic product (GDP) set to reach $368bn in 2021 – although GDP shrank 4 per cent in the first quarter on a year-on-year basis as pandemic restrictions weighed on growth.
Davis, the law professor, predicted that Beijing would pour investment into Hong Kong in order to create a “dominant position” for mainland companies and “undermining the traditional importance” of domestic and international businesses.
For Joseph, Hong Kong’s days as a gateway for foreign businesses to enter China are in the past.
“If I want to set up a company to do Chinese business, I would start one in Shanghai instead,” he said.
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