‘Stay or leave, that is the talk of the day here,’ appended the Dutchman Charles Drapers, manufacturer of panniers and rain suits, in the summer of 2022. His home city had gone through a turbulent period. Despite massive and protracted protests, China had significantly tightened its grip on Hong Kong since 2020. In addition, until the end of 2022, the city was almost completely closed off from the outside world due to corona. The Hong Kong that the world saw again in 2023 had changed fundamentally.
But are these changes so large and far-reaching that the city loses its role as Asia’s bustling financial center? Or is that not too bad and will it remain the indispensable link between East and West, an ideal place to settle and work for multinationals and expats?
For Drapers, the city has remained attractive enough. He has considered moving to Georgia, but Hong Kong offers him too many advantages that he finds difficult elsewhere. He makes panniers and rainwear under the Willex brand, a contraction of the names of his two sons. Most of the production takes place in China.
Drapers has lived and worked in Hong Kong for decades. He tells his story at home, in the spacious villa where he lives with his Hong Kong wife, on the outskirts of the city. On the table are the white asparagus that he has just brought fresh from the Netherlands. “You are close to China, and there is the complete production chain that we need for our bags and jackets,” he says. “Buttons, zippers and other parts mainly come from China.”
Georgia, especially after the outbreak of the war in Ukraine, turned out to be less than ideal. If only because a stream of Russian migrants drove up house prices. However, he now wants to have a small part of his bags produced there, also so that he is no longer solely dependent on China.
Security law
In 2019, Hong Kong was the scene of large-scale and protracted protests, initially against a law that would allow extradition of criminals to China, but increasingly also against the growing dominance of the Chinese authorities. The protests took on such large-scale forms that the city largely came to a standstill.
Beijing never wanted to see anything like this again and, partly for this reason, introduced the National Security Law in June 2020. This law prohibits, among other things, ‘collaborating with foreign powers’. Since then, the free press in Hong Kong has been virtually shut down, universities have been purged, unions dissolved and parliament has been stripped of anyone who did not support Beijing. Almost the entire opposition is imprisoned or has fled. Hundreds of thousands of Hong Kongers have emigrated.
Expats in Hong Kong are not yet directly affected by this. For them, other things often weigh more heavily. Dutchman Michiel Mak explains what those things are in a cafe in the business center of Hong Kong.
Mak himself worked for Shell for 27 years. He now has his own consultancy company and helps companies from the People’s Republic of China with the transition from coal to the relatively cleaner natural gas. He also has an investment company to invest private assets in natural gas projects.
He has seen the city change dramatically. “In the past you mainly heard English and a little Cantonese in the corridors of the major banks and financial institutions. Now you mainly hear Mandarin.” That is the standard Chinese spoken in the People’s Republic of China, Cantonese is the local dialect.
In the past you mainly heard English and a little Cantonese. Now you mainly hear Mandarin
It is a sign that Chinese people from the People’s Republic, and no longer Western parties, are playing first fiddle on the financial scene in Hong Kong. Customers of banks and financial institutions are also increasingly Chinese. And where in the past mostly foreign investment banks, for example, supervised an IPO, the four major Chinese banks now do this more often themselves.
Living well
According to Mak, Hong Kong offers three essential advantages to international companies, which means that they will not leave quickly. “The rule of law, maximum 15 percent tax, and the exchange rate of the Hong Kong dollar directly linked to that of the US.”
In addition, Hong Kong is a good place to live for expats. You have mountains and beaches, good schools and restaurants, and it is nice to never pay more than 15 percent tax on your often high income.
But not everything is as solid as before 2019, Mak sees. “The mountains are still there, of course, but we are not sure, for example, whether the peg with the US dollar,” which makes the currency excellently usable internationally, “will be maintained in the long term,” he says. “And will the legal system remain as transparent as it was? Those questions have become bigger in recent years, partly due to the National Security Act.”
Hong Kong has also traditionally been the ideal place to obtain reliable, objective and detailed information about the economic situation in China. That has become much less. Moreover, it is becoming increasingly difficult to obtain reliable information about Hong Kong itself.
For example, one of the leading opinion polling agencies decided at the end of July many controversial questions just don’t ask anymore, or not to publish the answers. “We have to ‘dance’ with the times,” said the agency’s boss. And that time brings Hong Kong closer to the Chinese system, where unpleasant facts disappear under the rug. In such an environment, government propaganda can thrive undisturbed.
Chicken with golden eggs
Frery Winkel, who works for an international insurance company and is chairman of the Dutch Chamber of Commerce (NKVK) in Hong Kong, sees the city mainly as a place full of opportunities. The large, emerging markets are in Asia and Africa, which is why it is interesting to be here, she thinks.
She does not notice any lack of transparency in her contacts with the local government. “I was surprised how openly the Hong Kong government communicates about its economic policies. In that respect, they are very proactive towards us as an international business community,” she says on a rainy roof terrace on the top floor of a tower block for financial companies.
She does not believe that China will slaughter the goose that lays the golden eggs that is Hong Kong. “Chinese President Xi Jinping also emphasizes the importance of ‘one country, two systems’. He sees an important role for Hong Kong,” she says.
‘One country, two systems’ means that Hong Kong is responsible for its own governance, and that China takes care of defense and external affairs alone. According to many people in Hong Kong, that distinction is long gone, but Beijing continues to use the term. The local government also emphasizes that Hong Kong is still very different from China, and will remain very different.
Winkel is aware of geopolitical tensions, but sees no reason to leave Hong Kong at the moment. She has lived in the city for five years now. “As an expat you hardly notice a changing climate, it is still a Valhalla here,” she says. “It would be good if there was a little more emphasis on what Hong Kong does have, rather than what it doesn’t have.” Winkel lists the benefits that Mak mentioned earlier, supplemented with things like a free capital market, the high level of education and free market access.
She talks about a recent survey among members of the NKVK. “90 percent said they have confidence in Hong Kong.” But during corona, 30 percent of Dutch expats left, she also says. “These are families, often with children. Most Dutch companies have stayed.”
Competitor Singapore
Yet Hong Kong seems to have lost out to competitor Singapore on many points for both expats and wealthy Chinese.
Wealthy individuals, ironically mostly from the People’s Republic of China itself, now prefer to store their money in Singapore. Mandarin is also spoken there, but the long arm of unpredictable China is missing.
Especially when Hong Kong still tightly adhered to the corona measures in 2022 and Singapore was much more flexible in this regard, many expats left for the city-state. So much so that international schools that demand for places for expat children could no longer cope. And where house prices in Hong Kong have already fallen by 15 percent by 2023they lie now higher in Singapore than in Hong Kong.
Its own popularity also scares Singapore a bit. Because some are afraid that the attractiveness will also awaken new desire in China. Can Xi Jinping not think at some point that Singapore, where the majority of Chinese live, has actually always been part of the People’s Republic?
We have a long way to go, but Singapore’s growing attractiveness does raise the question of what China plans to do with Hong Kong in the long term. Does Beijing really mind that Hong Kong is losing its appeal? And may or should the city maintain a free capital market because China will always need it for its own contacts with the outside world? Or are the drive for control and fear of national security being compromised so decisive for Beijing that it will also smother Hong Kong economically if necessary?
No one who knows. Foreign companies and expats can postpone that question for a while. They are not tied to Hong Kong.
Winkel also keeps her options open, no matter how enthusiastic she is about the city. “When the flame hits the pan, I’m gone,” she says. “And also if I can no longer freely use the internet.”
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