There’s a new and growing risk to doing business in Hong Kong: There are political costs to angering Beijing.
A major Chicago-based law firm recently saw Chinese clients flee after it recused itself from a politically sensitive case. A former Wall Street banker was silenced after writing an op-ed titled “Hong Kong is Over.” Google had virtually no recourse but to enforce a ban on a protest song.
Hong Kong is moving closer to mainland China in all aspects of life, blurring the distinctions that once underpinned its special status as a city largely immune to Chinese politics.followOrders come from Beijing. Even the banners hung by the government give the impression of CCP slogans.
Driving the changes is the national security law imposed on Hong Kong by Beijing in 2020 and additional legislation passed by the city’s Legislative Council in March. The two laws dealt a heavy blow to Hong Kong’s semiautonomy, which China promised when it took the city back from British rule nearly three decades ago.
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Now, the work of lawyers, bankers and other professionals risks scrutiny for “foreign interference,” a crime. The new dynamic, along with China’s growing tensions with the West and a slumping Chinese economy, has upended much of the business that once made Hong Kong tick, casting a shadow over its once-vibrant economy.
These changes are causing some foreign companies to leave or significantly reduce their operations in Hong Kong.
Two international law firms, Winston & Strawn and Addleshaw Goddard, have closed their Hong Kong offices in recent months. Wall Street banks have laid off or demoted employees who served as cash cows for Chinese companies raising money on the stock market. American pension funds have begun to shun Hong Kong, once the obvious destination for billions of investments.
“If you’re running a foreign business and you speak out, you quickly find yourself under a microscope,” Stephen Roach, former chairman of Morgan Stanley Asia, said in an interview.
In February this year, Roach publishedFinancial Times” declared that “Hong Kong is finished.” He said that after the article was published, he was banned from speaking at the China Development Forum, the first time in 24 years that he was not allowed to speak at one of China’s most important economic conferences.
He said he wrote the article to reflect the changes he had seen in Hong Kong and what he had heard from former colleagues and friends who lived in the city. He also lived in Hong Kong from 2007 to 2012 and has traveled back and forth to the city several times in the past year.
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Until Beijing imposed a national security law on Hong Kong in 2019 to suppress political dissent following widespread protests, Hong Kong had been a leading place for Chinese companies, from startups to established businesses, to raise capital through initial public offerings. Hong Kong once enjoyed an undisputed ranking among global financial centers.
Since then, Mr. Roach said, a range of factors, including Beijing’s growing efforts to interfere with local governance, have made his friends doubt Hong Kong’s future.
“It’s not that Beijing is going to impose new restrictions and guidelines, that’s already happened and it’s a fait accompli,” Mr. Roach said. “It’s that Beijing continues to play a strong role in the governance of Hong Kong.”
Investors are also looking for ways to navigate this new environment, as U.S. sanctions on Chinese companies with ties to the government have cut off access to many Hong Kong-listed companies.
The Chinese national flag and the regional flag of the Hong Kong Special Administrative Region, the official name of Hong Kong, hung on a shopping street in 2022.
The Chinese national flag and the regional flag of the Hong Kong Special Administrative Region, the official name of Hong Kong, hung on a shopping street in 2022. Sergey Ponomarev for The New York Times
“There used to be differences between the Hong Kong stock market and the mainland stock market, but now they are converging,” said Steven Schoenfeld, chief executive of MarketVector Indexes, a German company that offers pension funds and other investors different ways to invest in global stocks.
MarketVector and some of its rivals, such as U.S. firm MSCI, now have to cater to pension funds that do not want to invest in Chinese companies listed in Hong Kong.
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For Mayer Brown, the political risks in Hong Kong became clear in 2022. The fallout came immediately after the law firm announced it would no longer represent the University of Hong Kong in a case involving the removal of a statue commemorating the 1989 Tiananmen Square massacre from its campus.
A leading Hong Kong politician called for a boycott of Mayer Brown. “Don’t be fooled into thinking that foreign interference only comes in the form of warships and cannons,” said Leung Chun-ying, Hong Kong’s former chief executive.
One by one, Mayer Brown’s Chinese clients have removed the firm from their lists of legal matters for which they seek legal assistance, according to two people with direct knowledge of the firm who asked not to be named. This month, the firm announced a plan to divest its business from its Hong Kong partner, bringing to an end what it had claimed just months earlier was a 160-year “Hong Kong story.”
Mayer Brown did not respond to repeated requests for comment.
Now, Google is in the spotlight after a Hong Kong court ruled to grant the government an injunction against “Glory to Hong Kong,” a song that originated from the pro-democracy protests. After the court ruling, Hong Kong’s Secretary for Justice, Lam Ting-kwok, asked Google to enforce the injunction and raised the possibility that other content might also be censored. Two days later,Googlesaid it would block its sister platform YouTube from playing the song’s video in Hong Kong.
Some foreign companies have found it easier to just walk away. As they leave, the gleaming skyscrapers that dot Hong Kong’s skyline are emptying out. The office vacancy rate hit a record 16.3% in March, according to real estate brokerage Colliers International, but has fallen since then.
In contrast to foreign companies, Chinese executives have been visiting Hong Kong in recent months to look at office and retail space, said Ngan Huiping, head of corporate client services at Colliers International. While most have yet to sign leases, Colliers expects that to change later this year, and it recently set up a team dedicated to serving Chinese companies.
Police cordon off a protest area near the Hong Kong Convention and Exhibition Centre in 2022.
Police cordon off a protest area near the Hong Kong Convention and Exhibition Centre in 2022. Isaac Lawrence for The New York Times
Hong Kong is beginning to look more like mainland China in other ways, too. Seeking to allay business concerns about the national security law, Hong Kong Financial Secretary Paul Chan Mo-po said nearly 50 companies were looking to open or expand operations in Hong Kong, contributing tens of billions of dollars to the city’s economy.
Of the 45 companies on the list provided by Chan Mo-po’s office, 35 are from mainland China.
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New food and beverage outlets are opening in once-vacant storefronts on Hong Kong’s streets as the city’s strict containment measures during the coronavirus pandemic have shut down many small restaurants. Some of the new eateries are franchises of well-known Chinese brands of local delicacies and bubble tea.
On the streets, many tourists and even locals speak Mandarin. According to a recent survey by EF Education First, a Switzerland-based international education company, the English skills of Hong Kong people aged 18 to 20 have declined significantly between 2020 and 2022.
While the results are in line with trends elsewhere, they still came as a surprise to many in Hong Kong, a city that has long prided itself on its ability to master the language of global business.
More talented young Chinese professionals are moving to Hong Kong. Hong Kong officials have set up a new visa program to attract professionals from around the world. Almost all applicants to the “High Talent Pass” program are from mainland China, according to the latest government data.
Some experts believe that Hong Kong has changed frequently throughout its history and the current situation is just another transformation.
But others, like Mr. Wang, warn that Hong Kong’s leaders must do more to reverse perceptions that the city is losing its international appeal.
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“I only see Beijing unilaterally telling Hong Kong what to do,” said Wang Xiangwei, a former editor-in-chief of the South China Morning Post.
“If Hong Kong doesn’t take any action, if they let Beijing tell them what to do, that will be the end of Hong Kong as we know it,” Mr. Wang said. “It will self-destruct.”
A banner celebrating the 25th anniversary of Hong Kong's return to China reads:
A banner celebrating the 25th anniversary of Hong Kong’s return to China reads: “Celebrate the return, join hands and start a new chapter.” Sergey Ponomarev for The New York Times