Hong Kong’s Demise

This blog has not minced words when it comes to describing the grim situation in Hong Kong, which, as one of my former colleagues at the State Department puts it, “will get worse before it doesn’t get better.”

Signs of Hong Kong’s demise as an international business center are plentiful. The city is in recession. Hong Kong airlines are cutting flights and losing revenue. Hotel occupancy rates are down. Foreign companies and governments have evacuation plans in place. My alma mater, CUHK, has cancelled the remainder of the semester, affecting not just regular students, but the many exchange students it hosts, including those from my other alma mater. Other universities have done the same, even those that are not currently besieged.

Even if the city’s streets were to calm down—and that’s a highly unlikely if—it’s hard to see a meaningful bounce-back of the economy. Ever. The international business community is irreversibly spooked. Contrary to the 2014 Umbrella protests, which were largely contained to a few hotspots, the rage of 2019 has engulfed the entirety of the SAR’s territory, on full display for everyone to see, with everyone having been affected in one way or the other. As a result, that most visceral expat nightmare of being physically prevented from escaping has at times turned into reality.

In any case, Beijing has made clear that going back to business as usual isn’t its game plan. Rather, it wants to push through “national security” legislation, “improve” how the city’s leadership is chosen and patriotically “reeducate” Hongkongers. Hardly a roadmap for reducing tensions.

As the Hong Kong/China authorities continue to struggle with opposition to their plans, it will become increasingly difficult for foreign businesses to immunize themselves from the chaos around them. Some risks to consider:

  • Visa Restrictions. From Beijing’s perspective, expats are problematic. Their continued presence helps preserve Hong Kong’s uniqueness at least to some degree, with their use of English and embrace of liberal ideas. The life of relative privilege that many of them lead fuels resentment in a city already wracked with social inequality. Their presence would complicate more “robust” efforts at “pacification.” There is therefore all to gain and nothing to lose by making it harder for expats to obtain work visas, placing more restrictions on visa validity, and possibly closing the door on permanent residence (currently available after seven years in Hong Kong). Mind you, this is not my view, but it’s probably an accurate summation of the Chinese authorities’ feelings. Meanwhile, reducing the inflow of expats opens even more doors for Mainland Chinese staff, resulting in a win-win situation.
  • Legal Degradation. Hong Kong has a long history of inviting judges from the UK and other Commonwealth jurisdictions such as Canada to join its courts, and this practice continued even after the change of sovereignty. The presence of foreign judges has come under attack, mainly by pro-Beijing figures, and to be fair there is something paternalistic about it. I have no doubt that Hong Kong has enough legal talent to sufficiently staff its courts. What would be more problematic for the city—at least to the extent that it wishes to preserve something of its current role in the world—would be a marked drift away from the larger common-law tradition. This would make Hong Kong a far less appealing destination for international companies, who draw comfort from a legal environment that for all practical purposes is analogous to that in the most advanced Commonwealth economies. Beijing has already indicated that it seeks to “reform the system governing how the Chinese National People’s Congress Standing Committee [NPCSC] interprets the Basic Law.” What this could mean in practice is granular intervention by the central government in Hong Kong legal affairs. Until now, local counsel has been able to offer reasonably predictable analyses of matters based on Hong Kong jurisprudence; if references are made to an English or Australian case, then in turn there is plenty of precedent to study. But if cases start being reviewed on a regular basis by the NPCSC, every matter will be a crapshoot, subject to political and other caprices. We could even see the “invitation” of Mainland Chinese judges to join the Hong Kong judiciary, meaning that even “local” adjudication processes are upended. China’s recent decision on masks is widely viewed by many lawyers as the clear end to rule of law in Hong Kong. See e.g. Can Hong Kong Courts Save the City? Don’t Count on It—written even before the face mask decision.
  • Educational Disruption. Since at least 2012, there has been talk of expats leaving Hong Kong because of air pollution – imagine then how the very real risk of getting caught up in street battles or having their kids gassed and harassed by the police is factoring into parental decision-making. In addition to the physical dangers that students face when getting to school, there are academic risks. Classes at all Hong Kong schools have been suspended for “transportation and safety reasons.” Too many cancellations will lead to lost semesters, a harrowing prospect, especially for those nearing graduation.
  • Of course, it isn’t just schoolkids that face danger. Parents can get tear-gassed during their lunch break in Central. Dad can get caught up in a pitched battle on his way to Cantonese class at a university campus. As we noted before, disturbances at the airport could mean that a business trip or family break is violently thwarted. And as bad as things could get for expats, they could get far worse for local staff. They are more likely to live in neighborhoods away from the business areas, and hence likelier to be affected by transport disturbances. In addition, they might understandably be wary of going through areas where police operations are taking place, lest they be confused for a protester and be dragged away by their hair. All of this inevitably leads to lost productivity, not to mention attrition as those who can get the hell out. Needless to say, many staff will want to avoid travel to Mainland China at all costs.

As a former resident of Hong Kong, it pains me to write this, but there is no point in engaging in wishful thinking. Hong Kong as an international business center is over, and few without a direct financial stake in the city are even bothering to claim otherwise anymore.

What is happening in Hong Kong is a big deal, and in no small measure because of what it means for the city’s long-established international business community. The party’s over. The borrowed time on which the borrowed place was living has run out. Before the handover, Deng Xiaoping assured the world that the horses would still run (馬照跑) in Hong Kong’s famous racetracks. Well, the horses are not running anymore.