China’s crackdown is damaging Hong Kong’s economic system – DW – 03/11/2024 | EUROtoday

COVID, the pro-democracy crackdown and China’s commerce battle with the United States have dealt a extreme blow to Hong Kong’s fame as a world monetary hub. Once seen as the principle gateway between the West and China, many traders now consider it’s more and more exhausting to separate Hong Kong from the authoritarian mainland — a dilemma that has sparked an exodus of international companies from town often called the Pearl of Asia.

Since 2019, the variety of world firms with regional headquarters in Hong Kong has fallen by 8.4%, in keeping with information from town’s census and statistics division. The figures are much more stark amongst US companies, a 3rd of whom have shifted out of Hong Kong over the previous decade, the Wall Street Journal reported just lately. Those multinationals that stay have reduce headcount within the semi-autonomous metropolis by practically a 3rd over the previous 4 years.

New Chinese safety regulation might gas exodus

After having a nationwide safety regulation imposed by Chinese President Xi Jinping in 2020, Hong Kong’s legislators are quickly set to cross additional laws that rights teams say will all however wipe out dissent. The first put paid to the yearlong democracy protests, noticed tons of of activists arrested and shuttered impartial media retailers. The second will make it even simpler to focus on people, firms and civil society teams deemed to be anti-government and anti-Beijing. Many international traders are simply as anxious.

The US Consul General to Hong Kong Gregory May just lately warned in an interview with Bloomberg that some US companies at the moment are utilizing burner telephones and laptops when visiting town due to information safety issues and what he mentioned was a gradual transfer towards the form of web censorship seen on the mainland.

The US State Department just lately warned that the brand new safety regulation would undertake “broad and vague” definitions of state secrets and techniques and exterior interference that could possibly be used to silence critics.

Economic freedom harm by rights clampdown

“If you’re trying to restrict freedom of association, assembly and expression, you’re going to have a spillover effect on rule of law and economic freedom,” Matt Mitchell, a senior fellow on the Center for Economic Freedom at Canada’s Frazer Institute, informed DW.

Last yr, Frazer and the US-based Cato Institute ranked Hong Kong simply forty sixth out of 165 jurisdictions on the annual Human Freedom Index. The drop of 17 locations was the biggest of all territories studied, apart from military-run Myanmar.

“Falling to 46 masks a lot of things because it includes data from 2021 when every country was restricting some freedoms as a result of COVID,” Mitchell warned. “It’s quite possible that Hong Kong’s ranking will slide further” [in the 2024 index, set for publication in September.]

Hong Kong additionally fell to second place within the Economic Freedom Index, having ranked prime ever for the reason that rating was created — this time shedding out to Singapore. The tropical city-state has all the time billed itself because the “Switzerland of Asia.” Some 4,200 multinationals now have their regional headquarters there, in keeping with Bloomberg Intelligence, versus 1,336 for Hong Kong.

The resolution to maneuver out of Hong Kong is usually fueled by a necessity for companies to distance themselves from China amid the continued geopolitical tensions with the US over the way forward for Taiwan, the Ukraine battle and commerce. Those strains have been elevated just lately by Washington’s transfer to forestall Chinese companies from sourcing high-end chips used to energy synthetic intelligence (AI) platforms.

Singapore advantages from US ‘friendshoring’

Singapore and different Asian hubs have, in the meantime, benefited from the current US coverage of friendshoring — the place US provide chains are more and more prioritized round international locations considered allies, in keeping with Stephen Roach, Morgan Stanley’s former Asia chairman.

In a current op-ed within the Financial TimesRoach wrote that Washington’s coverage shift has “put pressure on Hong Kong’s Asian allies to pick sides between the US and China.”

Entitled: “It pains me to say Hong Kong is over,” Roach’s op-ed sparked widespread consternation in each Hong Kong and China, as he singled out the present lackluster efficiency of the Hong Kong inventory market.

The HSI index at present trades at 16,438, about 50% decrease than its alltime excessive in 2018 and only a hundred factors greater than in 1997, when the territory was handed again to China by colonial ruler Britain. By distinction, many US shares have rallied sharply to new highs in current months.

Hong Kong monetary sector nonetheless sturdy, other than shares

“If you look at the five pillars of Hong Kong as a financial center; besides the stock market, the other four pillars — bond market, insurance sector, asset management and banking sector — have been improving,” Heiwai Tang, Director of the Asia Global Institute on the University of Hong Kong, informed DW.

Tang cited his personal analysis displaying that Hong Kong is seeing web inflows of youthful, better-educated employees and mentioned town’s authorized system, which is separate from China’s, continues to be “very independent, transparent and fair.”

Hong Kong carves out new function

He predicted that Hong Kong would proceed to be a gateway to China however extra for different Asian international locations and the Middle East.

“It’s premature to say that Hong Kong is over and that the city is no longer vibrant, important for China and the rest of the world,” he insisted.

Others see Hong Kong enjoying a extra crucial function for Chinese companies working internationally as Beijing opts for its personal model of friendshoring as tensions with the West stay elevated.

“Hong Kong is morphing from an international financial center to an offshore hub for Chinese businesses,” Mark Williams, chief Asia economist for the London-based Capital Economics, informed DW.

“It used to compete with other global financial centers for Chinese business. But Chinese firms are wary of listing in London or New York, and Hong Kong is the only global financial center that can offer these firms security from geopolitical strains.”

Edited by: Uwe Hessler