Doing business in Hong Kong increasingly comes with a new risk: the political costs of upsetting Beijing.
Chinese clients recently dropped a major Chicago law firm after it withdrew from a politically sensitive case. A former Wall Street banker was muzzled for writing a “Hong Kong is Dead” column. And Google was effectively cornered into one ban on a popular protest song.
In all areas of life, Hong Kong is moving closer to mainland China, blurring the differences that once cemented the city's status as largely free from Beijing's politics. Legal statements echo the courts in mainland China. Urban regulations to follow edicts in Beijing. Even government banners are reminiscent of the Chinese Communist Party's slogans.
The city's transformation is driven by a national security law imposed by Beijing in 2020 additional legislation passed by Hong Kong lawmakers in March. Both have dealt a blow to the partial autonomy China promised when it took possession of Britain almost three decades ago.
The work of lawyers, bankers and other professionals is now at risk of being scrutinized for 'external interference', a crime that has become criminal. The new dynamic, along with rising tensions between China and the West and an economic downturn in China that has decimated much of the dealmaking that once powered Hong Kong, is putting a damper on the city's once vibrant economy.
The changes are forcing some foreign companies to abandon or sharply scale down their operations in the city.
Two international law firms, Winston & Strawn and Addleshaw Goddard, have closed their Hong Kong offices in recent months. Wall Street banks have cut jobs or demoted employees who were once money spinners for Chinese companies raising money in the stock market. U.S. pension funds have started skipping Hong Kong, once an obvious destination for billions of dollars in investments.
“If you run a foreign company and you speak out, you will very quickly find yourself under a microscope,” Stephen Roach, former chairman of Morgan Stanley Asia, said in an interview.
Mr. Roach submitted an opinion article The Financial Times in February declared: “Hong Kong is over.” After the article was published, he said, he was banned from speaking at the China Development Forum, one of China's most important economic conferences, for the first time in 24 years.
He said he wrote the piece in response to the changes he saw and heard from former colleagues and friends living in Hong Kong, where he also lived from 2007 to 2012, and where he has returned several times in the past year.
Citywide protests led to Beijing's imposition of the national security law in 2019, stifling political dissent. Hong Kong was previously a major source of new public market listings for Chinese companies, from start-ups to established companies. His position at the top of the financial centers was undisputed.
Since then, Mr. Roach said, a number of factors, including Beijing's advancing influence over local government, have led friends to question the city's future.
“It is not that Beijing will impose new restrictions and guidelines – that has already happened, it is a fait accompli,” Mr Roach said. “The country continues to exert a strong hand in the governance of Hong Kong.”
Investors are also figuring out how to deal with the new environment. US sanctions on Chinese companies linked to the government have made it impossible to invest in many of Hong Kong's listed companies.
“There used to be a distinction between Hong Kong and Chinese stocks, but now the markets are converging,” said Steven Schoenfeld, CEO of MarketVector Indexes, a German company that offers investors such as pension funds different ways to invest in global markets.
MarketVector and some of its rivals such as MSCI, a US company, now have to accommodate pension funds that do not want to invest in Chinese companies listed in Hong Kong.
For the law firm Mayer Brown, the political risks in Hong Kong became clear in 2022 after it withdrew from a case representing the University of Hong Kong in its bid to remove a statue commemorating the 1989 Tiananmen massacre. campus. The consequences were immediate.
A prominent politician called for a boycott of Mayer Brown. “Make no mistake that foreign interference only takes the form of weapons and guns,” said Leung Chun-ying, Hong Kong's former chief executive.
One by one, Mayer Brown's Chinese clients removed the firm from their list of firms they went to for legal work, according to two people with direct knowledge of the firm who spoke on condition of anonymity. This month, the law firm announced a plan to separate from its Hong Kong partnership, ending what it had billed a few months earlier as a 160-year “Hong Kong story.”
Mayer Brown did not respond to multiple requests for comment.
Now Google is in the spotlight following a decision by a Hong Kong court to grant a government request for a ban.Glory to Hong Kong”, a song that emerged from pro-democracy protests. Following the decision, Hong Kong Justice Minister Paul Lam called on Google to enforce the ban and raised the possibility that other content could also come under scrutiny. Two days later, Googling said it would prevent the video from being seen in Hong Kong on its sister platform, YouTube.
Some foreign companies find it easier to exit the market. As they leave, the offices in the gleaming skyscrapers that line the skyline have been hollowed out. The vacancy rate was a record 16.3 percent in March, although this figure has fallen slightly since then, according to real estate agent Colliers.
Executives from Chinese companies, on the other hand, have visited Hong Kong in recent months to inspect office and retail space, said Fiona Ngan, head of occupier services at Colliers. Most have not yet signed leases, but Colliers expects that to change later this year and has recently set up a team focused on Chinese companies.
Hong Kong is starting to feel more Chinese in other ways. In an effort to allay business concerns about the security legislation, the city's finance chief, Paul Chan, pointed to nearly 50 companies planning to open or expand in Hong Kong, adding tens of billions of dollars in the city's economy would be added.
Among the 45 companies listed by Mr Chan's office, 35 were in mainland China.
New restaurants are popping up in Hong Kong neighborhoods where storefronts sat empty after the city's harsh pandemic policies pushed small restaurants out of business. Some of the new eateries are famous Chinese franchises offering local dishes and bubble tea.
On the streets, many tourists and even locals speak Mandarin, the official language spoken throughout China. English language proficiency among Hong Kongers aged 18 to 20 declined significantly between 2020 and 2022, according to a recent survey by EF Education First, an international education company based in Switzerland.
While the results were in line with trends in other places, the finding alarmed many in a city that has long prided itself on speaking the global language of business.
More and more talented young Chinese professionals are coming to the city. Hong Kong officials created one new visa plan to lure professionals from anywhere in the world. According to the latest government data, almost all applicants who applied for the visas are from mainland China.
Hong Kong has a long history of change, and the current transformation is yet another transition, some experts say.
Others, such as Wang Xiangwei, warned that Hong Kong's leaders must do more to change the perception that the city was losing its reputation as an international magnet.
“All I see is a one-way street from Beijing telling Hong Kong what to do,” said Mr. Wang, a former editor-in-chief of The South China Morning Post.
“If Hong Kong does nothing, if Beijing allows them to tell them what to do, then that will be the end of Hong Kong as we know it,” Mr. Wang said. “It will destroy itself.”
Zixu Wang contributed reporting from Hong Kong.