Business-First Hong Kong now has a twist: Beijing politics

Doing business in Hong Kong comes with a new risk: the political cost of angering Beijing.

Chinese clients recently abandoned a major Chicago law firm because it recused itself from a politically sensitive case. A former Wall Street banker was silenced for writing a “Hong Kong is dead” column. And Google was effectively forced to ban a popular protest anthem.

In all areas of life, Hong Kong is moving closer to mainland China, blurring the city’s identity that was once free from Beijing’s politics. Legal decisions are the same as those in mainland China’s courts. The city rules to follow The orders issued in Beijing also remind us of the slogans of the Chinese Communist Party.

The city’s transformation is being driven by a national security law imposed by Beijing in 2020 and additional legislation passed by Hong Kong lawmakers in March. Both deal a blow to the partial autonomy promised by China when it took over the city from Britain nearly three decades ago.

The work of lawyers, bankers and other professionals is now at risk of scrutiny for “outside interference,” an offence that has been criminalised. The new dynamics, along with growing tensions between China and the West and an economic slowdown in China, have eroded much of the bargaining power in Hong Kong, hurting the city’s once vibrant economy.

These changes have forced some foreign companies to either leave the city or significantly reduce their operations here.

Two international law firms, Winston & Strawn and Addleshaw Goddard, have closed their Hong Kong offices in recent months. Wall Street banks have eliminated or demoted the jobs of staff who once made money for Chinese companies raising cash on the stock market. American pension funds have begun to distance themselves from Hong Kong, once an obvious destination for billions of dollars in investments.

“If you’re running an overseas business and you speak out, you’ll very quickly find yourself under a microscope,” Stephen Roach, former Morgan Stanley Asia president, said in an interview.

Mr. Roach wrote an opinion article financial Times In February, he declared, “Hong Kong is over.” After the article was published, he was barred 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 article in response to the changes he had seen and heard from former colleagues and friends in Hong Kong, where he lived from 2007 to 2012, and where he has returned several times over the past year.

Citywide protests in 2019 led to the imposition of a national security law in Beijing, cracking down on political dissent. Hong Kong has previously been a major source of new public market listings for Chinese companies, whether they are start-ups or established companies. Its ranking at the top of financial centers was undisputed.

Since then, a number of factors, including Beijing’s growing influence in local governance, have led friends to question the city’s future, Mr. Roach said.

“It’s not like Beijing will introduce new restrictions and guidelines – that’s already happened, it’s a given,” Mr Roach said. “It continues to exert its strong hand in the governance of Hong Kong.”

Investors are also working out how to deal with the new environment. US sanctions on Chinese companies with ties to the government have made it impossible to invest in many publicly traded companies in Hong Kong.

“There used to be a gap between Hong Kong and China stocks, but now the markets are getting closer to each other,” said Steven Schoenfeld, chief executive of MarketVector Indexes, a German firm that offers investors such as pension funds different ways to invest in global markets.

MarketVector and some of its competitors such as MSCI, a US firm, now have to meet the needs of pension funds that do not want to invest in Chinese companies listed in Hong Kong.

For law firm Mayer Brown, the political risks in Hong Kong became apparent in 2022, when it withdrew from a case representing the University of Hong Kong in its attempt to remove a statue commemorating the 1989 Tiananmen massacre from campus. The fallout was immediate.

One prominent politician called for a boycott of Mayor Brown. “Don’t mistake foreign intervention as just warplanes and artillery,” said Leung Chun-ying, Hong Kong’s former chief executive.

One by one, Mayer Brown’s Chinese clients have dropped it from their list of preferred firms for legal work, according to two people with direct knowledge of the firm who asked not to be named. This month, the law firm announced plans to split from its Hong Kong partnership, bringing an end to what was heralded just a few months ago as a 160-year-old “Hong Kong story.”

Mayer Brown did not respond to multiple requests for comment.

Now, Google is in the spotlight after a Hong Kong court granted a government request to ban a song called “Glory to Hong Kong,” which emerged from the pro-democracy protests. Following the decision, Hong Kong Justice Secretary Paul Lam called on Google to enforce the ban and raised the possibility that other content could also come under scrutiny. Two days later, Google said it would block the video from being viewed inside Hong Kong on its sister platform YouTube.

Some foreign companies are finding it easier to exit. With their departure, offices in the gleaming skyscrapers that stretch into the sky have become vacant. Vacancy was a record 16.3 percent in March, although the figure has fallen slightly since then, according to real estate brokerage firm Colliers.

In contrast, executives from Chinese companies 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 recently created a team for Chinese companies.

Hong Kong is beginning to feel Chinese in other ways, too. To assuage business concerns about the security law, the city’s finance chief, Paul Chan, pointed to about 50 companies that plan to open or expand in Hong Kong, adding billions of dollars to the city’s economy.

Of the 45 companies on the list provided by Mr Chan’s office, 35 were mainland Chinese companies.

New restaurants are opening in Hong Kong neighborhoods where smaller ones had closed due to the city’s strict pandemic policies. Some of the new eateries are well-known Chinese franchises serving local cuisine and bubble tea.

On the streets, many tourists and even locals speak Mandarin, the official language spoken throughout China. According to a recent survey by EF Education First, an international education company based in Switzerland, English language skills among Hong Kongers aged 18 to 20 have declined significantly from 2020 to 2022.

Though the results were consistent with trends in other locations, the finding worried many in a city that has long prided itself on its ability to speak the global language of business.

More talented young Chinese professionals are flocking to the city. Hong Kong authorities have created a new visa scheme to attract professionals from around the world. According to recently released government data, nearly half of all visa applicants are from mainland China.

Some experts say that Hong Kong has a long history of change, and the current change is one such change.

Others, such as Wang Xiangwei, warned that Hong Kong’s leaders must do more to change perceptions that the city is losing its reputation as an international hotspot.

“I’m only seeing a one-sided dialogue 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 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 destroy itself.”

Zixu Wang Contributed reporting from Hong Kong.


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