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“Should we be in Hong Kong?” Global companies are waiting for the way out



Fearing of Hong Kong’s future as the best place to do business in China and beyond, multinational companies are raising their stakes, adding to uncertainty about the prospects for one of the world’s leading trading cities.

Overwhelmed by political turmoil, authoritarian repression by mainland China and the pandemic, global companies and professionals are targeting rival business cities such as Singapore and Shanghai, China’s shopping mall, which some see as a better place to profit from the country’s huge economy.

Since Britain returned Hong Kong to China in 1997, city leaders have declared the semi-autonomous territory the “World City of Asia,” an open society with a British-style legal system where foreign professionals can feel at home. Today, Hong Kong is becoming less open and more fused with the continental economy.

Some companies, including banks and other financial institutions, still consider Hong Kong to be extremely important for their China-oriented business models and are digging into the future. Others look at the outcome, concluding that the city no longer has the prospects it once had.

“Being in Hong Kong has always been impossible,”

; said Frederick Golob, president of the city’s European Chamber of Commerce. “Now, for the first time, business is having discussions, should we be in Hong Kong?”

In a survey of members of the US Chamber of Commerce in Hong Kong published last month, 42% of 325 respondents said they were considering or planning to leave the city, citing concerns about China’s new security law and a pessimistic outlook on the future of China. Hong Kong.

Dozens of international companies have relocated regional headquarters or offices from the city since 2019, government figures show. This has contributed to the highest vacancy rate for commercial real estate in 15 years, with more than 80% of vacancy transferred by international companies, according to data collected by Cushman & Wakefield. In general, more people – immigrants and locals – left the business center in 2020 than each year after the global financial crisis.

Dozens of international companies have relocated regional headquarters or offices from Hong Kong since 2019.


Photo:

isaac Lawrence / Agence France-Presse / Getty Images

In January VF Corp.

, owner of Timberland, North Face and other brands, said it was closing its 900-person office in Hong Kong after 25 years in the city. Japanese video game maker Sony Interactive Entertainment has relocated regional managers to Singapore. European luxury goods company LVMH has said it is moving some Hong Kong-based employees from its Moët Hennessy alcohol unit. French cosmetics giant L’Oréal also said it was moving some employees from its headquarters in Hong Kong.

Hong Kong boosters predict that once the pandemic rises, the city will emerge stronger as its business benefits from deeper integration with the continent. Pessimists see it gradually atrophying around several major industries useful to China, such as finance.

Hong Kong Trade Secretary Edward Yau said most foreign companies still believe that Hong Kong is the place to do business, fostered by growing opportunities with major Chinese cities. “We will continue to monitor the situation and provide the best help we can offer,” he told a recent news conference, citing a study by the American Chamber of Commerce.

According to China’s long-term plan, Hong Kong will become part of an economic zone with 70 million people “bigger bay”, which includes the neighboring technology city of Shenzhen and the gambling mecca in Macau. Stephen Phillips, who heads Hong Kong’s investment promotion bureau, InvestHK, said the agreement would become an economic engine for growth and a major business opportunity in the coming years.

He said the biggest problem for Hong Kong is overcoming the Covid epidemic and that China’s new Hong Kong security law has not had a big impact on business. “Every business will make its own decision,” he said. “But most of them don’t see it as a risk.”

Hong Kong once became a bridge between East and West. Now, for some businesses, Hong Kong is no longer global enough to serve as a regional headquarters. For others focused on doing business in China, the city is not as tied to the mainland economy as Shanghai.

Hong Kong Trade Secretary Edward Yau said recently that most foreign companies still believe that Hong Kong is the place to do business.


Photo:

romeo gacad / Agence France-Presse / Getty Images

The Denver-based VF is relocating to Hong Kong, responsible for its sales and marketing positions in Shanghai, where they will be closer to the stores and giant online retailers that are critical to its business. Employees responsible for managing the regional network of producers and suppliers will move to Singapore, a Chinese- and English-speaking country with 5.7 million people with a strong business infrastructure. Although Singapore’s laws also restrict freedom of speech, it has an established free market approach to business.

VF said the move reflects changing economic trends and efforts to better serve consumers, rather than China’s intervention in the city.

L’Oreal said it is building in Singapore and Shanghai as it reduces its presence in Hong Kong. The restructuring, she said, aims to give greater coherence to its business by creating an area of ​​Southeast Asia, the Middle East and North Africa run by Singapore, and an area of ​​North Asia run by Shanghai.

Sony Interactive and Moët said they had relocated some employees to Singapore. Both declined to comment further on their moves.

Hong Kong’s transformation accelerated in 2019 with mass demonstrations against Beijing’s intervention on the island, which had to be largely governed by a concept known as “one country, two systems.” Months of clashes between police and students have shaken the city’s reputation as a safe and stable place to do business.

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Beijing has cracked down on protests in June 2020 and passed a national security law that allows the Chinese government to interfere in Hong Kong’s legal system, while authorizing its secret police to enforce vague laws, such as against foreign collusion. . On Friday, thousands of people protested a huge police presence and prison threats to celebrate the 1989 Tiananmen Square massacre.

After China announced its crackdown, South Korean Internet search company Naver Corp.

said it was deleting its Hong Kong-based backup servers and moving them to Singapore to protect user data.

Technology companies, including Facebook and Alphabet Inc.

Google has thwarted plans to connect Hong Kong and the United States to submarine data cables after U.S. security officials signaled against the plans.

At Asian Tigers Hong Kong, a relocation company serving international managers, relocations to Hong Kong have decreased by 50% since 2019, while relocations have increased by 30%, said CEO Rob Chipman, an American who moved to Hong Kong in the 80s.

“I have seen many long stays in Hong Kong leaving, people like me who have gone on a normal three-year stay and are still here 30 years later, love it, married with children with businesses,” Mr Chipman said. “So even some of these people say, ‘Wait a minute, something’s going on here.’ Maybe it’s time to leave. ”

About 40,000 more Hong Kong residents left the city in 2020 than those who entered with the intention of staying there, government figures show. Overall, Hong Kong’s population of about 7.5 million shrank by 46,500 in 2020, the second shrink since it was returned to China.

Anti-democracy protesters marched in Hong Kong in 2019, before Beijing cracked down on the protests.


Photo:

Vincent Tian / Associated Press

Sandra Boch, an Australian mother of two who moved to Hong Kong 15 years ago to set up a special business in fabrics and stationery, left in January. While the unrest of 2019 disrupted her business, she said the 2020 national security law was the last straw. She packed her business and moved to Singapore.

The law, she said, “is a clear sign from China that they are now taking control of Hong Kong and from now on everything will become more controlled. We no longer felt safe. “

British authorities opened the doors to local holders of British passports before handing them over permanently to Britain, and they believe more than 300,000 Hong Kong people – about 4% of Hong Kong’s total population – could come in five years.

Hong Kong boosters predict that companies closing offices will be replaced by other moving companies, including mainland China. In the 12 months ending June 3, 2020, the latest available information, mainland Chinese companies opened 63 new regional headquarters and offices in Hong Kong, an increase of 12% over the previous year. During the same period, US companies – the largest international presence in Hong Kong – closed 45 headquarters and offices, or 6% of their total, government figures show.

Falling rents in Hong Kong have attracted others to enter or expand, said Mr Phillips of InvestHK. Japanese food retailer Don Don Donki and French sporting goods retailer Decathlon have grown in Hong Kong.

Hong Kong remains attractive to the financial services industry. With its modern markets, free-floating currency and connections to the mainland, Hong Kong is unsurpassed in terms of financing China. The newly minted super-rich of mainland China is an attractive target for Hong Kong-based wealth management companies. A series of stocks offered by Chinese technology giants ranked the Hong Kong Stock Exchange third in the world for such listings.

UK-based banking giant HSBC Holdings PLC said in February that it would invest $ 6 billion in its Hong Kong-based Asian business, of which Hong Kong is the most profitable market.

Last year, HSBC Asia and Pacific chief Peter Wong demonstrated support for Beijing’s national security law after a Hong Kong politician said the bank could be punished unless it did. Later that year, she froze the accounts of a prominent Hong Kong pro-democracy activist who had fled the city.

Faced with criticism from British lawmakers who accused the bank of appeasing China, HSBC CEO Noel Quinn told them the bank was not dropping customers or freezing accounts for political reasons, and reaffirmed the bank’s commitment to Hong Kong. HSBC declined to comment on this article.

Some large banks, while optimistic about continuing to do business in Hong Kong, are quietly launching contingency scenarios to determine what they would do if they lost access to their infrastructure in Hong Kong and had to operate outside another city, people familiar with the matter said. similar plans. .

“People are asking, can I still do what I want and say what I want?” Said Alan Zeman, a foreign real estate developer who advised the current Hong Kong government and gave up his Canadian passport years ago in China. such. – Yes. I still do what I want and say what I want, as long as I choose not to be an antagonist. “

Write to John Lyons at john.lyons@wsj.com and Francis Yun at frances.yoon@wsj.com

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