Hong Kong’s dimming light poses an urgent question
The Chinese Communist Party made modern Hong Kong. They could break it, too.
In 1940, there was only one contender for the financial capital of Asia: Shanghai. With trading and investment volumes 10 times the size of Hong Kong’s, it was a “great cosmopolitan center” compared to the “small village” to the south, according to the British colony’s one-time governor.
The chaotic final years of the Chinese civil war changed that. By the time the People’s Republic was proclaimed in 1949, fighting and hyperinflation had driven an exodus of almost 1.5 million refugees over the Shenzhen River. With them went the fortunes and expertise that built Hong Kong’s postwar boom. Many of the city’s celebrated tycoons, including the late Cheng Yu-tung and fellow real estate barons Lee Shau Kee, Peter Woo and the Kwok family, came to the city as part of that upheaval.
Locals are now asking whether something similar could happen to Hong Kong itself. As protests against a bill that would have allowed extradition to mainland China degenerated this summer into running battles between riot police wielding tear gas and firebomb-throwing protesters, something has shifted. A city that once prided itself on being simultaneously the most laissez-faire and law-abiding on the planet — an ideal home for the world’s capital — looks more and more like a strife-torn corner of an increasingly repressive China.
“There’s definitely no turning this back to the pre-June environment,” said Logan Wright, a director at Rhodium Group who heads the research company’s China analysis. If President Donald Trump revokes the city’s special status (as threatened in an act he signed into law last week), Hong Kong “becomes just another port in China” said Nicole Hollinson, a former U.S. trade negotiator at law firm Sandler, Travis & Rosenberg PA.
Defining such a city as the place where major capital allocation decisions are taken, it may not be a hub of free markets at all. China’s overseas direct investment stock of $1.94 trillion overtook Hong Kong to become the largest in the world last year after the U.S. and the Netherlands. Given the Chinese government’s outsize role in the economy, Beijing has eclipsed London and Hong Kong and may already rival even New York as the place where the future of global investment is decided.
That’s not necessarily what we mean when we think of a financial center, though. A good guide might be the 11 qualities underpinning Hong Kong’s status listed in a 1998 speech by Andrew Sheng, then deputy chief executive of the territory’s central banking agency. On that basis the city would have reason to worry.
Four of the named factors — use of English, a skilled population, freedom of information, and efficient infrastructure — are far more widespread across Asia than they were back then.
Five of the others — good government, economic freedom, social stability, the rule of law, and a record of being treated like a nation in economic and financial affairs — are under unprecedented attack as a result of the current crisis. The last two — low taxes and light-touch regulation — are a thin reed on which to build an empire of capital, especially when Singapore offers the same things.Where would Asia’s financial center of gravity move, if it left Hong Kong?