China's Crackdown: Hong Kong’s fiscal ambitions take a hit

•  NIK MARTIN

HONG KONG: COVID, the pro-democracy crackdown and China’s trade war with the United States have dealt a severe blow to Hong Kong’s reputation as an international financial hub. Once seen as the main gateway between the West and China, many investors now believe it is hard to separate Hong Kong from the authoritarian mainland — a dilemma that has sparked an exodus of foreign firms from the city known as the Pearl of Asia. Since 2019, the number of global firms with regional headquarters in Hong Kong has fallen by 8.4%, per data from the city’s census and statistics department. The figures are more stark among US firms, a third of whom shifted out of Hong Kong over the past decade, Wall Street Journal reported. Those MNCs that remain have cut headcount in the semi-autonomous city by a third over the past four years.

After having a national security law imposed by Chinese President Xi Jinping in 2020, Hong Kong’s legislators are soon set to pass further legislation that rights groups say will all but wipe out dissent. The first put paid to the yearlong democracy protests, saw hundreds of activists arrested and shuttered independent media outlets. The second will make it even easier to target individuals, companies and civil society groups deemed to be anti-government and anti-Beijing. Many foreign investors are just as worried.

The US Consul General to Hong Kong Gregory May recently warned in an interview with Bloomberg that some US firms are now using burner phones and laptops when visiting the city because of data security concerns and what he said was a gradual move toward the kind of internet censorship seen on the mainland. The US State Department recently warned that the new security law would adopt “broad and vague” definitions of state secrets and external interference that could be used to silence critics.

“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 at the Center for Economic Freedom at Canada’s Frazer Institute, told DW.

Last year, Frazer and the US-based Cato Institute ranked Hong Kong just 46th out of 165 jurisdictions on the annual Human Freedom Index. The drop of 17 places was the largest of all territories studied, other than 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 also fell to second place in the Economic Freedom Index, having ranked top ever since the ranking was created — this time losing out to Singapore. The tropical city-state has always billed itself as the “Switzerland of Asia.” Some 4,200 multinationals now have their regional headquarters there, according to Bloomberg Intelligence, versus 1,336 for Hong Kong.

The decision to move out of Hong Kong is often fuelled by a need for firms to distance themselves from China amid the ongoing geopolitical tensions with the US over the future of Taiwan, the Ukraine war and trade. Those strains have been elevated recently by Washington’s move to prevent Chinese firms from sourcing high-end chips used to power AI platforms.