What has changed in running a business in Hong Kong since China introduced its new security laws? – General – Software
Hong Kong today compared to 2016.
Prior to 2020, more than 9,000 international companies operated in Hong Kong, including more than 1,300 in the United States. About 1,300 foreign companies have established their Asia-Pacific headquarters in the city, including 300 American companies. So when the Chinese government passed a new security law designed to prevent “secession, subversion, terrorism and foreign interference” in Hong Kong, many business leaders became increasingly concerned about the potential impact on business.
It could take years to figure out how China’s new security law will affect Hong Kong, but the relocation and repositioning of foreign companies began in 2020 due to the political and economic nervousness felt in the city. The “fear factor” arising from violent anti-government protests over the contentious extradition bill brought the city to its knees in 2019 and made headlines around the world.
The political unrest has prompted many foreign companies with head offices and offices in Hong Kong to start considering moving their operations elsewhere – including us. We had our Asia-Pacific base there since 2016, but we recently moved it to Sydney.
The loss of Hong Kong’s special visa status could mean that companies that are in Hong Kong to do business in China would likely have a much harder time for their employees to travel to Hong Kong for this purpose. Many simply closed their operations in Hong Kong and the impact was therefore felt in the labor market, with unemployment reaching 7% in 2020, which was not helped by the border closures induced by the pandemic. .
By the end of 2020, Hong Kong’s population had already fallen to 7.47 million, 0.6% of its size in 2019. It is estimated that 322,400 of Hong Kong’s 5.4 million eligible residents will relocate to the UK. United over the next three years. of the British National Overseas (BNO) program. They will be able to live and work in the UK for five years, then apply for UK citizenship and live there permanently. They will be offered help to access work, schools, health services, housing and even business creation.
More recently, companies operating in Hong Kong have raised concerns over the potential implementation of new capital controls by China and also the detachment of the Hong Kong dollar from the US dollar.
Hong Kong needs time, but do foreign companies have the patience?
Due to China’s exceptional growth and growth, the vast potential economic opportunities for Hong Kong require time, between three and five years, to develop and mature. Arguably, foreign companies do not have the patience to stand back during this time. So much can happen in a business in six months, let alone three years.
It goes without saying that Hong Kong has been a mainstay of the global financial community and has been the Asian financial center for decades with a low tax regime and free movement of capital. It won’t be lost overnight, but the ramifications will become apparent over the next year or so.
The development of Hong Kong Bond Connect, which is a mutual market access system, in 2017 allowing offshore investment to tap into China’s growing economy (US $ 3 trillion), is becoming a mainstream . This in turn will allow access to new investments and other financial products and services.
According to statistics from SWIFT, Hong Kong is the world’s largest renminbi (RMB) clearinghouse, with 75% of worldwide RMB payments settled through Hong Kong. Hong Kong will continue to develop its role as a central RMB business center, more in line with China’s expectations. The RMB is the second most traded currency in the world via SWIFT RMB as an international currency.
According to a report by the People’s Bank of China, Singapore is now the second largest RMB offshore hub behind Hong Kong. Lion City accounted for 10.3% of cross-border RMB settlements, while Hong Kong commanded 44.9%, according to the report. Germany was third at 3.4 percent, while Taiwan was fourth at 3.3 percent.
Regardless of the political crisis of 2019, Hong Kong controlled two of the world’s five largest IPOs at Alibaba ($ 12 billion) and Budweiser ($ 6 billion). Although Hong Kong’s share of global IPOs has declined from its 2018 high, Alibaba and Budweiser IPOs during the Fear Factor period pave the way for an optimistic future for IPOs. in stock exchange.
Impact of VUCA on Foreign Businesses in Hong Kong and Greater China
Regional volatility, uncertainty, complexity and ambiguity (VUCA) in the meantime regarding the deterioration of US-China relations will continue to see the exit of foreign companies from Hong Kong, led by US companies. This is a natural attrition that will continue over the next few years.
VUCA mandated us to execute precise and scalable decision-making to avoid unpredictable, on-demand management of political and business risks and to mitigate our growth trajectory – hence the decision to reposition ourselves in Australia.