Doing business in Hong Kong increasingly carries new risks and political costs from angering Beijing.
A Chinese client recently dropped a major Chicago law firm that backed away from politically sensitive cases, a former Wall Street banker was silenced after writing an op-ed that said “Hong Kong is Dead,” and Google was forced to ban a popular protest song.
Hong Kong is moving closer to mainland China in every aspect of life, blurring the boundaries that once cemented the city's status as largely free from Beijing's politics. Legal rulings mirror those of mainland Chinese courts. The city's regulations follow decrees from Beijing. Even the government flag evokes Communist Party slogans.
Hong Kong's changes have been driven by a national security law imposed by Beijing in 2020 and additional legislation passed by the city's legislature in March, both of which deal a blow to the partial autonomy promised to the city when China seized it from Britain nearly three decades ago.
The work of lawyers, bankers and other professionals now risks scrutiny for alleged “outside interference,” a criminal offense. This new trend, combined with rising tensions between China and the West and a Chinese economic slowdown that has devastated much of the trade that once powered Hong Kong, is casting a pall over Hong Kong's once vibrant economy.
These changes have forced some foreign companies to either withdraw from the city or significantly scale back their operations there.
Two international law firms, Winston & Strawn and Addleshaw Goddard, have closed their Hong Kong offices in recent months. Wall Street banks are firing or demoting employees who were once the moneymakers for Chinese companies raising capital on the stock market. U.S. pension funds are shunning Hong Kong, once an obvious destination for investing billions of dollars.
“If you run a foreign company and you speak out, you're going to come under intense scrutiny straight away,” Stephen Roach, a former chairman of Morgan Stanley Asia, said in an interview.
“Hong Kong is finished,” Roach wrote in a Financial Times opinion piece in February. After the piece was published, he said, he was barred for the first time in 24 years from speaking at the China Development Forum, one of China's most important economic conferences.
He lived in Hong Kong from 2007 to 2012, and has returned to the city several times over the past year, and said he wrote the piece in response to the changes he saw and heard about from former colleagues and friends in the city.
Citywide protests in 2019 led to Beijing imposing a national security law to stifle political dissent. Hong Kong has been the main hub for initial public offerings for Chinese companies, from start-ups to established names, and has firmly established itself as the top financial centre.
Roach said a variety of factors have since led his friends to question Hong Kong's future, including Beijing's influence over local governance.
“It's not like Beijing is imposing new restrictions or guidelines — that has already happened and it's a fait accompli,” Roach said. “China continues to exert a strong influence over Hong Kong's governance.”
Investors are also trying to figure out how to navigate the new environment, with U.S. sanctions on companies with ties to the Chinese government making it impossible to invest in many Hong Kong-listed companies.
“Hong Kong and China stocks used to be separate, but now the markets are converging,” said Steven Schoenfeld, CEO of MarketVector Index, a German company that offers pension funds and other investors different ways to invest in global markets.
Market Vectors and some of its rivals, such as U.S.-based MSCI, are now having to cater to pension funds that don't want to invest in Chinese companies listed in Hong Kong.
For law firm Mayer Brown, Hong Kong's political risks became clear in 2022 when the firm withdrew from a lawsuit by the University of Hong Kong that sought to remove a statue commemorating the 1989 Tiananmen Square massacre from the campus. The impact was immediate.
Prominent politicians have called for a boycott of Mayer Brown. “No one should be mistaken into thinking that foreign interference only comes in the form of military planes and cannons,” said Leung Chun-ying, a former chief executive of Hong Kong.
One by one, Mayer Brown's Chinese clients have dropped the firm from their legal services lists, according to two people with direct knowledge of the firm who spoke on condition of anonymity. This month, the firm announced plans to dissolve its Hong Kong affiliation, bringing to an end what just a few months ago had been heralded as a 160-year “Hong Kong story.”
Mayer Brown did not respond to multiple requests for comment.
Google is now in the spotlight after a Hong Kong court ruled in favor of the government's request to ban “Glory to Hong Kong,” a song born out of the pro-democracy movement. After the decision, Hong Kong Attorney General Paul Lam called on Google to enforce the ban and suggested other content may also be scrutinized. Two days later, Google announced that it would block the video from being viewed in Hong Kong on sister platform YouTube.
It's becoming easier for some foreign companies to leave, hollowing out the glittering office towers that dot the city's skyline as they leave. Vacancy rates hit a record 16.3% in March, but have since fallen slightly, according to real estate brokerage Colliers.
By contrast, Chinese executives have been visiting Hong Kong in recent months to view office and retail space, said Fiona Gan, head of occupier services at Colliers. Most have yet to sign leases, but Colliers expects that to change later this year and recently formed a team to serve Chinese companies.
Hong Kong is beginning to feel more Chinese in other ways, too. Seeking to ease business concerns about the national security law, Hong Kong's financial chief Paul Chan listed about 50 companies that have plans to set up or expand in the city, pointing to tens of billions of dollars in benefits for the city's economy.
Of the 45 companies on the list provided by Chan's office, 35 were mainland Chinese companies.
In Hong Kong's residential areas, new restaurants, including well-known Chinese franchises serving local cuisine and bubble tea, are opening in spaces left vacant by small restaurants shuttered under strict pandemic measures.
In the city, many tourists and even locals speak Mandarin, the official language spoken throughout China. A recent survey by Swiss-based international education company EF Education First found that the English proficiency of Hong Kongers aged 18-20 dropped significantly from 2020 to 2022.
The results were in line with trends elsewhere, but they raised alarms for many in a city that has long prided itself on its ability to speak the global language of business.
Talented young Chinese professionals are coming to Hong Kong, where authorities have created a new visa regime to attract experts from around the world. Nearly all of the applicants who have been granted visas are from mainland China, according to the latest government data.
Hong Kong has a long history of change, and some experts say the current changes are also part of that transition.
Others, such as Wang Xiangwei, warned that Hong Kong's leaders must do more to change the perception that the city is losing its reputation as an international attraction.
“What we see is unilateral instructions from Beijing to Hong Kong what to do,” said Wang, a former editor-in-chief of the South China Morning Post.
“If Hong Kong does nothing and follows Beijing's instructions, it will be the end of Hong Kong as we know it,” Wang said. “Hong Kong will self-destruct.”
Prince Xu He reported from Hong Kong.
