An exodus of expatriates and locals from Hong Kong is poised to intensify this year, as policymakers continue their crackdown on civil society and brush off an increasing uproar over aligning with mainland China’s “COVID Zero” strategy.
A population outflow that was triggered by protests in 2019 deepened last year to a record, as the realization sank in that Hong Kong’s strict COVID-19 policies are here to stay, and the brunt of the National Security Law imposed by Beijing continued to roil public life. The effects of the brain drain in sectors such as education, healthcare and finance are likely to be felt by residents for years to come.
“With everything that’s happening in Hong Kong, the strict quarantine rules and the National Security Law, banks and companies across the broader financial services sector are looking at their footprints in the region and where they want people based,” said Simon Roberts, chairman for Asia at executive search firm Sheffield Haworth.
Illustration: Constance Chou
“If the government’s current zero-COVID policy continues, then come the end of the school year in the summer of 2022, there will be a further mass exodusm,” he said.
Still, for many Hong Kong expatriates and foreign companies, the impact of the security law was tolerable, or even welcome, as it put an end to months of disruptive protests. A more pivotal factor in deciding to leave or stay is the virus strategy, which now is becoming even more draconian, with almost all arrivals requiring 21 days in isolation, large numbers of incoming flights slashed and no timetable on the mainland border reopening.
Even as big banks shrug off geopolitical tensions and continue to push into China, the data show that Hong Kong is losing its appeal. The number of US firms with regional headquarters in the financial center continued to shrink, while people are increasingly thinking about relocating to Singapore, which is open for international travel, or even the mainland, as the utility of being based in Hong Kong for access to China wanes.
What is emerging is an urban landscape that is becoming increasingly dominated by mainland Chinese influence. In the economy, this means more Chinese firms are setting up hubs as those of other countries leave. In schools, children as young as six are being inculcated with patriotic education. Some of Hong Kong’s top academic minds are either leaving its universities or academia entirely, while student bodies are becoming dominated by a mainland influx. Civil society groups, such as trade unions and human rights organizations, are closing in droves or exiting, and pro-democracy media houses are shuttering while journalists are being arrested.
Hong Kong officials have maintained the drumbeat, against mounting criticisms from residents and industry groups, that its strict COVID-19 policy is working, touting an economic recovery.
The following sections demonstrate the impact of the COVID Zero policy and the National Security Law across different aspects of Hong Kong’s economy and society.
POPULATION
Hong Kong’s population decreased at a record pace in the 12 months that ended in June. The territory saw an outflow of 89,200 residents, leaving its population at about 7.39 million, government data showed. That maintains the 1.2 percent rate of population decline set at the end of 2020, the biggest drop in at least six decades. The government attributed the decline partly to fewer people coming to work and study in Hong Kong amid strict border controls.
However, in a sign that the political upheaval is transforming Hong Kong, 88,800 of its citizens applied for British National visas in the first three quarters of last year, UK statistics showed. Canada also started a special visa program in February last year, receiving 8,237 applications as of Sept. 30, a spokeswoman for Immigration, Refugees and Citizenship Canada said.
People are also taking their savings with them, even though the authorities moved to bar British National passport holders from withdrawing their funds. Outflows from the mandated retirement plan from emigrants hit the highest in at least seven years from July to September last year. A report last month from the Hong Kong Mandatory Provident Fund Schemes Authority showed HK$2.6 billion (US$334 million) was permanently pulled, up 24 percent from the previous quarter and the highest since at least 2014.
A spokesperson for the MPFA said that permanent withdrawals are not solely due to people emigrating, but also include those who moved back home or to the Chinese mainland. The MPFA also said that due to investment returns and contribution inflows, the amount of withdrawal claims would also increase.
BUSINESS
The number of US companies with regional headquarters in Hong Kong fell to an 18-year low, bolstering arguments that the territory’s national security campaign and COVID Zero strategy are eroding its appeal as a global financial center.
Among firms leaving are New York-based hedge fund Elliott Management Corp, which has been winding down its Hong Kong operations in the past few years. German multinational BASF SE also plans to move its regional division to Singapore this month, a LinkedIn post by its Asia-Pacific president said.
At the same time, the number of mainland Chinese firms with regional headquarters in Hong Kong rose by 5 percent from 2020, totaling 252. Mainland Chinese bankers are also increasingly holding more senior jobs in Hong Kong. Data from the Hong Kong Securities and Futures Commission showed that the percentage of the territory’s licensed asset management firms that are from mainland China doubled from 6 percent in 2010 to 12 percent in 2020, from 127 firms to 397.
Hong Kong’s COVID-19 policy is also making life tougher for global firms. A survey by the Asia Securities Industry and Financial Markets Association, the top lobby group for financial firms in the territory, found that almost half of major international banks and asset managers are contemplating moving staff or functions away. The industry body has called on the government to provide a road map to exit Hong Kong’s COVID Zero strategy and to ease restrictions.
A British Chamber of Commerce study last month said that “as the rest of the world opens up to international travel, there is a risk that Hong Kong could become increasingly isolated as an international business center.”
Businesses that use Hong Kong as a hub to manage their activities in China are considering scaling down their operations and moving them to the mainland, while those that have Asia-region headquarters in the financial center are considering moving senior executives or functions to other locations in Asia, notably Singapore, the chamber said.
To assuage some of the anger of business executives undergoing quarantine, the Hong Kong Monetary Authority has been delivering goodies including wine during hotel isolation for some, while others, including JPMorgan Chase & Co CEO Jamie Dimon, were exempted from quarantine. A growing number of financial firms are also offering hotel quarantine subsidies for employees.
MONEY FLOWS
Hong Kong is no longer in the top three global listing venues, as a widening crackdown by China on a vast range of industries has hit investor sentiment and share prices. Initial public offerings (IPOs) in the Asian financial hub raised US$43 billion last year, behind the NASDAQ, New York Stock Exchange and Shanghai Stock Exchange, data showed.
It marks a drop in ranking from the first half of last year, when Hong Kong came third with US$31 billion. Shanghai has since pulled ahead, with US$58 billion raised last year, the data showed. Hong Kong was among the top three IPO exchanges worldwide in 2020 after grabbing the top spot in 2019 and 2018.
IPOs have dried up in Hong Kong since the summer as Chinese President Xi Jinping’s (習近平) push to align companies with his vision of “common prosperity” caused many firms to delay listing plans. New listings have also underperformed, as some major tech names that initially did well after listing early in the year lost altitude amid Beijing’s clampdown that targeted giant start-ups with vast data on Chinese citizens. The Hang Seng Technology Index has slid almost 50 percent since a high in February last year.
Another potential sign of outflows is in the real estate market, where much of Hong Kongers’ wealth is held. A growing number of properties are being listed for sale in Hong Kong, as more residents leave the territory or cash out. A Bank of America report in January last year said that more than 89,000 apartment units could be sold over the next five years as a result of emigration to the UK.
Still, Hong Kong’s home prices are hovering near a record high, as the market remains resilient despite political tension. However, even there the demand can be attributed to mainland cash. The daughter of a Chinese tycoon from Guangdong Province was revealed as the buyer of Asia’s most expensive apartment, a report by the South China Morning Post said. She paid US$640 million for an apartment in the exclusive Peak area.
EDUCATION
Beijing has put the blame for Hong Kong’s unrest squarely on its education system, which it believes is not patriotic enough. Alongside the imposition of the National Security Law came a suite of changes to education, including flag-raising ceremonies, censorship of sensitive historical events in textbooks and a complete overhaul of the liberal studies subject, which was designed to teach critical thinking skills. Hundreds of teachers have been investigated or fired for their views, and it is likely that in the they might soon need to pass a test on the National Security Law.
The Hong Kong Education Bureau has said that international schools do not need to fully incorporate the national security curriculum, but they do “have the responsibility to help” students “acquire a correct and objective understanding and appreciation” on the concept of national security.
These changes in the education system are driving away pupils and teachers. Enrollment at elementary and secondary schools is at the lowest level in two decades, with about 19,300 students withdrawing in the last school year, bureau data showed. That included about 5,280 from private and international schools. A survey found that almost 1,000 teachers have left Hong Kong in the last school year, almost double the previous two years combined.
The political crackdown has also extended to universities, where members of student unions have been arrested, and vibrant political debate and protests have been snuffed out. At the end of last year, authorities removed pro-democracy monuments, including the Pillar of Shame statue that memorialized the 1989 Tiananmen Square Massacre.
Coupled with strict COVID-19 border rules, that is making university campuses less attractive to foreign students. The gap between the number of international pupils and mainland Chinese students has been steadily growing in the past two decades, and has widened further during the pandemic.
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