Lockdowns

FAN YU is an expert in finance and economics and has contributed analyses on China’s economy since 2015. Fan Yu

Is Hong Kong’s Status in Jeopardy?

There’s a notable contraction in the talent pool in Hong Kong

If the “hong kong security law” couldn’t crater Hong Kong’s financial services industry, perhaps its “zero COVID” policy could.

That’s what the Chinese city is grappling with, as expats within its financial services sector head for the exits because of the city’s draconian quarantine, lockdowns, and restrictions to combat the ongoing CCP virus epidemic.

Hong Kong has kept up restrictive quarantines along with strict entry rules since 2020, even as other financial markets in Asia reopen. Returning residents from most locations must quarantine for as long as three weeks regardless of vaccination status. The punishing sequestration was only recently cut to two weeks after complaints from the Hong Kong financial sector.

Despite all the restrictions, “zero COVID” is far from reality. Instead, infection numbers are getting worse by the day, with health officials worrying about the city’s unvaccinated population. As of mid-February, Hong Kong has been experiencing record infection rates.

The goal is to open Hong Kong’s borders with China—itself having some of the world’s strictest COVID policies—and there’s no indication of when that day might come. In fact, it’s unclear if Beijing would even send help should Hong Kong’s worsening pandemic require it.

So leaving the city is on the minds of many expats.

A senior executive contact of mine at a Hong Kong financial firm recently confided: “I fear a good portion of my staff will likely depart after bonuses are paid later this month.

“Unless you’re young and single or a very highly paid executive compensated to put up with government policy, for most people it’s been hard to cope.” Hong Kong has kept up restrictive quarantines along with strict entry rules since 2020, even as other financial markets in Asia reopen. Despite all the restrictions, ‘zero COVID’ is far from reality.

Broader statistics support that sentiment. A recent American Chamber of Commerce in Hong Kong survey said 40 percent of people were more likely to leave Hong Kong than stay.

Consultancy KPMG said in a Jan. 25 report that there’s a notable contraction in the talent pool in Hong Kong. An acute talent shortage is one of the biggest challenges facing the financial sector in 2022. And if financial expats are leaving, adjacent and supporting professionals such as accountants and lawyers would likely follow suit.

Aside from a 1.2 percent decline in population by official statistics, there’s only anecdotal evidence to support this trend of financial “brain drain” thus far. The city’s industry executives and officials believe the COVID-related restrictions are transitory, and that as long as Hong Kong maintains its low taxes, relatively stable legal system (compared to mainland China), wealthy individuals and foreigners will remain.

Some financial firms are indeed pondering.

The Financial Times reported that Bank of America has been conducting a formal review to assess whether to relocate staff from Hong Kong to Singapore, the other Asian financial hub, where COVID-related travel restrictions are less draconian. This isn’t the first time we’ve heard that Singapore could eat Hong Kong’s lunch.

I’m sure Bank of America executives were less than enthused about the Financial Times report on its internal deliberations. But it’s easy to imagine Western banks in Hong Kong conducting this evaluation. It would be shocking if Bank of America were alone in this.

Nevertheless, officially discussing leaving Hong Kong is politically fraught for Wall Street banking giants vying for a piece of mainland Chinese business. Beijing has slowly been opening its banking and investment sector to foreign competitors and most recently began allowing majority foreign ownership of local entities. The banks need to balance politics with employee demands. We can easily rewind back to when HSBC—a decidedly pro-Beijing financial firm—was openly criticized by China for being a “party” to the detention case of Huawei CFO Meng Wanzhou.

So it’s no surprise that Bank of America is already back-tracking. According to the financial paper, the firm’s Asian executives wrote in a memo to staff that Hong Kong remains “central” to its business plans in Asia.

But do its staffers feel the same way? We’ll find out.