A new American Chamber of Commerce in Singapore (AmCham) survey, conducted in collaboration with market researcher Ipsos, gives arguably the clearest indication yet of how business sentiment and investment decisions are being impacted by Hong Kong’s three-month-old political crisis.

Sixty-seven percent of senior managers, business directors and chief executive officers (CEOs) from company respondents said that Hong Kong’s reputation as a regional base of operations for businesses has been tarnished, according to the survey’s findings released on September 12.

Eighty percent of respondents, meanwhile, indicated that Hong Kong’s political turmoil has affected their future decisions to invest in the city. Sentiment is generally more conservative among companies without a business presence in Hong Kong (88%), compared to those with office space in the city (75%), the survey showed.

Over 20% said they were considering whether to move capital or relocate business functions out of Hong Kong, though more than 70% of respondents said they had no such plans. Among those companies considering to relocate, 91% indicated that their preferred destination would be Singapore.

Unsurprisingly, a majority of respondents believe that the Southeast Asian financial hub will benefit economically from Hong Kong’s protracted instability. Perceptions that Singapore will benefit were higher among companies planning or considering moving operations from Hong Kong (86%) compared with those not planning a move (64%).

Among companies with operations in Hong Kong, the protests have had a minimal impact on decisions to move business functions and capital out of the city. Only 5% said their companies had shifted financial assets elsewhere, while only 1% of respondents said their business had relocated its operations because of the protests.

Defiant protesters in their thousands advance toward police on Des Voeux Road after being forced back by police, July 28, 2019. Photo: Nile Bowie.

Ipsos public affairs director Tan Hui Ching said in a briefing that the survey was conducted online between August 21 to 29 and its results reflect current business sentiments. Though protests over the past 14 weeks have dented Hong Kong’s reputation, the impact of those sentiments would not necessarily be long-term, she estimated.

Panelists who spoke after the survey’s release said that businesses in Hong Kong were still trying to formulate strategies and messaging to effectively address the city’s political crisis. Damien Ryan, Asia-Pacific chief executive officer for communications firm Teneo Strategy, said it is still premature for businesses to make relocation decisions.

“Has sentiment been impacted? Absolutely. No doubt about that. Are businesses reviewing plans and making those decisions to relocate? I think that’s a little bit early at the moment, simply because they’re in the middle of what is a fairly significant crisis that they’re trying to address,” he said.

The protests will likely run throughout 2019 and into 2020 with “no end date in sight,” Ryan said. Though authorities in Hong Kong earlier this month announced the formal withdrawal of the extradition bill that sparked mass protests in June, opposition to police violence and calls for universal suffrage have since been voiced as rally cries.

Panelists agreed that Hong Kong generally still remains safe and that protest activity has been relatively calm during weekdays as peaceful protests are held with smaller, violent protests staged during weekends. AmCham clients have thus been advised to fly and in out of Hong Kong between Monday and Thursday, the panelists said.

Companies in the city have maintained business as usual despite working in close proximity to where pitched weekend battles between black-clad protesters and riot police unfold.

Protesters gather outside the police headquarters in Hong Kong on June 21, 2019. Photo: AFP/Hector Retamal

“Staff literally would come into work [on Monday morning] stepping over everything with their lattes and their analyst reports, just going about business,” Ryan recounted.

Anupama Puranik, managing director with consultancy firm Russell Reynolds Associates, said organizations with operations in Hong Kong will be reluctant to walk away and “throw the baby out with the bathwater” given that the city is still a gateway to China – a role that analysts acknowledge Singapore cannot easily supplant.

While the city-state is seen as a favored destination for its political stability and respect for the rule of law in business matters, Hong Kong’s economic and financial ties to the world’s second-largest economy undergird its status as Asia’s premier banking hub. Chinese banks continue to rely on the city to facilitate their overseas business.

Significantly, Hong Kong remains a top hub for offshore and onshore renminbi trading and settlements. Approximately 75% of all offshore payment flows of the currency pass through the territory, while nearly a quarter of all foreign exchange transactions in renminbi are made there.

Singapore, by contrast, processes 3.5% of international renminbi-denominated transactions.

Hong Kong’s highly developed financial system continues to serve as the entry point for international funds investing into Chinese domestic stock and bond markets. Hong Kong boasts an equity market capitalization of about US$4 trillion, far outweighing the $665 billion of Singapore’s stock market.

A cityscape view of Singapore from one of its trademark Merlion statues. Photo: YouTube

The Southeast Asian city-state has been careful not to create an impression that it is capitalizing on the tumult facing its rival business hub. Trade minister Chan Chun Sing warned earlier this month that prolonged disruption to Hong Kong’s stability will have a “negative spillover impact” on Singapore and the wider region.

“If the current situation in Hong Kong persists and adds to global economic uncertainty, investor confidence will likely be adversely affected,” he said. “This will, in turn, weigh on investments and economic activities in the region. With increased uncertainty, the impact on Singapore’s economy is likely to be larger.”

Puranik said most multinationals are still waiting and watching. She expects firms to stay put and wait out the turbulence unless the situation becomes “decisively worse” than it is at present. “If you start seeing things escalate, then that’s the time when the triggers might start getting pulled in terms of thinking about other destinations,” she said.

Job offers and positions in Hong Kong are “no longer as easy to sell” to foreign candidates as it was compared to six months ago, Puranik noted.

The biggest potential trigger for corporate relocations would be a decisive erosion of confidence in the “one country, two systems” principle, said Ryan. “If there was going to be greater evidence to say that no longer existed, that surely would be a consideration for companies in regard to location in Hong Kong.”

Allison Cheung, a tax partner for PwC Singapore, described the turbulence in Hong Kong as a phase that will eventually pass. “I think that the outlook is not very optimistic. But I think essentially it will come to an end, whether it’s a compromised position or whether it could be a potentially disastrous ending. I think it’s not the latter,” she said.