Hong Kong has long been a thriving international city. Its special autonomy has meant it has benefited from China’s rise while simultaneously attracting wealth from elsewhere. Additionally, its rule of law, use of English, and low taxes have meant the financial sector has both given birth to, and attracted, world-renowned institutions that serve as the bedrock for the city’s prosperity. Yet recent unrest across the city has challenged the political status quo and called into question its safe-haven status.
A cultural and democratic fight for the city has impassioned a large number of its residents to take to the streets. Yet international viewers of the unrest are worried that Hong Kong’s special financial standing, not just its political make up, is being hurt by the unrest.
For now, Hong Kong’s financial sector remains stoic. That could soon change, however, if agreements between the government and protesters continue to fizzle, and order and civility are not restored.
Powerhouse of Asia
As a global financial powerhouse and regional financial capital, Hong Kong has attracted the world’s top finance brass for years. This international cohort has helped provide Hong Kong, and the region, with tools to enter the international economy and see enormous growth in the process. As the now six-month-old protests have grown more serious with time, however, Hong Kong’s status as an internationally renowned finance hub has been overshadowed by police crackdowns and violent actions on the part of some protesters.
What began as peaceful protests against an unpopular extradition law, protests have since closed the city’s airport, caused riots and looting, and even deaths in some cases. Drastically, Hong Kong recently closed all of its schools for safety concerns. To understand how Hong Kong arrived at this crisis, it is worth reviewing how it became a small harbor city that grew to become an internationally recognized financial titan.
After China ceded control of Hong Kong to Britain in 1842, the colony quickly became a center for trade and finance – its geographic position advantageous for merchant ships travelling along the Chinese coast. The role of British governance and British commerce in the formation of Hong Kong’s financial sector thus left a peculiar colony legacy that’s still being grappled with today. Well-situated to exploit the plentiful shipping boom that occurred across the region and replete with British-fostered banking services and a hardworking local workforce, Hong Kong quickly blossomed into an object of envy.
It’s only by appreciating the colonial legacy that Hong Kong is left to deal with that investors can understand the origins of modern financial behemoths like HSBC, the largest bank in Europe and one that has its origins in Hong Kong. The city’s unique economic history is far different from the state-led industrialization model that thrived elsewhere in Asia; as such Hong Kong’s blossoming needs a particular style of nurturing that cannot afford moments of crisis.
Workers will be laid off
While financial services are invaluable to the city’s growth, only 260,000 out of the city’s 3.82 million strong workforce are employed by the sector – despite being responsible for one-fifth of the city’s GDP. Many citizens in Hong Kong work in the less lucrative hospitality or retail sectors. Indeed these people, Hong Kong’s working and middle-class, are hardest hit by the recent protests and subsequent crackdowns.
These local workers cannot afford even a temporary disruption when it comes to their paychecks, many of whom are employed on a casual basis who, contrary to financial professionals, are without benefits or entitlements during a downturn. The “worst-ever” retail decline to ever hit the city has imperiled about 5,600 jobs, which means that over 10% of all Hong Kong retailers could shut down sometime in the next six months.
With these sectors suffering from the economic turmoil of the political crisis, the financial sector has grown more important to support Hong Kong more than ever.
Ruminations emanating from nearby Japan and Singapore are perhaps the chief threat to Hong Kong’s enduring financial prowess. Japanese and Singaporean companies are beginning to cast their eyes on an uneasy Hong Kong with the hopes of picking up talent in the process. Simultaneously, foreign companies based in Hong Kong are growing frustrated with the instability and are beginning to look to domicile in more stable regional hubs. Through no fault of its own, the Hong Kong’s core industry faces a double threat. Yet with the third-largest stock market in Asia, the fate of Hong Kong is also inextricably tied to the economic well-being of the broader region around it – proving that Hong Kong’s loss may not necessarily be its competitors gain.
Hong Kong citizens have every right to peacefully protest. The city’s special autonomous status ensures democratic rights are protected. Yet violent protests and police crackdowns do not embody these values. When the working and middle-classes are suffering from economic distress, and the city’s financial engine threatens to leave, alarm bells should be ringing. If the stability and confidence that gave birth to the city’s financial services erode further, the city threatens to withdraw itself from the international arena. There is a clear choice for Hong Kong here: work to rebuild confidence, democracy and prosperity, or regress into isolation, disorder and decline.