Hong Kong (finally) turns its back on the past

This colum was first published in L’Express on 23rd December 2021

Under pressure from China, the “fragrant harbor” is undergoing a significant change in status, going from an international financial center to being a regional “supercenter”.

“I don’t care!” was the response given by Carrie Lam, Hong Kong’s chief executive, to the city’s main financial lobby, half of whose members announced the beginning of a wave of sackings made necessary by international travel restrictions. It was a response that owed more to Chinese plain speaking than to British understatement. By imposing a quarantine of 21 days on any traveler from abroad, Hong Kong, traditionally the city that used to be the most welcoming to air traffic, has become the city that is the most hostile.

Guangdong is being asked to transform itself into a “21st century California”

The “fragrant harbor” claims that it is returning to the task that was assigned to it in 1997 when it came back under China’s control: to serve the mother country, the mainland. At the time, this could have been said to mean making capitalists out of over a billion Chinese. Today, however, the issue is, in the long term, to merge with the neighboring city of Shenzen in order to build a unit of more than 20 million inhabitants to rival Shanghai. Before the health crisis arrived, Hong Kong was being called on to transform the Guangdong area — located in the Greater Bay Area — into a “21st century California”, that would combine industrial manufacturing and artificial intelligence software so as to build the future internet of things.

The Covid crisis has accelerated things: the mainland has clearly chosen to be independent of the rest of the world, and is giving priority to increasing domestic demand. It is a difficult gamble to bring off since the bursting of the real estate bubble following on the debacle involving the developer Evergrande. And this is why Hong Kong has been given the task of helping to constitute — for the very first time — financial revenue from the immense savings of Chinese households. The requirements have changed: whilst, for the past 20 years, Hong Kong has excelled in attracting 75% of direct foreign investment to Chinese territory, China currently has a positive balance of payments and now wants to make sure that flotations on the Hong Kong stock exchange do not enrich local or international investors, but rather Chinese savers.

What indeed is the point in creating $700 billion of value through the Tencent Group (WeChat) if, essentially, that only benefits Hong Kong or foreign investors? Wouldn’t it be better to build up a circular finance that only benefits China, where Stock Connect already enables $75 billion to be transferred every year from the Guangdong region to Hong Kong, by officially bypassing current exchange controls? Hong Kong, having become a “Monaco where people work”, is certainly seeing pan-Asian head offices deserting the city, but can console itself by noting that the major luxury brands have already got back to their 2019 volume of sales, solely thanks to the local clientele, and in spite of the absence of almost 60 million tourists. Hong Kong can also console itself in noting that ridiculously high real estate prices continue to defy economic laws under the pressure of buyers from the Chinese mainland. And, finally, Hong Kong can also console itself with the inauguration of the new museum of contemporary Chinese art — the M+ — whose ambition is to rival the MOMA and Beaubourg.

The chapter that is beginning offers new opportunites, but presents new threats as well.

A page has been turned. The chapter that is beginning certainly offers new opportunities but presents new threats as well — threats that the government is keeping under wraps. A recent study showed that a company reducing its business travel budget by 50% would be hindering its ability to innovate to the same degree as if it were to cut its R&D budget by 25%. In the same way, by keeping its borders closed when the West is beginning to reopen its own, the Hong Kong government is making a choice that goes against its population’s historical ability to innovate. It is also acting in defiance of its young people, primarily its graduates, 25% of whom recently declared that they intended to look for their first jobs abroad.

“Honey, I shrunk the kids!” would undoubtedly have been a more appropriate response for Carrie Lam to have made to the international finance industry.