Outside the closed doors of the Landmark Mandarin Oriental on the noisy, congested Queen’s Road Central that runs through the middle of Hong Kong’s business district, stands a lone guard wearing a plastic apron and gloves. The warning not to enter the once bustling five-star hotel — now a high security luxury prison — is symbolic of a city transformed by a pandemic and politics.
Inside, guests in 111 rooms are captives of a draconian three-week quarantine policy that has mostly protected Hong Kong from Covid-19 but which has thrown into chaos its reputation as one of the most vibrant business centres in the world. The Landmark is one of 44 “designated quarantine hotels”, with around 12,500 rooms across Hong Kong — many far less luxurious — that now represent a long and frustrating pause for anyone arriving in the territory.
Global financial centres depend on the free movement of people and ideas. None of that is happening at the moment, say those working in the city’s financial and commercial industries. The city is emerging from a year in which it suffered a record population drop of 1.2 per cent, around 87,000 people, and fewer people than ever arrived to replace them. As long quarantines and travel bans on several countries including the US and UK persist — flights have been stopped until after Chinese new year in February at the earliest — that exodus is likely to intensify.
Beijing’s efforts to curtail some of the civil freedoms enjoyed in Hong Kong amid widespread protests in 2019 had already raised questions over its role as a financial centre.
“If Hong Kong is not connected to the rest of the world, it loses its reason for being,” says Simon Cartledge, an analyst who has lived in the territory for three decades. “But thanks to the politics, the government can’t even consider a more pragmatic approach.”
Companies are now voicing concerns about the difficulties of remaining operational in a city that once prided itself on ease of access.
“I’ve loved Hong Kong for 28 years, but it is time to go,” says a British executive in the city’s entertainment industry, who will leave with his family at the end of the school year in June. “It’s impossible to work in Hong Kong if you do business in Asia because you can leave easily enough but you can’t get back. There are hardy souls who have done two or three quarantines . . .[but] it doesn’t suit businesspeople.”
Some argue Hong Kong — for decades a springboard for companies doing business in mainland China — is being grindingly recast into just another Chinese city. They worry that the pandemic, and the city’s hardline approach to it, has accelerated that process. Others, however, talk of the promise of a transformation into a new model financial centre, one that continues to thrive on its status as a gateway to mainland China, but with far less in common with counterparts in New York or London.
“People are talking about the ‘death of Hong Kong as we know it’, but that is kind of the point. When anything big changes, for good or bad, the old version dies,” says the veteran Asia head of a large US global fund who intends to remain in Hong Kong. “The ‘we’ in that phrase you keep hearing are either western expats who have been here for years or decades or Hong Kong locals and both are projecting its future with a backward-looking lens.”
Even the longer-term optimists for Hong Kong admit there are immediate causes for concern.
Global businesses, which have suffered a dramatic collapse in hiring from outside Hong Kong, are braced for a wave of exits this summer. “I am worried about the ability to remain operational,” says the local head of a global bank in Hong Kong. “It is not compelling for anyone who is working [abroad] to come to Hong Kong.
“I run a firm with tens of thousands of employees in the region and I can’t visit any of them unless I subject myself to a lengthy quarantine,” he adds. “The ability to run the region from a hub when the city is closed to the rest of the world is clearly suffering.”
The bank is losing scores of expats and locals who have family overseas, he adds, with attrition at senior levels double that of a normal year.
Visa approvals for foreign professionals have crashed from more than 40,000 in 2019 to just over 10,000 in the first nine months of 2021, according to government data.
Even before fears about the highly transmissible Omicron variant prompted Hong Kong to reassert its zero-Covid strategy, closing schools, implementing new limits on socialising and imposing the flight bans, the Asia Securities Industry and Financial Markets Association, Asia’s top financial lobby group, warned that almost half of large international banks and asset managers in the city believed business conditions would deteriorate over the next three years.
Bonus season — which runs from now until April — has heightened anxieties about a potential brain drain at international banks. “All bets are off as to how many people will leave after bonuses are paid,” says one banker. “It is regional corporate Armageddon.”
In some cases, senior roles at financial institutions are remaining vacant for six months or more, according to headhunters — a situation described as “unheard of” by Ryan Gillespie at the search firm Prestwick Group. “Companies are saying we are losing some of our best people and we can’t find similar talent to replace them,” he adds.
Proponents of the strict quarantine measures cite the low death toll in Hong Kong during the pandemic: just 213 deaths in a population of 7.5m. But even some of the city’s top political establishment admit it has taken a serious toll on how businesses operate.
Jeffrey Lam, an adviser to the de facto cabinet of chief executive Carrie Lam, says: “There is still [talent] coming to Hong Kong. But . . . it seems that a [few] more people are leaving the city.
“I don’t think that will be a long-lasting issue, as Hong Kong still remains a place which is very attractive, with its low and simple tax [system] and a relatively stable business environment compared to other places. But I do think that the government needs to formulate new policies to attract more talent.”
But, as long as Beijing tightly controls the flow of capital in and out of China, Hong Kong retains a purpose. Others point to the continuing transformation of the stock market, with US politics pushing Chinese listings away from American markets and Chinese politics pulling them towards Hong Kong.
“[Hong Kong’s] Hang Seng index was about property and banks. Now it is a liquid play on China,” says one veteran fund manager. “It may be hard to recruit from the US or Europe, but I don’t think any financial institutions are going to have any difficulty recruiting top talent from mainland China to come and work here. And that’s what financial centres are about — liquidity and talent.”
A ‘China first’ strategy
Hong Kong’s status as an international centre for business and finance was at risk long before its zero-Covid strategy isolated it from the rest of the world. The intense political turmoil in the months prior to the pandemic had magnified the debate around the whole nature of the city’s relationship with China and what it represents to the outside world.
After the handover of Hong Kong from Britain to China in 1997, the “one country, two systems” formula of Deng Xiaoping allowed the city to flourish as a gateway to what would soon become the world’s fastest-growing major economy.
The emergence of Hong’s Kong as a financial centre was built on two open gates: one connecting it to China and the other to the rest of the world. Trust in the fairness of its legal systems and the free flow of information put it on a footing with London and New York.
Even now, some believe that the old logic will hold and that Hong Kong’s future is guaranteed by Beijing. Others believe that fails to understand how far the political situation has moved. Under President Xi Jinping, the Chinese Communist party decided it could no longer tolerate Hong Kong’s civil freedoms and its assertive pro-democracy movement. Beijing’s imposition of a national security law in June 2020 has been used to crush political opposition in the territory.
When the pandemic erupted and China chose to shut itself off from the world, Hong Kong had no choice but to follow as Xi made clear that “one country” trumps “two systems”. That poses an unprecedented challenge for the territory.
A Chinese academic, who advises the central government on Hong Kong but asked not to be named, says the situation is clear: “The more controls there are on movement between Hong Kong and the rest of the world, the fewer there can be between Hong Kong and China.”
Lam has prioritised the restoration of quarantine free travel with China — the border has been effectively closed since early 2020 and mainland tourism is critical to the Hong Kong economy — rather than with the rest of the world. If she succeeds, it will be the first time in the 180-year history of modern Hong Kong that it has been open to China but not the outside world.
Only then will Lam’s administration possibly be able to experiment with looser controls on international arrivals — as Singapore has done with quarantine free “vaccinated travel lanes” — but only if Beijing agrees.
Recent Covid outbreaks in both Hong Kong and China mean quarantine-free travel between the two is again on hold.
“It’s looking likely that opening with the mainland won’t be happening any time soon,” Cartledge says, “which leaves the international opening in limbo. The government’s zero-Covid strategy is inflicting [real] pain.”
The former chief executive of one of Hong Kong’s largest banks, speaking on condition of anonymity, says: “You will end up with a great deal more expats leaving and an acceleration of Hong Kong or Chinese executives into all the key positions. It will be a localisation, I can’t see any way around that.
“Most businesses have enough gifted Hong Kong and Chinese people that this shouldn’t be a hardship, but over time [global businesses] will lose the connection between the Hong Kong/China business and headquarters in the US or elsewhere.
“Hong Kong’s value will not be zero,” he adds, “but it will be different.”
For those confined in Hong Kong hotel rooms, counting down the days to freedom, any change would be welcome. “You’re locked in a box for three weeks, you lose touch with everything,” says one British lawyer who had to leave the city, to travel to Europe for work, recently but is dreading his return. “That’s if I dare go back.”