HK:Foreign firms’ concern about judicial independence, stability

Mark O'Neill December 14, 2020 08:50

Foreign companies in Hong Kong are concerned about the city’s judicial independence and political stability but do not plan to leave.

Those were the main findings of an official survey conducted between June and September and published this month. It was the first such survey since the National Security Law (NSL) came into effect on July 1.

For the first time in 11 years, the number of foreign firms here fell to 9,025 as of the end of June, down from 9,040 a year earlier. The number with regional headquarters fell 2.4 per cent to 1,504 and those with regional offices fell 0.4 per cent to 2,479. The total number of employees at non-local firms fell 10,000 to 483,000.

The number citing the legal system and independence and political stability and security as negative factors rose to 12 per cent and 20 per cent respectively, increases of five and seven percentage points from a year earlier.

In an interview last week prior to his departure, British consul general Andrew Heyn said that he had not seen an exodus of British firms since the NSL came into force. “They remain committed to Hong Kong. Their confidence rests on whether Hong Kong continues to have an independent judiciary. This is the one that everybody is going to be watching now,” he said.

A British lawyer said the main concerns of her clients were whether a Hong Kong court would give them a just hearing in a dispute with a big Chinese state company. “Now the Hong Kong judges are under strong sentencing pressure in national security cases. The other concern is access to information. While the media here are increasingly censored and self-censoring, firms can obtain the information they need from other sources. If that access were limited, that would be a game-changer.”

The number of mainland companies in Hong Kong increased 10.4 per cent to 1,986. They are the largest group of non-local companies. Next were Japanese, U.S. and British firms, with 1,398, 1,283 and 665 respectively. Four per cent of those in the survey said that, during the next three years, they would leave and 56 per cent said they would keep operations at the current level, up from 52 per cent a year earlier.

An official of a European chamber of commerce said that Hong Kong still had much to recommend it – proximity to China, easy reach to Asian countries, all the professional services you need and a specialised staff built up over many years. “If a company wished to move, would its staff be willing to move also?” he said.

“But, if civil society changes and people become less open and friendly, Hong Kong will not be such an attractive place and expats will not want to work here. This is already happening in academia,” he said.

In an editorial on the survey, Ming Pao said that Hong Kong still remained attractive, with advantages more than disadvantages. “But the most important point is that the positive factors are decreasing. This is a warning to the central and SAR governments and influential Hong Kong companies and individuals. If this trend continues, more non-local firms may leave Hong Kong or downgrade their operations and choose other places for their Asian headquarters,” it said.

In August, Alexander von zur Muehlen, the new Asia chief executive officer for Deutsche Bank, chose Singapore instead of Hong Kong when he took up the position.

Nikkei Asia said 52 banks and financial companies and 24 insurers had left the city in the year to June 2020. Since then, the Vanguard Group and the Motley Fool have also announced their departure from Hong Kong.

Tokyo, Seoul, Taipei and Singapore are competing to attract foreign companies to relocate. While each has its plus points, none is an ideal replacement. Tokyo is handicapped by high taxes, a complex regulatory structure and low standards of English.

Taipei offers a civil society that is free, democratic and dynamic. But its disputes with Beijing will intensify, with the possibility of an economic blockade and, in the worst case scenario, a military conflict. Seoul has a well-developed financial market and investors who put their money all over the world; but the government has done little to attract foreigners.

Another concern for foreign firms is the widening gap between the SAR government and the Hong Kong population. Public opinion surveys show widespread opposition to the NSL and reforms of the education system. The public sees government leaders as answerable only to Beijing and not to them.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.