Should Shenzhen-based tech firms relocate to HK?

May 28, 2019 11:06
Shenzhen, which has been a key beneficiary of China's reform and opening-up program many decades ago, is now home to several major tech firms including Huawei and Tencent. Photo: Bloomberg

Following the clampdown on Huawei and the previous moves against ZTE (00763.HK), the Trump administration could take aim at two other Chinese tech firms, drone giant DJI and internet behemoth Tencent (00700.HK), as the tech war intensifies, media reports have speculated.

Coincidentally, all these four companies have their headquarters in Shenzhen. This interesting aspect prompted a viral joke online that perhaps the so-called US-China trade war is actually a battle between the US and Shenzhen.

More seriously, the news illustrates the significance of Shenzhen as a tech hub for mainland China. Widely considered as China’s Silicon Valley, the city is home to a number of leading tech firms, including electric vehicle maker BYD (01211.HK) and BGI Group.

While Shanghai and Zhejiang in eastern China have a long history as the nation’s business hubs, Shenzhen was a remote fishing village four decades ago. The rise of Shenzhen is largely due to China’s reform and opening-up. The city has benefited from capital, technology, and expertise from Hong Kong and Taiwan, thanks to its geography advantage.

So are Shenzhen and the tech firms headquartered in the city being particularly singled out by the Trump administration? 

Not really!

I believe Washington is targeting the whole industry chain in China and the business in sensitive sectors.

What the US is most concerned most about is China’s forced technology transfer, theft of US intellectual property, privacy breaches, among other issues.

Frankly speaking, due to the little trust in China’s political and legal systems, the general public, as well as the political circles and the business sector in the US, have generally believed that there are some issues in China, and that entities such as Huawei pose a national security threat, even though they have not had any solid evidence.

There is wild speculation floating online that the trade fight, as well as the core issue of the American concern, can be resolved if Huawei, DJI, Tencent and other leading Chinese tech firms move their headquarters and sensitive businesses, such as data servers and core R&D labs, to Hong Kong.

Hong Kong has a common law system and the territory inherited the Separation of Powers and judicial independence from its days past as a British colony. Given this, the international community has strong confidence in the city’s rule of law. That would offer great relief for stakeholders in the West, in case of disputes.

But of course, the premise is that the so-called “rule of law” principle in Hong Kong has not yet eroded, and that Hong Kong’s reputation has not yet been tarnished. Do we still have confidence in that premise?

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Hong Kong Economic Journal columnist