Doing business in Hong Kong increasingly comes with a new risk: the political cost of upsetting Beijing.
Chinese clients recently dropped one big Chicago law firm after it recused itself from a politically sensitive case. A former Wall Street banker was muzzled for writing a “Hong Kong is dead” column. And Google was effectively cornered into enforcing a ban on a popular protest anthem.
In all areas of life, Hong Kong is hewing closer to mainland China, blurring distinctions that once cemented the city’s status as mostly free from the politics of Beijing. Legal rulings echo the courts in mainland China. City regulations follow edicts in Beijing. Even government banners recall Chinese Communist Party slogans.
The city’s transformation is being driven by a national security law imposed by Beijing in 2020 and additional legislation passed by Hong Kong lawmakers in March. Both have dealt a blow to the partial autonomy promised by China when it took possession of the city from Britain nearly three decades ago.
The work of lawyers, bankers and other professionals now risks coming under scrutiny for “external interference,” an offense that has become criminal. The new dynamic, together with rising tensions between China and the West and an economic downturn in China that has decimated much of the deal-making that once made Hong Kong tick, is casting a pall over the city’s once lively economy.
The changes are pushing some foreign firms to leave or sharply scale down their operations in the city.
Two international law firms, Winston & Strawn and Addleshaw Goddard, have closed their Hong Kong offices in recent months. Wall Street banks have cut jobs or demoted employees who were once money spinners for Chinese companies raising cash in the stock market. American pension funds have started skipping Hong Kong, once an obvious destination for billions of dollars of investment.
“If you are running a foreign business and you speak out, you are going to find yourself under a microscope very quickly,” Stephen Roach, a former chairman of Morgan Stanley Asia, said in an interview.
Mr. Roach wrote an opinion article in The Financial Times in February declaring, “Hong Kong is over.” After the article was published, he said, he was prevented from speaking at the China Development Forum, one of China’s most important economic conferences, for the first time in 24 years.
He said he wrote the piece in reaction to changes he saw and heard about from former colleagues and friends living in Hong Kong, where he also lived from 2007 to 2012, and where he has returned several times over the past year.
Citywide protests in 2019 led to Beijing’s imposition of the national security law, which choked political dissent. Hong Kong had previously been a leading source of new public market listings for Chinese companies, from start-ups to established ones. Its ranking at the top of financial centers was uncontested.
Since then, Mr. Roach said, a number of factors, including Beijing’s encroaching influence in local governance, have led friends to question the future of the city.
“It’s not that Beijing will impose new restraints and guidelines — that has already happened, it’s a fait accompli,” Mr. Roach said. “It continues to exert a strong hand in the governance of Hong Kong.”
Investors are also working out how to deal with the new environment. American sanctions on Chinese companies with ties to the government have made it impossible to invest in many of the publicly traded companies in Hong Kong.
“There used to be a distinction between Hong Kong and China stocks, but now the markets are converging,” said Steven Schoenfeld, chief executive of MarketVector Indexes, a German firm that offers investors like pension funds different ways to invest in global markets.
MarketVector and some of its rivals like MSCI, an American firm, are now having to cater to pension funds that do not want to invest in Chinese companies listed in Hong Kong.
For the law firm Mayer Brown, the political risks in Hong Kong became clear in 2022 after it withdrew itself from a case representing the University of Hong Kong in its attempt to remove a statue commemorating the 1989 Tiananmen massacre from campus. The fallout was immediate.
A prominent politician called for a boycott of Mayer Brown. “Don’t mistake foreign interference only taking form in war crafts and cannons,” said Leung Chun-ying, a former Hong Kong chief executive.
One by one, Chinese clients of Mayer Brown removed it from their lists of go-to firms for legal work, according to two people with direct knowledge of the firm, who spoke on the condition of anonymity. This month, the law firm announced a plan to decouple from its Hong Kong partnership, ending what just a few months earlier it had heralded as a 160-year “Hong Kong story.”
Mayer Brown did not respond to multiple requests for comment.
Now, Google is in the spotlight after a decision by a Hong Kong court to grant a government request banning “Glory to Hong Kong,” a song that grew out of pro-democracy protests. After the decision, Hong Kong’s justice secretary, Paul Lam, called on Google to enforce the ban and raised the possibility that other content could come under scrutiny, too. Two days later, Google said it would block the video from being seen inside Hong Kong on its sister platform, YouTube.
Some foreign companies are finding it easier to exit. As they leave, offices in the gleaming skyscrapers that dot the skyline have hollowed out. Vacancies in March were at a record 16.3 percent, though the figure has come down slightly since then, according to Colliers, a real estate brokerage firm.
Executives of Chinese companies, in contrast, have visited Hong Kong in recent months to inspect office and retail space, said Fiona Ngan, the head of occupier services at Colliers. Most have not signed leases yet, but Colliers expects that to change later this year and recently created a team catering to Chinese companies.
Hong Kong is beginning to feel more Chinese in other ways. Seeking to assuage business worries over the security legislation, the city’s finance chief, Paul Chan, pointed to nearly 50 companies that planned to open or expand in Hong Kong, adding tens of billions of dollars to the city’s economy.
Among the 45 companies on a list provided by Mr. Chan’s office, 35 were mainland Chinese companies.
In Hong Kong’s neighborhoods, new restaurants are popping up where storefronts stood empty after the city’s tough pandemic policies put small restaurants out of business. Some of the new eateries are famous Chinese franchises offering local cuisine and bubble tea.
On the streets, many tourists and even locals speak Mandarin, the official language spoken across China. English language skills among Hong Kongers ages 18 to 20 significantly declined from 2020 to 2022, according to a recent survey by EF Education First, an international education company based in Switzerland.
Although the results were in line with trends in other places, the finding alarmed many in a city that has long prided itself on its ability to speak the global language of business.
More talented young Chinese professionals are coming to the city. Hong Kong officials created a new visa plan to lure professionals from around the world. Nearly all the applicants who have taken up the visas have been from mainland China, according to the most recent government data.
Hong Kong has a long history of change, and the current transformation is another such transition, some experts said.
Others, like Wang Xiangwei, warned that Hong Kong’s leaders must do more to alter the perception that the city was losing its reputation as an international magnet.
“I only see one-way communication from Beijing telling Hong Kong what to do,” said Mr. Wang, a former editor in chief of The South China Morning Post.
“If Hong Kong doesn’t do anything, if they allow Beijing to tell them what to do, then that will be the end of Hong Kong as we know it,” Mr. Wang said. “It will self-destruct.”
Zixu Wang contributed reporting from Hong Kong.
