High and ultra-HNW individuals in Hong Kong are increasingly likely to leave or avoid booking money there, preferring rival hubs such as Singapore, after Beijing cracked down further on the jurisdiction’s autonomy last week.

Senior wealth managers and other individuals working in Hong Kong’s sector told WealthBriefingAsia and WealthBriefing that they expect business to be difficult, with few signs of relief in the near term. Late last week China made it clear that it intends to enact sweeping national security laws for Hong Kong.

Firms say that hiring decisions – already hit by the pandemic – could be put on hold, while clients might avoid Hong Kong and choose to take assets elsewhere. 

On Friday the Hang Seng equities market fell heavily because of concerns about how the crackdown will affect Hong Kong’s status as a global financial centre. It has become one of the top places for initial public offerings, for example. 

China was pushing Hong Kong to introduce its own security law, particularly after the mass protests in 2019 brought about by mainland China's attempts to extradite people from the jurisdiction. It now appears that the Communist regime in Beijing has lost patience. Although Hong Kong has come out of COVID-19 lockdowns and sustained relatively few deaths on a per capita basis compared with many other locations, and is still a major business and financial hub, it faces a worrying future. 

“Beijing has gone for the nuclear option,” a senior wealth management executive told this publication last Friday. “Beijing is fed up with Hong Kong,” the executive, said. The people who spoke to this news service asked not to be named. 

Last year lawyers such as those specialising in HNW immigration and asset protection/structuring, said they have been increasingly asked for help by people looking to move some or all of their assets out of Hong Kong to Singapore, London, Switzerland and other hubs. (See an article here.)

Ironically, private banking is an industry owing some of its existence to helping people fearing persecution, and who want discreet ways to shield wealth and wellbeing, a wealth management senior figure said. And that means that Hong Kong-based wealth managers may actually be busier talking to clients, although actual assets will be booked outside Hong Kong, the person said. 

China has made “massive miscalculations” in recent years: It thought it could influence Wall Street and Silicon Valley to do its bidding, and was wrong-footed by the election in 2016 of Donald Trump; and it thought the Western media would ignore or downplay its actions. That is not the case, the person continued. 

“China has crossed the Rubicon…..a US/China struggle is unavoidable,” the person added. 

Protests took place in Hong Kong over the weekend about the move. 

Civil liberties and corporate law
It is important to distinguish between how Beijing is squeezing civil liberties, such as freedom of expression, and the common law standards for contracts and commercial legal agreements. Many businesses that affect mainland China are structured using Hong Kong-based law, and that is not going to change, a UK expat who has worked in Hong Kong for many years said. 

China has been pressing Hong Kong to adopt a national security regime for years, and after the protests of 2019 it decided enough was enough, the person said. 
 

Fog of a virus
In his speech last Thursday at the opening of the annual session of the National People’s Congress, Chinese premier Li Keqiang did not refer to the Basic Law – Hong Kong’s mini-constitution – in his work report, the first time he has not done so since taking office in 2013 (source: South China Morning Post, 22 May). 

China is also acting at a time when the world has been understandably distracted by the pandemic, which came out of the Wuhan region. US President Donald Trump, and others, have criticised China for not acting fast enough to alert the rest of the world about the pandemic and for its suppression of dissent. And ironically the 2019 Hong Kong protests were severely curtailed by the social distancing/lockdown methods used in the city-state. But the underlying anger of protesters, and frustrations in Beijing about them, haven’t gone away. 

“The [political] problem was never resolved so I am not surprised by it [the most recent move from China] but the timing could not be worse. Hong Kong is really fragile right now and this could be the straw that breaks the camel’s back,” a wealth management senior figure said. “It is a given that the motion will be passed but what is important is the rhetoric around it - any rabble rousing could lead to blood on the streets. The nervousness you are seeing right now is about how much traction the protests will be able to gather and how long it will last. The legislative change per se would not have much impact on Hong Kong’s appeal as a regional financial hub.”

“The changes the motion proposes simply make explicit what has been implicit for some time now,” the person said.  

A senior banker said: “Beijing has a plan in place to allow access to assets and capital on the Mainland, the fallout from any further instability will reflect in asset prices in Hong Kong.”

China’s move came amid tensions between the US and China. The US has until the end of June to work out if it is to certify Hong Kong’s autonomy under the Human Rights and Democracy Act of 2019. That status will shape whether the US extends Hong Kong’s preferential US trading and investment privileges – important instruments of leverage.

A kind of calm
A senior wealth manager at a European business said that he and colleagues have returned to offices in recent days as the lockdowns ended, and on Friday morning there wasn’t much talk about the political situation. “People are adopting a sort of `wait and see’ approach,” he said in a call. 

“The sheer, massive size of Hong Kong’s financial services sector is not something that can be dismantled overnight. Of course it is not a positive situation with China putting more fingers into Hong Kong’s affairs,” the executive said. 

There will be more calls about moving money to Singapore and the latter state has already been a big destination for money.

Hong Kong is recovering after the pandemic and in terms of restaurants, shopping malls and the volume of traffic, there “is a bit more of a buzz going on”, the individual added.