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Friday, Apr 26, 2024

Taking Hong Kong’s pulse as financial center

Taking Hong Kong’s pulse as financial center

Visit confirms that ‘Hong Kong will be fine – just not so much for the Cantonese’
Having spent the better part of two weeks in Hong Kong during the Christmas and New Year’s holidays, I have had the opportunity to test the theory that I advanced in my earlier commentary just before Christmas about Hong Kong’s resiliency as a financial hub.

It is definitely living up to my economist friend’s one-liner that “Hong Kong will be fine – just not so much for the Cantonese.”

By Cantonese he meant those Hong Kongers who are natives and who speak Cantonese as their primary language as opposed to the mainland Chinese, most of whom are speakers of Mandarin. .

It’s not that Cantonese speakers are insignificant in number. More than 60 million people in China speak Cantonese, according to the state-run China Daily, so the Hong Kongers have some company especially in surrounding provinces.

But the language spoken in Hong Kong does make a difference the city is part of a country of 1.4 billion. Many Hong Kongers speak some Mandarin, and some are quite fluent, but virtually none of them have been educated on the mainland at the elite universities there, and they simply lack the connections with the elite cadres of the Communist Party.

The party controls the government, which in turn is intimately connected to state and private sector business and industry. Global banks in Hong Kong want to hire mainlanders who can help them in developing business opportunities on the mainland.

That in turn has resulted in far fewer opportunities at global financial institutions in Hong Kong for the Cantonese, the native Hong Kongers, than was previously the case. The number of mainland Chinese resident in Hong Kong is well over 1 million out of the 7.8 million total population, and most have arrived in the almost 23 years since the British departed.

It definitely seems to me that part of the problem of the unrest in Hong Kong has to do with a relative decline in top level job opportunities for Hong Kongers.

Looking at the economic effects of the disappointing lack of political change that is readily seen in the on-going demonstrations in Hong Kong, the sector that’s hurting is tourism and related retail.

On my many visits to Hong Kong in recent years, as I walked along the streets of the prime financial district called Central, I would inevitably hear tourists speaking Japanese, Korean and Mandarin. But from the second half of last year numbers of tourist arrivals from Japan, Korea and the mainland have tanked along with those of American and European tourists.

On this recent visit I heard no Japanese and only very infrequently Korean and Mandarin.

Predictably, the result of this lack of tourists, down about 50 percent from normal levels, is that business in retail shops and restaurants that depend upon tourists to a significant degree is in the doldrums.

Unfortunately for Hong Kongers, it is they who are the primary owners of businesses of this type – and they are also major employers of local people. They are taking major hits to their incomes, and the strain is showing.

One manager of an upmarket bespoke tailor’s shop told me that he and his staff were “sympathetic to the political goals of the protesters.” However, the continued demonstrations were simply “frightening tourists away and hurting Hong Kong people, not [President] Xi and the mainlanders.”

Given the number of empty tables that I saw at restaurants that had often been packed with customers during my visits to Hong Kong before the protests began, it was easy to see that he was not exaggerating about the sharp downturn in retail business.

Meanwhile the financial sector in Hong Kong, which is so important to mainland business and Beijing as a source of funding for mainland companies, is thriving.

In fact, last year was another banner year for securities issuance in Hong Kong, and the value of the initial public offerings in Hong Kong was over four times the value of IPOs that were completed on the London Stock Exchange.

Despite the protests, the primary index of the Hong Kong Stock Exchange was up 9% according to a report by the South China Morning Post. Not a bad showing.

My Hong Kong-based friends in the financial sector all seemed confident that Hong Kong will weather the current protests and continue to be a major financial hub.

Even if Singapore and Tokyo do expand to some extent, everyone I met –and most of them have decades of experience in Hong Kong and other Asian markets – was certain that only Hong Kong could do the global financial heavy lifting to raise money in great volumes for mainland companies.

That should be enough to ensure Hong Kong’s place as Asia’s premier financial market, but it will be a rough road for some time to come on the retail side, including for global retail companies that are active in Hong Kong.

Not one of my contacts in Hong Kong expressed any confidence about when the local government and Beijing will reach some consensus on reforms that will give the protesters some feeling of success and thus get them to end the protests.

Until such time the protests will wreak some further havoc upon retail businesses but probably not on the financial sector, which will continue to reflect the strength of mainland China’s economy and go forward confidently on that basis alone.
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