With the arrests of numerous political and media figures, changes to school syllabuses, and an exodus of people at the airport, it would be easy to assume Hong Kong is “dying.” The reality is more complex. Even as Hong Kong’s civil liberties are curtailed, the city retains a vital place in the Chinese economy—one that’s drawing mainlanders in even as some existing residents leave.

Since 2020, Hong Kong has been experiencing a steady reduction of civil liberties, marked by the passing of the national security law (NSL) last June, which criminalizes acts of treason, secession, and collusion with foreign forces and can be broadly applied to justify investigations or arrests.

More than one year since the NSL was passed, Hong Kong is paying a heavy price for its 2019 protest movement, which lasted more than seven months and saw mostly peaceful mass protests as well as violent clashes between protesters and police.

On July 27, the first-ever trial held under the national security law ended with the defendant being found guilty of terrorism and secession and then sentenced to nine years in prison for riding a motorcycle into policemen while carrying a flag with a popular protest slogan. Given the NSL has been used to criminalize any form of dissent—including songs, slogans, and children’s books—many see Hong Kong’s much vaunted autonomy, which was guaranteed until 2047 by the “one country, two systems” arrangement, as effectively over. In effect, they feel with decreased civil and media freedoms and rule of law, Hong Kong is becoming more “Chinese” and less international.

To signal its displeasure with this, the United States has targeted sanctions at Chinese Hong Kong-based officials and even Carrie Lam, Hong Kong’s chief executive. Then-U.S. President Donald Trump also ended preferential economic treatment in July 2020 for Hong Kong and imposed restrictions on imports of certain technology products from the United States after the imposition of the national security law by Beijing.

After the latest round of U.S. sanctions on Chinese officials in July, Beijing soon retaliated by imposing countersanctions on U.S. and nongovernmental organization officials, including former U.S. Commerce Secretary Wilbur Ross. However, more importantly is all these sanctions have not curbed the ongoing crackdown in Hong Kong.

In recent months, the billionaire owner of Hong Kong’s most outspoken critical newspaper Apple Daily, Jimmy Lai, and several of his editors; dozens of former legislators; and numerous councilors have been arrested, and many have been brought to trial. Protest activity is quickly quashed, and annual events like the July 1 pro-democracy march and June 4 Tiananmen Square commemoration were denied official permission this year.

However, these arrests mirror the targeted crackdowns carried out in the past decade on Chinese human rights lawyers, journalists, and feminists. Beijing’s reaction to anything under its rule that challenges its authority openly, whether it be Uyghurs or students, is well known.

Although many in Hong Kong as well as international observers see this as a disaster, this is precisely what Beijing wants, and the hard truth is the city is still a major financial hub.

Hong Kong is generally functioning, especially its vital financial sector, with COVID-19 largely under control with single-digit or zero daily cases during the past month. Hong Kong’s GDP is estimated to have grown by 7.5 percent year-on-year in the second quarter, after growing by 7.9 percent year-on-year in the first quarter, ending an 18-month recession due to COVID-19 and the 2019 public protest movement.

For the first half of this year, Hong Kong’s stock market saw a 60 percent rise in average daily turnover to HK$187.6 billion (US$24.1 billion) compared to the same period last year. Much of this growth was due to an influx of funds from the mainland, and with growing U.S.-China tensions, this influx should not just expect to continue but to increase. Hong Kong bank deposits increased by 5.4 percent in 2020 while foreign direct investment into the city surged by a whopping 62 percent to US$119 billion, though this was due to a low base in 2019.

There were also 46 initial public offerings in Hong Kong in the first half of this year, raising a total of HK$213.2 billion (US$24.7 billion), a whopping 130 percent increase from the same period in 2020, according to KPMG International. These include the HK$48 billion listing of Chinese video-sharing service Kuaishou Technology and the HK$23 billion listing of JDLogistics.

Hong Kong remains the major choice for Chinese companies to list outside of the mainland, and there are expectations that some that have listed in the United States will move listings to Hong Kong to escape tighter scrutiny on Chinese firms.

Meanwhile, the likes of Citigroup and Goldman Sachs are actually increasing hiring by thousands of people this year, contradicting expectations that firms would downgrade their operations. Nonlocal companies based in Hong Kong fell by 0.2 percent year-on-year last June. However, one notable example, asset management giant Vanguard Group, is actually leaving Hong Kong for Shanghai to increase its mainland China operations.

There are also fewer expectations these days that Hong Kong could be replaced as a finance hub by places like Singapore, Tokyo, or even Taipei. It is fanciful to expect firms that want to do transactions with China to move further away, especially to places like Taipei, where it is politically sensitive and restrictive to do business with Beijing.

Hong Kong’s biggest advantage of being physically located next to mainland China, adjacent to the tech hub of Shenzhen, is something none of its rivals, especially Singapore, can replicate.

For many foreign businesses operating in Hong Kong, there is a level of concern about the NSL, which expands authorities’ powers to search, seize, and freeze the assets of those accused of violating the law. A survey by the American Chamber of Commerce in Hong Kong revealed more than 40 percent of respondents, but which was only 24 percent of the chamber’s membership, plan to or might consider leaving.

However, without any viable alternative to Hong Kong, most international firms are likely to either stay or move just part of their operations to other places. Chinese companies are also the most numerous nonlocal firms in Hong Kong, with almost 2,000 firms as of the end of 2020, followed by 1,398 Japanese firms and 1,283 U.S. firms. That doesn’t mean more international companies might leave Hong Kong in the future, but for now, Hong Kong’s role as China’s financial gateway to the world is still intact.

The experience of one of the world’s biggest banks, HSBC, is telling. It has been forced to bend the knee to Beijing and publicly support the NSL, but there is little chance it would pull out from Hong Kong or reduce its operations there given as much as 90 percent of HSBC’s profits come from Asia, specifically Hong Kong.

Although not many companies are leaving, many people are. The NSL has led to some Hong Kongers wanting to emigrate to more democratic societies. In the first quarter of this year, more than 34,000 Hong Kongers, of which 13,700 individuals were already in the country, applied for the U.K.’s BNO route, a special residency offer for holders of British National (Overseas) passports, which are only for Hong Kong permanent residents born before the handover in 1997. In 2020, Hong Kong’s population declined by 0.6 percent, the first since 2003.

But this might not concern Beijing too much. If the pandemic clears and borders reopen, more mainland Chinese will continue to move to Hong Kong, joining the more than 1 million people already living and working there. Hong Kong authorities have even tried urging Hong Kong youths to go to the mainland to work or live, especially in adjoining Shenzhen. And Hong Kong has experienced exoduses before in the 1980s and 1990s before the handover, with many later returning to Hong Kong again.

Frenetic and crowded, Hong Kong has never been a comfortable city for its people, whether as a financial hub, a trading center, and especially during the post-World War II period when its population more than tripled due to an influx of refugees from mainland China. Its governing and business elites have always prized economic rights rather than political rights, taking pride in Hong Kong’s regularly high rankings as the world’s freest economy and prickling at any drops or removals, such as from the Heritage Foundation’s Index of Economic Freedom this year. So although the loss of civil liberties is a serious concern, many Hong Kongers already face tremendous economic struggles, such as astronomical home prices.

Despite being one of Asia’s wealthiest places, with a GDP per capita of more than US$48,000, Hong Kong also has a poverty rate of more than 21 percent, high inequality, and some of the world’s most expensive and smallest apartments. Hong Kong’s legislature might be the only one in the world where companies can vote for representatives in several functional constituency seats, which are reserved for sectors like commerce, industry, insurance, and, of course, finance.

The integration of Hong Kong with mainland China, which many worry about, has been a goal for some time, as the Greater Bay Area plan, which envisions a Silicon Valley-like region combining Hong Kong, Macao, and nine major cities in Guangdong province, attests. Major infrastructural projects like the high-speed rail from Hong Kong to Shenzhen and Guangzhou and the 34-mile Hong Kong-Zhuhai-Macao Bridge, which both opened in 2018, also physically enforce this integration. Although the Greater Bay Area plan has been mentioned less recently, more integration in the future would not be unexpected.

Constant pronouncements that Hong Kong is “dying” risk obscuring and simplifying the reality of what is happening there: a deliberate transformation carried out under the direction of Beijing, which cares little about the civil liberties being lost while retaining the city’s financial hub status. In other words, the Hong Kong of old is gone and is not coming back soon. This wouldn’t be the first time Hong Kong has been perceived in a limited manner. The heavy coverage of the 2019 protest movement, which received wide international support, was followed by much fewer articles examining the aftermath or analyzing how the movement was defeated.

There are few signs Hong Kong authorities’ crackdown on civil liberties and political figures will abate despite mounting criticism and condemnation as well as sanctions. It might very well continue in the coming months, even as Hong Kong’s economy and financial sector continue to power on.

For the United States and others like the United Kingdom and Japan, condemning Beijing and Hong Kong authorities must also be weighed against the fact that thousands of firms from those countries operate and thrive in the city, doing business with mainland China. There is a clear limit to what the United States can do, even though the Biden administration issued an advisory in mid-July warning U.S. firms about events in Hong Kong.

Current events require the United States as well as others to reevaluate how they perceive the city and grasp the magnitude of the strategic challenges to facing China.