Many of his predecessors as Asia-Pacific CEO of Deutsche Bank had enjoyed the azure vistas of Hong Kong's Victoria Peak and its bustling harbor, viewed from the towering International Commerce Centre on the Kowloon Peninsula. Deutsche Bank has usually observed a "dual- hub" structure in Asia with co-CEOs in Singapore and Hong Kong for over a decade. However, "Hong Kong was always the nerve center of Asia operations," according to one former employee.

Now, however, that era is at an end. The aerodynamically coifed von zur Muehlen has elected to run the bank's Asian empire from Singapore, and since his appointment was announced in April, there has been no mention of any plans to install another Hong Kong-based CEO. Several Asian departmental heads remain in Hong Kong, the bank stressed.

Deutsche Bank is not leaving Hong Kong. But like many businesses and banks, a year of political turmoil has put a question mark over the island's centrality as Asia's premier financial hub.

Before the coronavirus pandemic broke out, driving protesters off the streets, Deutsche Bank's Hong Kong staff had grown used to arriving at work through the chaos of public transport delays. They wove around police barricades and streets strewn with discarded umbrellas, tear gas canisters and unearthed pavement blocks.

Rolling protests against Beijing's hegemony had begun last summer. In June this year, China moved decisively to clamp down on opposition, imposing a new security law that punished political crimes and erased Hong Kong's already largely theoretical independence from Beijing. Washington struck back by withdrawing the special status that treated Hong Kong separately from the mainland and which had helped undergird its prosperity.

Today, the former British colony is trapped in an escalating conflict between Washington and Beijing that threatens its position as Asia's premier international business center. How forcefully China implements the security law will have huge consequences for the city, which hosts 163 licensed banks and 2,135 asset managers. Hong Kong is the world's largest equity-raising hub, the third-largest dollar trading center and a primary gateway to the second-largest economy.

Deutsche Bank said its move had not reflected anything other than simple logistics and denied it was hedging against Hong Kong. "We remain committed to our dual-hub structure in the Asia-Pacific," said a Singapore-based spokeswoman for Deutsche Bank.

However, bankers described it privately as a snub to Hong Kong. An equity capital markets executive who was a casualty of sweeping job cuts last year at Deutsche Bank said, "Clearly the balance of power is tilting to Singapore, and my former colleagues tell me more senior roles can gradually move."

"Several banks are considering it as well," he added.

Risk hedging

Hong Kong has long been a gateway to China's market, and its status will continue to be bolstered by its unmatched access and the size of its equity and bond markets. But the question of whether it will continue to also be Asia's central business hub has been cast into doubt.

"If the new law leads to further unrest and exodus of talent, then the question over its future as a financial hub becomes more serious," said Stephen Roach, the former Asia chairman of Morgan Stanley and now a senior fellow at Yale University's Jackson Institute for Global Affairs.

Banks and other companies are becoming jittery about having headquarters functions there, said the manager of a foreign accounting firm in Tokyo, and many have started looking for a backup office somewhere else. Others have begun to de-emphasize Hong Kong in subtle ways and put growth plans in Hong Kong on hold. A large European hedge fund, for example, said it had already backed away from plans to add four more traders and analysts in the city. Since late 2019, banks including Macquarie and Nomura have ceded office space in the International Finance Center complex in Hong Kong island, which is also home to the city's de facto central bank.

Several fund houses, including Raffles Family Office, Pinpoint Asset Management, Myriad Asset and Nine Masts Capital, have opened offices in Singapore.

Ironically, another category of businesses already fleeing the encroachment of the Chinese state: Chinese financial interests and family offices that invest on behalf of wealthy mainland individuals who fear scrutiny by Beijing.

"A few big wealth management clients have taken it up seriously, as they consider Singapore as a much more stable place than Hong Kong that is also further away from China," said Steve Knabl, chief operating officer at Swiss-Asia Financial Services, a platform for hedge funds and wealth managers, which administers $3 billion.

Singapore has quietly put in place regulations designed to lure the assets of fund managers and family offices, and is among a growing list of Asian cities vying to make themselves more attractive to international firms leaving or diversifying away from Hong Kong.

Japan is debating ways including new visa status and new low tax offshore zones; Australia is considering tax and regulatory concessions and special visas; Taiwan has opened an office dedicated to making migration easier for Hong Kong residents and companies.

"Hong Kong's comparative advantage is a blend of ingredients that make it unique in the global economy and financial system," Shaun Roache and Vishrut Rana, economists at rating agency S&P Global said. "This blend cannot be replicated and has propelled its economy for decades."

'[But] rising policy uncertainty, fraying social cohesion, and greater competition from mainland China are making Hong Kong less special," they said.

Flashpoints

Predictions of the imminent demise of Hong Kong are almost as old the former British colony itself, established in 1842. The last round of doomsaying happened before the 1997 handover of sovereignty to China. Two years prior, Fortune magazine published "The Death of Hong Kong," predicting that the return to China would be the end of the city.

Instead, 1997 was the year Hong Kong was propelled from a busy entrepot to its current status as the most important global financial center after New York and London. Beijing pledged to observe a "one country, two systems" approach that respected Hong Kong self-rule. In return, the city housed global banks, which satiated the capital needs of mainland corporate tycoons by connecting them with global investors and a growing equity and bond market.

But this was too good to last. Intervention by China into Hong Kong's affairs sparked a backlash. Six years ago, the Umbrella Movement started Hong Kong toward a reckoning with Beijing that was never going to end well. Then came anti-government demonstrations by a small group in March 2019, opposing the government's move to allow extradition to the mainland.

The movement flared up the following June, when over a million were estimated to have taken to the streets. Clashes with police turned violent, bringing the city to a standstill and forcing businesses and the wealthy to make plans to shift out.

Then, just as an uneasy calm descended, the coronavirus pandemic struck, forcing the closure of swathes of the economy, which suffered its sharpest quarterly contraction ever in the first three months of the year. In the midst of this, Beijing introduced the national security law in an attempt to curb the remaining protests.

The law came into force on June 30, aimed at stymieing opposition in Hong Kong, mandating criminal penalties of up to life imprisonment for advocating secession, subversion of state power, terrorism or collusion with foreign forces. Violators can also be extradited to mainland China for trial.

In response, the U.S. withdrew the city's special status, originally granted in 1984, announcing it would henceforth be treated as any other mainland region. Washington said it would further penalize officials who erode Hong Kong's autonomy, subjecting them to sanctions. Banks have begun screening clients to avoid facing penalties.

On Aug. 7, Washington imposed sanctions on Hong Kong Chief Executive Carrie Lam and 10 other officials for their alleged role in curtailing political freedoms in the territory. The sanctions freeze any U.S. assets of the officials and generally bar Americans from doing business with them.

That didn't deter Hong Kong authorities. Three days later, the city's police executed their first high-profile arrests: Pro-democracy advocate Agnes Chow, media tycoon Jimmy Lai and eight others were abruptly rounded up on suspicion of endangering national security by colluding with foreign forces, money laundering and conspiracy of fraud. They were eventually released on bail.

Senior officials including U.S. Secretary of State Mike Pompeo have even discussed what many bankers say would be a "nuclear option": squeezing dollar access for Hong Kong banks, forcing a devaluation that might be fatal to the city's future. That idea has been nixed for now, according to media reports but could be revisited if ties sour further between Beijing and Washington.

Singapore's moment?

But there are enough warning signs that most companies -- from multinational banks to smaller service companies -- are making backup plans, just in case. The city that is set to benefit most from this trend is another former British colony: Singapore.

James Richman, chief executive of private asset management firm JJ Richman, told the Nikkei Asian Review that two family offices his company is co-investing with have shifted out of Hong Kong to Singapore and Kuala Lumpur, Malaysia, for the moment.

The family offices moved for the sake of their own well-being and safety, Richman said, while still holding on to the hope of returning to Hong Kong to resume business when things are more settled.

"Singapore is still seen as far more stable, sociopolitics-wise, when compared to Hong Kong. We don't see its competitiveness being challenged at this point," he said.

Though keen to cultivate close ties with China, one of its largest trading partners, observers believe the key advantage for Singapore is that it continued to have more freedom in charting its future as an independent nation than Hong Kong. It also rivals Hong Kong in quality of life, and has a remarkably low crime rate.

However, those with misgivings about the direction of democracy in Hong Kong are unlikely to find Singapore a paradise of free press and human rights.

Freedom House, a Washington-based institution that monitors political freedom around the world, rates Singapore as only "partly free." In its latest report, it says that the city-state's political system "constrains the growth of credible opposition parties and limits freedoms of expression."

While political freedom is limited, bankers and lawyers vouch for the country's rule of law. The city-state has a tradition of hearing business disputes impartially, they say.

Safe-haven Seoul

Multinational companies are seldom sentimental about a country's political system, but some businesses have good reasons to locate in a democracy. Data privacy, freedom of expression, and human rights are all important to business models in media and technology. This narrows the field of available cities in Asia by quite a number.

In July, The New York Times stunned the news industry by announcing plans to move to Seoul, one of the few democracies in contention. Crucially, South Korea's effective coronavirus response has been a model for other countries, allowing it to keep its doors open to business travelers -- albeit with a quarantine requirement.

Seoul's main advantage is its location, with convenient short flights to Tokyo, Beijing, Shanghai, Taipei and relative proximity to Singapore, said Tom Coyner, a consultant with decades of experience advising international companies in South Korea. "There is a ready supply of local talent that has been educated and worked in the West, most of whom are bilingual."

However, he added, inflexible labor markets and high wages may be a deterrent. Meanwhile, those fleeing Hong Kong's excessive political risk may not find tranquillity in a city within howitzer range of the North Korean army.

But stifling economic regulation is the main reason that foreign investment has steered clear. When the Hong Kong protests started last year, the Ministry of Economy and Finance surveyed international finance offices to gauge their willingness to relocate to Seoul. The responses they received were so negative that the ministry gave up any efforts to attract companies, according to the JoongAng Ilbo, a pro-business, center-right newspaper, quoting anonymous government officials. A big deterrent was South Korea's weekly work hour limit of 52 hours, implemented in 2018.

Even Eun Sung-soo, chairman of South Korea's Financial Services Commission, found it hard to be enthusiastic. At a public event on July 16, he cited high corporate and income tax rates, lack of flexibility in labor markets and transparency in financial regulations as obstacles for South Korea becoming a major financial center in the region. "From the perspective of macroeconomic management, the government's capacity to change its tax or employment rules just for the purpose of advancing its financial hub policy will be limited," he said.

Tokyo: mixed signals

This leaves Tokyo, also ranked among Asia's major economic powerhouses that combine travel convenience, standard of living and economic heft in contending to be Asia's new financial hub. In fact, Japan's capital once ranked alongside New York and London as a global hub, connecting trades during the Asian hours. That was more than three decades ago.

The financial landscape has completely changed with the rise of China, and Tokyo now plays a less prominent role in supplying capital to Japan and some Southeast Asian markets.

Three years ago, Tokyo Gov. Yuriko Koike unveiled a vision of making Tokyo the financial hub of Asia again. She has little to show for it so far.

In the eight years through March 2019, the number of employees at foreign financial institutions in Japan dropped 10% to 51,224, according to the most recent data from the Ministry of Economy, Trade and Industry. There were 19 new entrants, versus 70 that exited.

Japanese Prime Minister Shinzo Abe said in June that Japan could take in Hong Kong financial professionals. "We have been welcoming foreign talent with specialized and technical abilities, including from Hong Kong, and will continue to actively do so," he said.

Masahiro Komatsu, director at Japan Asset Management Platform, says he knows only one example of a Hong Kong financial company diversifying its operations to Japan: An asset management company in Hong Kong is looking to operate a Japanese equity research team in the country because the Hong Kong company has trouble finding Japanese analysts willing to move to Hong Kong.

For expatriates, Tokyo's big draw is its quality of life. "Japan is pretty much tops of where you'd like to take your family in Asia," said Christopher LaFleur, the chairman of the American Chamber of Commerce in Japan.

However, Japan's coronavirus response has created controversy, particularly its desperate ban on foreign travelers imposed in April, which remains in place. This has been crippling to foreign businesses and feeds the impression that foreigners are unwelcome. Even foreigners who currently reside in Japan would be forbidden from returning if they needed to travel outside Japan, except on humanitarian grounds, while Japanese nationals have traveled freely.

"It has to be discouraging for all companies looking at these decisions to see that the Japanese government would adopt different policies with regards to the foreign community than they would to Japanese nationals," LaFleur said.

China dream

With the threat of Chinese pressure driving business away from Hong Kong, it seems counterintuitive to suggest that some of it might flow in the other direction, particularly to China's financial capital of Shanghai or the tech hub of Shenzhen.

However, with the political distance between Hong Kong and the mainland disappearing, some Hong Kong businesses see fewer reasons not to move to the mainland. "Now this gap between Hong Kong and its mainland competitors is shrinking. While this provides opportunities for Hong Kong, we think the net effect will be negative as more mainland-related business migrates to cities such as Shenzhen," said S&P economists Shaun Roache and Vishrut Rana.

Japan's Daiwa Securities Group, Hong Kong-based since 1970, has been planning to shift some operations to the mainland from Hong Kong once it sets up a joint venture in China. It may hasten the move if things turn bad in Hong Kong.

"Even if we expand in mainland China via establishing a joint venture, we believe our Hong Kong operation will continue to play an important role," a Daiwa spokesperson said.

Moving a headquarters, or even significant functions, is not a step that any company takes lightly. Hong Kong as likely as not will endure, for the simple reason that no other city can rival the size of its market, central location, and ease of providing services. Even a Hong Kong much reduced in reputation can still win out, given the drawbacks of the rivals.

"If a business has a significant head count in Hong Kong then things have to deteriorate significantly for them to move out completely," said Sid Sibal, regional director at Hudson, one of Hong Kong's largest recruiters. "When it comes to relocation, the question of the right ecosystem arises. We are not just talking about the right opportunities; it includes everything from international schools, to clubs, to entertainment venues and not many venues can match Hong Kong."

Indeed, the geopolitical confrontation between the U.S. and China may yet benefit Hong Kong's equity markets: A number of Chinese blue-chip companies, including the likes of Ant Group, the largest fintech player, valued at over $200 billion, and a number of Chinese companies trading in New York, may list on the city's exchange amid threats by Washington to kick them off U.S. exchanges.

Joseph Yam, a member of Hong Kong's Executive Council, which assists Chief Executive Carrie Lam in policymaking, and the first chief executive of the Hong Kong Monetary Authority, last month said: "Financial deals with China will continue to take place. Then where do you go to carry out the China business? Hong Kong will take preference, as it is the biggest and most developed offshore yuan market and the biggest destination for capital-raising by Chinese enterprises."

Despite all of the city's travails, companies raised $33.4 billion through initial public offerings and other equity sales in Hong Kong in the first six months of the year, according to data compiled by Dealogic, up 70% from a year earlier.

About 42 Chinese companies trading on U.S. stock exchanges qualify for listings in Hong Kong. If they issue 5% of their outstanding shares in Hong Kong, it would amount to total capital raising of $27 billion, UBS analysts wrote in a note in June.

"In the long run ... with the U.S. and China growing further apart, the importance of Hong Kong as a conduit, connector, as a translator is extraordinarily important," said Charles Li, the chief executive of the Hong Kong Exchanges and Clearing at an event in July.

Others see the city's future as far from assured. "It is a 1997 moment all over again for Hong Kong," said Law Ka-chung, who suspects his views on China cost him his role as the chief economist at state-run Bank of Communications (Hong Kong) in October. "This time, the challenges are even bigger. Hong Kong is a mere pawn in the escalating U.S.-China tensions, and one can't say with conviction that this too shall pass, and a quarter of a century later the city will still be the global hub that it is today."

Hong Kong has always been a gateway to China's markets and looks able to fulfill that role in perpetuity. But whether it remains Asia's premier finance hub or a second-tier port city whose luster has been appropriated by other rising stars is an open question. What is clear is that Hong Kong cannot carve its own destiny. That remains at the whims of Beijing and Washington.

Additional reporting by Mitsuru Obe in Tokyo, Steven Borowiec in Seoul, Dylan Loh in Singapore and Grace Li in Hong Kong.