Hong Kong switches to economic monoculture
A young trader at the Hong Kong branch of a mainland brokerage firm learned five years ago what matters most in local finance. At a 2016 annual meeting, executives explained to his team how essential access to China’s only hard currency market was: “We don’t care if you make any money,” they said. “Whatever you do, make sure you keep the licenses. Beijing’s attention has grown even stronger since then, and as a result the city is becoming dangerously one-dimensional.
President Xi Jinping’s crackdown has protected Hong Kong’s financial markets. Chinese authorities accuse pro-democracy parties of blocking attempts to rebalance the city’s economy, which is characterized by extremely high housing prices, decaying public services and growing gaps between rich and poor. Forced stability will pave the way for structural reforms, according to the theory. The reverse seems more likely.
Citigroup (CN), UBS (UBSG.S) and others are bolstering their ranks in Hong Kong, according to a Reuters report this week. Elsewhere, the news is gloomy. The city’s population declined by 50,000 last year. One in ten workers is unemployed or underemployed. A recent membership survey conducted by the local American Chamber of Commerce found that 42% of those surveyed are considering or considering leaving.
The exits will be forked. It makes sense that multinational companies with large businesses on the mainland, such as the owner of Timberland VF (VFC.N), are saving money by ditching Hong Kong and relocating to Shanghai instead. Likewise, tech and media companies are wisely evacuating their servers and staff to Singapore to evade Beijing’s repressive national security law. The wide dynamic also applies to Chinese outfits.
This does not bode well for the very important real estate market. Tourism is suffering, which contributed to a 24% drop in retail sales last year. Beijing has transformed neighboring Hainan province into a luxury duty-free shopping area that will directly compete with Hong Kong. In terms of trade, Victoria Harbor continues to lose volume to Shanghai and Singapore.
Finance alone cannot make a difference. The industry contributes around 20% of the HK $ 311 billion GDP, but accounts for 10% of the workforce. Sustained emigration will weigh on the demand for housing and offices. Over-reliance on banking, commerce and insurance will lead to rapid stagnation, not the renaissance promised by Beijing.
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– Goldman Sachs, Citigroup, UBS and other banks are each hiring hundreds of people in Hong Kong this year, significantly increasing their existing workforce, Reuters reported on June 4.
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