Hong Kong’s financial hub is at a crossroads

Look for a senior job in Hong Kong these days on LinkedIn and you’re unlikely to find any openings unless you’re a speaker of Cantonese or Mandarin, or both. “That’s a big change,” confides a longtime British expat in the territory. “It’s understandable. But it’s a big change.”

The evolving jobs market is just one of the visible signs of the tilt to mainland China that promises to redefine Hong Kong’s role as a global financial centre.

Beijing’s growing influence on the former British colony — evident in four years of security crackdowns and tough Covid lockdowns — has raised existential questions about the sustainability of the territory’s role as Asia’s unparalleled bridgehead to global finance.

With Covid restrictions now finally lifted, though, and travel links with the mainland reopened last week, Hong Kong is feeling upbeat again. The local chamber of commerce is forecasting 3.8 per cent growth this year, after last year’s recession. But make no mistake. Hong Kong is at a crossroads: will “Chinafication” be redoubled; or can it make another push to revive its international credentials?

Certainly mainland Chinese companies are now dominant on the Hong Kong Stock Exchange, representing 77 per cent of the market capitalisation of companies listed here, or 93 per cent including Hong Kong domestic listings. Those volumes have risen as US-China tensions have led some US-listed Chinese companies to move here.

A new project to expand HKEX’s Stock Connect programme with the mainland stresses the intent to diversify by attracting international companies to Hong Kong, and linking them with the vast sums of retail investor money in mainland China. That may be a tough ask.

Few western companies are currently listed in Hong Kong. And those that are are thinly traded. (Glencore is among those that delisted for this reason). Hong Kong’s idea now is to lure a clutch of consumer brands with strong positions in China — from luxury goods makers to German car brands. Prada currently cuts a lonely figure in this segment.

The exchange is also keen to draw listings from fast-growing companies in the Middle East and other parts of Asia. It will have competition. Though Singapore is more focused on being a wealth hub, Tokyo, in particular, attracts ample stock market liquidity and is casting off its reputation as a Japan-only market. Although there are currently only 27 foreign companies listed on the Tokyo exchange, it added half a dozen in 2022 and expects close to 10 more this year.

Another snag for Hong Kong is that many south-east Asian companies are just not mature enough to list — one explanation for the stubborn resilience of colonial-era Hong Kong conglomerates, such as Jardine and Swire. “Capital markets don’t work perfectly in Asia yet,” says one senior business executive. “That means there’s a role [for conglomerates] as capital providers via strong relationships with the banks.”

Most probable, say financiers, is that the real growth opportunity for Hong Kong will be through Chinese companies continuing to ramp up listings here. The appetite among Chinese entrepreneurs to raise capital in a freely convertible currency, at one remove from President Xi Jinping’s heavy-handed legal and regulatory system, is still voracious.

And yet, with Hong Kong coming increasingly within the orbit of Xi’s authoritarianism, its own investability has also come under question with many in the territory shaken by the repressive 2020 national security law.

Business leaders say, nonetheless, that they are reassured that the rule of law, as it affects commercial contracts, will remain free of political interference under the promised “one country, two systems” principle. “We have several channels to Beijing, and they all confirm this,” says one senior financier.

Plenty of immediate challenges remain, of course: economic stress has been deep during the Covid years; higher interest rates will continue to weigh on growth, pressing the traditionally exuberant property sector; and the territory’s location on the geopolitical faultline that has undone US-China relations is hardly comfortable, as HSBC can attest.

But even after three years of morale-sapping Covid restrictions, Hong Kong’s essential optimism and dynamism remain. This year will be the first real test since the 2020 crackdown of whether the territory’s focus can continue to be dispassionately international, as it would like, or whether it must become increasingly subservient to Beijing.

patrick.jenkins@ft.com