- Without explicitly changing Hong Kong’s constitution, the Basic Law, laws and regulations will probably be introduced to limit protests and organisation of dissent. Since the new laws and regulations would eventually dominate over previous ones, the use of English common law — something quite important to international businesses who base themselves in Hong Kong — could diminish over time.
- Moreover, there are already signs of a climate of fear being induced to limit expressions of hostility against the mainland. Recent media reports indicate pressure on Hong Kong as well as MNCs such as Cathay Pacific Airways and the Big Four accounting firms to rein in what their staff comment on.
The result will be that Hong Kong’s institutions — media, judiciary, civil service, regulatory agencies and so on — would gradually become seen as less and less “British” and more and more resembling their counterparts in the mainland. Another impact would be that trust in Hong Kong could be weakened: But trust is critical to the success of a global financial and business hub.
Third, there are two reasons why big power rivalry in the East Asian region may become more pointed as a result of the Hong Kong turmoil: - Taiwan’s attitude to mainland China is hardening. The protests in Hong Kong and China’s reaction to them have reminded Taiwanese why they fear China. A Mainland Affairs Council poll in late July found 88.7% of respondents rejecting the “one country, two systems” model that China has offered to Taiwan. This is up from 75.4% in the January survey. China’s relations with Taiwan are likely to worsen and Taiwan is likely to turn increasingly to China’s rivals in East Asia — the US and Japan — for protection.
- In addition, the US and the West in general will interpret China’s actions in Hong Kong as confirming their fears that China would not follow the Western path of political development where economic progress eventually leads to political freedoms that would make China more like the West. The West would become less trusting of China and less willing to cut it slack. There is a growing chance that the US Congress may use any changes China makes to Hong Kong’s political system as an excuse to withdraw the special status that the US accords Hong Kong — as a separate territory for trade, immigration and other purposes. Without that special status, Hong Kong’s business and financial centres will struggle.
- Global centres of commerce and finance are quite resilient. Given the critical mass of interlocking activities, each depending on the other, it takes a huge disaster for activities to relocate on a big scale. Even with all the possible downsides discussed above, Hong Kong will retain a strong position as a trading, financial, aviation and headquarters location for global firms.
- Hong Kong will be part of China’s far-sighted Greater Bay Area plan, which will integrate major urban areas of the Pearl River Delta, including Hong Kong, Shenzhen, Guangzhou and several other cities, into a single urban agglomeration of more than 70 million people producing US$1.5 trillion ($2.1 trillion) of economic output a year. There are few other urban agglomerations in the world that would enjoy the same economies of scale and scope — Hong Kong would enjoy all the benefits of being part of this super-competitive region.
- Even as some of Hong Kong’s current unique traits erode, others will remain in place. It is unlikely, for instance, that the Hong Kong dollar’s peg to the US dollar will be abolished any time soon — that peg will still provide a buffer of stability for Hong Kong, especially its financial centre.
- Shift of regional headquarters of global firms: The possible changes in Hong Kong — erosion of the common law, a climate of fear, diminished recognition as a legal entity separate from China — would reduce the trust that is so vital to a global hub. At the margin, more global firms may therefore choose to locate key parts of their Asian headquarters in Singapore over Hong Kong. Certainly, firms from countries already suspicious of China such as US and Indian firms will veer more and more to Singapore. Highly skilled talent from abroad may also prefer Singapore over Hong Kong — particularly if Singapore were to address weaknesses such as its low ranking in press freedom and related areas.
- Some financial market activity, but not most, could also shift: Those activities that depend on trust and the use of common law such as private banking will tend to prefer Singapore. However, the bulk of financial activities that depend more on the critical mass of Hong Kong’s cluster of financial institutions and markets plus those that principally serve China will not move — for example, fund management, equities trading and equity IPOs/listings.
- High-end tourism such as conventions: When it comes to hosting major events such as large-scale conferences and conventions, Americans will probably prefer Singapore. Thus, this lucrative component of tourism could move in Singapore’s favour.
Manu Bhaskaran is a partner and head of economic research at Centennial Group Inc, an economics consultancy