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HONG KONG: Weighing the latest evidence on a potential foreign exodus

Table of Contents

  • Recent survey data and anecdotal reports appear to indicate that foreign companies are withdrawing from Hong Kong.
  • But a closer look suggests that Hong Kong will retain its role as a regional financial and business center, especially for companies with significant mainland operations.
  • Some expatriates may leave as multinationals proceed with staff localization, while companies that have used Hong Kong mainly to serve Asia ex-China may also reduce their footprints.

The American Chamber of Commerce in Hong Kong published a survey showing that 42% of respondents are considering or planning to leave the city within three to five years. Similarly, anecdotal reports have emerged of individuals or companies leaving the city over concerns about the National Security Law (NSL) and Beijing's overall tightening of political control in the city. While these data points merit close attention, we maintain our overall view that Hong Kong will maintain its status as Asia's premiere regional finance and business center and that mass exodus is unlikely.

Last year's two-part analysis of the NSL's impact argued that political activists, civil society organizations, and journalists would be most likely to exit Hong Kong as a result of the law, while foreign financial institutions and other businesses would largely stay put. But that analysis also noted that foreign companies would likely accelerate staff localization to increase reliance on native Hong Kongers or mainland Chinese, rather than expatriates. We further argued that the companies most likely to withdraw from the city were those who use it primarily to serve their Asia ex-China operations, for whom Singapore, Tokyo, Bangkok, or Sydney could serve as viable substitutes. Finally, the analysis noted that some companies that reduce their Hong Kong footprints would correspondingly expand their presence in mainland China, given that the NSL largely eliminates the distinction between Hong Kong and the mainland in terms of political risk.

The latest evidence largely supports these viewpoints. The AmCham survey, conducted on 5 to 9 May, was directed at individuals, not companies. Even if 42% of all expats leave the city, the share of foreign businesses that leave would likely be lower, as companies replace expats with local hires. Moreover, within the 42% considering an exit from Hong Kong, less than a third said they intended to leave before the end of this year. Another 48% indicated a three-to-five-year timeframe, while the remaining 24% did not commit to a specific timeframe, saying they would leave when career and family obligations permit. These figures suggest that for many respondents, sentiment is building, but plans are not firm.

It also appears likely that selection bias affected the survey results. Only 24% of all AmCham members, or 325 individuals, responded to the survey, and it seems likely that those planning to exit may have responded at a higher rate than those planning no change. Moreover, the 42% who said they might leave is actually a lower share than the 53% who answered yes to similar (though not identical) question in the chamber's August 2020 survey. Given political pressure from Washington, US companies and individuals may also be more likely than other foreigners to exit.

Looking at the anecdotal reports, the picture is similarly ambiguous but suggests that companies exiting the city are mainly those without significant China operations. US hedge fund Elliot Management is closing its Hong Kong office, but according to a source at the company, Elliot has essentially no investments in Hong Kong or mainland China, and the company has used its Hong Kong office to manage other Asian investments. Elliot had also been steadily reducing its Hong Kong headcount for several years before the NSL.

Similarly, Wells Fargo is reportedly planning to shift its Asian hub from Hong Kong to Singapore as part of a broader cost-cutting effort, though the bank will maintain a presence in the city. Wells Fargo reportedly employs 1300 people throughout the Asia Pacific region – down from 1600 in 2017 – though it is not clear how many of these employees are in Hong Kong. Wells Fargo is a largely US-focused commercial bank with only modest investment banking operations and a negligible presence in mainland China. The bank's presence in Hong Kong's financial services industry and in Asia's capital markets more generally is also tiny. The bank does not rank among the top 40 in the Hong Kong league tables for any category of equity or debt underwriting, according to Bloomberg data.

Overall, the picture that emerges from these scattered data points is that Hong Kong will lose some foreign expatriates, as well as multinational companies whose mainland China operations are marginal. But as previously discussed, Chinese companies seeking capital will continue to serve as an anchor for the city's broader role as a regional financial hub. Meanwhile, non-financial corporates will continue to use Hong Kong to support their mainland-focused business operations with functions including sourcing, logistics, corporate treasury, and back office administration.

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HONG KONG: Weighing the latest evidence on a potential foreign exodus

Recent survey data and anecdotal reports appear to indicate that foreign companies are withdrawing from Hong Kong. But a closer look suggests that Hong