Pandemic-hit Hong Kong showing resilience as a financial hub over Singapore
The study has been authored by Mehdi Hussain, assistant professor, department of political science, Kirori Mal College, University of Delhi and PhD research scholar, Jawaharlal Nehru University
The Covid-19 pandemic is stretching ‘thin’ business sentiment across countries. It has also put the same for Hong Kong to the test around its anti-Covid-19 measures. The City’s Census and Statistics Department (CSD) data for January, 2022 indicates overseas companies are keeping a close watch for further developments in terms of pandemic-related restrictions given its daily infections reaching a record of 8,674 on February 23.
Looking at Hong Kong’s economic performance, the fourth quarter of 2021 showed improvement in business with an increase in overseas business establishments in the City. But, the onset of the fifth wave of Covid-19 in January has made business communities wary of its stringent ‘zero Covid-19’ policies for social distancing and travel restrictions. The Hong Kong administration is on a war footing to contain the spread of Omicron variant with a ‘proposed’ plan to screen its population of about 7.5 million within a week, and a 14-day hotel quarantine for travelers outside China. Its ‘Vaccine Pass’ programme, applicable in schools, universities, government offices and other public places, which rolled out from February 24 is going to hurt social mobility and business. It has dampened business sentiment ‘sharply’ in January compared to the last month for SMEs, restaurants and retail sectors, according to the CSD’s monthly survey on business situation of SMEs for January, 2022.
The American Chamber Hong Kong Business Sentiment Survey Report, 2022 states that international travel restrictions due to Covid-19 have been the most difficult challenge to do business with the City, thereby, disrupting businesses for offices located outside Hong Kong. It has affected businesses by delaying new investments in the City. There is an overwhelming feeling that the Hong Kong government is ‘inconsiderate’ about businesses.
The AmCham Report, nevertheless, finds that businesses in the City remains competitive. More parent companies of foreign origin opened their local offices (with operation only in Hong Kong) in the City during the last two pandemic years. The CSD January data shows that in 2021 parent companies located in western countries increased their number of business establishments in the City compared to the previous year. For the United States, the number of such local offices in the City increased by 10 from 593 in 2020. The total number of local offices for European countries like the United Kingdom, Germany, France, Switzerland, the Netherlands and Italy together has risen by 5.18 per cent i.e., 50 up to 965 in 2021 from 915 in the previous year. But, it is only 2.80 per cent increment from 2018 level with a total of 938 local offices in Hong Kong. The total number of business operations in Hong Kong, excluding those parent companies in the mainland China (1,451 and 1,404 companies in 2021 and 2020 respectively), show an increase of 20 in 2021 from 3,638 offices in the previous year.
Overseas companies have expressed their doubts over Hong Kong’s Covid-19 relaxation as it prioritises ‘health-over-business’. Perhaps, a mix of health and business measures would be more suitable to remove this suspicion. Singapore, Asian financial rival to Hong Kong, has shown the way in this direction. Singapore’s Covid-19 responses are business-friendly through government positive interventions like quarantine-free vaccinated travel lane programme, relaxation of social mobility in public places, opening of schools and restaurants in comparison with Hong Kong’s ‘zero Covid-19 policy’. Singapore has adopted the policy of ‘living with Covid-19’. Further, Singapore has a favorable political climate unlike the ‘Hong Kong-question’ regarding its status of autonomy. It has a better R&D compared to Hong Kong. The American Chamber’s Report mentions data freedom is a matter of concern in Hong Kong. Then, Singapore has topped in the global Economic Freedom Index for 2021, indicating its economy the ‘freest’ in the world. However, Hong Kong earlier dominated in the previous year rankings, was excluded from the rankings in 2021 due to restricted freedom of speech and Beijing’s direct control of its economic policies, according to the Heritage Foundation.
Hong Kong ranks 3rd in the World Banks’s Ease of Doing Business in 2020. The UNCTAD’s World Investment Report, 2021 ranks it as the 3rd largest recipient of FDI in 2020 with USD119 billion and Singapore at the 4th position with USD91 billion. It has jumped two places up from its 2019 ranking, but one place down for Singapore.
Uncertainties over political or pandemic-related containment measures are not the only deterring factor in attracting businesses in Hong Kong. The economies of Hong Kong and Singapore are globally competitive with world-class banking and financial institutions and logistics. Amongst business communities, what separates the two countries is their respective political decisions in terms of addressing pandemic-induced challenges.
The proximity of locating businesses in Hong Kong to China weighs in their decision whether to re-locate in Singapore. The economies of Hong Kong and Singapore during the pandemic have suffered but also shown resilience with a prospect for further growth. The change on the ground is only a short-term disappointment for Hong Kong if we consider the latest number of offices located in Hong Kong notwithstanding internal and external challenges. It is despite a decline in the number of regional offices headquartered in Hong Kong from 1,504 in 2020 to 1,457 in 2021 which Beijing and Hong Kong need to address. These regional headquarters have managerial control over offices and/or operations in the region.
(The study has been authored by Mehdi Hussain, assistant professor, department of political science, Kirori Mal College, University of Delhi and PhD research scholar, Jawaharlal Nehru University.)