Bridge over troubled water
Despite six months of social unrest, Hong Kong’s role as a bridge for mainland companies that are going global will not be that easy to replace.
TEXT: Jan Hökerberg
19 DECEMBER, 2019
Many companies in Hong Kong have suffered hard during the six months of social unrest in the city. The hardest hit are companies within the retail, food and beverages and tourism sectors, but for most companies it has been a period of adjusting to new realities and to a “new normal”.
The Swedish bank SEB is located in Jardine House in Central District, which is close to the “epicentre” of the protests that have been taking place on Hong Kong Island.
“Since the public transportation network has been very much affected, many of our staff have had difficulties getting to work and getting home. We’ve also spent a lot of time practicing and fine tuning our business contingency plans,” says Fredrik Hähnel, CEO of SEB’s Hong Kong branch and head of the bank’s Greater China operations.
“Our business has been affected in that sense that we’ve had much less visitors from abroad – for example, analysts from the Nordic countries as well as experts from our own headquarters, since they’ve hesitated to come here. Normally, we have visitors every week, but the visits have totally stopped. It’s a pity, since we like to show our customers and investors the expertise and capabilities that we have in the Nordic countries,” Hähnel says.
“On a personal note, it has meant that I haven’t been able to travel much since I have felt that I need to be in the office more to lead our daily work and be prepared if things get worse,” he adds.
However, the bank’s operations haven’t been so much affected. Hähnel explains that most of the bank’s business has a broader Asian focus and does not rely that much on the Hong Kong market in itself.
“Hong Kong is a very important market for, as an example, retail companies but not as much for the type of customers that we target,” he says.
During the summer, the Swedish Chamber of Commerce in Hong Kong took the initiative to invite member companies to round-table discussions where issues at the workplace could be brought up. Such meetings have been held each and every week over the past six months.
“We’ve talked about security and communications issues as well as contingency plans. Some member companies have been forced to close temporarily for safety reasons. Others have had to solve disputes between staff at the workplace,” says Kristian Odebjer, chairman of SwedCham Hong Kong.
Member companies have also emphasised the policy that most employers have, which is that while employees are free to express what they want as private persons in social media, they are not allowed to do that if they indicate where they work or mention their employer’s name.
“Most companies also have a policy that says that no political discussions should take place in the workplace,” says Odebjer.
“There is a brand risk,” he adds. “Some member companies are afraid of being dragged into the conflict unintentionally if they somehow get associated with a political issue.”
”The developments in Hong Kong have also forced us as a chamber to reflect on our role. While we are not a political organisation, it is important that we make our position clear when there are adverse consequences for our members. In this context, threats to the rule of law and violence on the streets are both major concerns,” says Odebjer.
Hong Kong’s role as a global financial centre is so strong that it will probably be able to survive a long political crisis.”
Fredrik Hähnel, SEB
Some member companies are afraid of being dragged into the conflict unintentionally if they somehow get associated with a political issue.”
Kristian Odebjer, chairman of SwedCham Hong Kong
Over the years, there has always been tough competition between Hong Kong and Singapore to be Asia’s No 1 city for foreign companies to locate their regional headquarters if they are not located in mainland China.
“Before all this, Hong Kong and Singapore would have been considered equally strong alternatives for regional headquarters. Going forward, Singapore will have a trump card in its perceived superior stability,” says Odebjer.
Mats Harborn, former president of the European Chamber of Commerce in China and chairman of the Swedish Chamber of Commerce in China between 2005 and 2013, has been a frequent visitor in Hong Kong since 1982. He sees a risk that Hong Kong now could lose some of its unique role as a bridge or gateway to and from China:
“Hong Kong has always been perceived as a very stable place where everything works, including infrastructure, but that’s not the case anymore. Today, Hong Kong cannot give such guarantees. So, there’s a risk that more companies may decide to set up business directly in China, or in Singapore instead,” he says.
“Peaceful demonstrations with clear demands are something that the business community can have no opinion on. But when extreme actions take place, they risk disrupting the order of a law-based society while also risking the legitimacy of the demonstrations and thus shifting the focus away from the original purpose of the demonstrations,” Harborn adds.
Hähnel of SEB says that he has not seen any signs from the bank’s customers that they plan to move from Hong Kong.
“It is all dependent on how this situation is going to end, but if there’s still uncertainty about Hong Kong’s future it could certainly affect companies’ decisions,” he says.
However, lawyer Ulf Ohrling, who was chairman of SwedCham Hong Kong between 2011 and 2017, tells how he, as a consultant, during the spring was involved in a plan to consolidate a number of companies in the Nordic countries and put them under a holding company in Hong Kong.
“We registered a company in Hong Kong. But what felt right in February does not feel like a similarly good decision today, so we have actually started thinking of setting up the company in Singapore instead,” he says.
The share of China’s overseas initial public offerings (IPOs) that Hong Kong has accounted for over the past nine years.
Even though Hong Kong’s economy amounts to less than 3 per cent of China’s overall gross domestic product (GDP), its importance for the mainland should not be underrated.
Hong Kong’s special freedoms – that is, rule of law and freedom of speech – have made the city attractive for investors around the world and not least in mainland China. Hong Kong’s stock exchange hosts a unique possibility for Chinese companies to finance an international expansion.
“Roughly, 75 per cent of China’s overseas initial public offerings (IPOs) take place in Hong Kong. Some two thirds of China’s overseas bonds are issued in Hong Kong as well as a quarter of Chinese loan syndications,” Hähnel says.
“Hong Kong used to be the gateway for foreign companies into mainland China, but today Hong Kong’s role is also to be a bridge for companies in mainland China that want to go global. Around half of all Chinese outbound direct investments go through Hong Kong,” he adds.
Furthermore, the collaboration with the Hong Kong-Shanghai Stock Connect, the Hong Kong-Shenzhen Stock Connect and the Bond Connect programme between Hong Kong and mainland China allows international and mainland Chinese investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange.
“Hong Kong’s role as a global financial centre is so strong that it will probably be able to survive a long political crisis. Hong Kong is the Asian centre for fund managers and hedge funds as well it is the location for the international head offices of mainland Chinese banks and insurance companies,” says Hähnel.
“Having said that, the recent crisis is a reminder to everyone that we are approaching 2047 and the big question for both China itself as well as for international investors is what Hong Kong’s role will be after that,” he adds.
“A former Swedish minister of finance used to say that what is good for Volvo is good for Sweden. This can be transformed into what is good for Hong Kong is good for mainland China. The events during past six months have not been good for Hong Kong, but they have also been bad for mainland China,” says Ohrling.
“Many changes are required to bring back a positive development to Hong Kong and they are not only about livelihood issues which some seem to think,” he adds.
What felt right in February does not feel like a similarly good decision today, so we have actually started thinking of setting up the company in Singapore instead.”
Ulf Ohrling, Ohrling Advisory
Hong Kong has always been perceived as a very stable place where everything works, including infrastructure, but that’s not the case anymore.”
Mats Harborn, former chairman of SwedCham China
One question is what impact the social unrest in Hong Kong will have on Beijing’s ambitious Greater Bay Area plan, which aims to turn Hong Kong, Macau, Shenzhen, Guangzhou and seven other Guangdong cities – Dongguan, Foshan, Huizhou, Jiangmen, Zhaoqing, Zhongshan and Zhuhai – into a financial and technological powerhouse to rival Silicon Valley by 2035.
Beijing has regarded closer integration between the mainland and Hong Kong as a vital ingredient to this strategy.
Says Odebjer: “If Hong Kong’s role in this initiative is downgraded, the whole area would suffer as a result. None of the other constituent cities can offer access to international financial markets or the world-class services that are available in Hong Kong.”
Ohrling says that the grand plan for the Greater Bay Area only can come to fruition with a functioning Hong Kong based on the “one country, two systems” principle.
Hähnel points out that Hong Kong’s role in the Greater Bay Area plan is that the city would be the financial and logistics centre.
“To replace Hong Kong as a financial centre is extremely difficult, since Hong Kong has an independent and transparent legislation, has a free flow of capital, a convertible currency, a world-class knowledge bank and a free flow of information. All these things are difficult to replace, at least in the short to medium term,” he says.
Whatever the outcome of this social unrest will be, one thing is for sure and that is that Hong Kong will probably never be the same as it was before the protests started.