July 23, 2020 / 3:31 AM / 22 days ago

Breakingviews - Hong Kong finance faces London’s Brexit-like fate

People wear protective face masks as they take their lunch breaks at the financial Central district, following the outbreak of the new coronavirus, in Hong Kong, China March 2, 2020. REUTERS/Tyrone Siu

HONG KONG (Reuters Breakingviews) - Hong Kong and London could soon have more in common. The recently enacted national security law reduces the relative appeal of the Asian financial hub, just as Brexit has done to the British capital. Deutsche Bank’s new regional chief just chose Singapore instead of Hong Kong, where his predecessor was based. It is one small example of what’s ahead.

Although the German lender maintains two centres in the region and previous regional leaders have been based in Singapore, the announcement follows months of protests and the implementation of measures that curb freedom of expression in Hong Kong. A July survey by the local American Chamber of Commerce found that a majority of respondents were concerned, citing ambiguity in the law’s scope and enforcement. And while around 30% indicated they were considering moving capital or operations out of the city, nearly half also said they had no plans to leave.

A mass exodus seems unlikely. Hong Kong’s financial industry employed some 263,000 people and accounted for around 20% of GDP in 2018, up from 13% in 2004. Its share of the economy is also slated to grow, according to Oxford Economics. An arrangement rolled out last month to link investments and financial services with Macau and the mainland reinforces Hong Kong’s position as a gateway into China.

Taipei and Sydney will have as much trouble luring financiers away from Hong Kong as Frankfurt and Paris did from London. An EY survey last September found that since the 2016 referendum large investment banks moved only 1,000 jobs to rival cities. Of course, Britain doesn’t formally exit until the end of the year and financial institutions that serve the European Union from London now must set up subsidiaries elsewhere on the continent.

Over time, however, other metropolises – in Asia just as in Europe – will become more attractive. A willingness by bankers to travel less and conduct more business remotely stands to have an effect. Maintaining multiple hubs is also costly, increasing the chances of a gravitational pull elsewhere. What’s more, Hong Kong’s ranking as a global financial centre dipped from third place to sixth, falling behind Singapore and Tokyo, according to consultancy Z/Yen’s latest assessment in March. New arrivals to the region will have more reason to consider alternatives to Hong Kong.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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