Financial Giants Converge in Hong Kong Amid Concerns Over Political Situation

The National Security Law is fueling significant departures of international banks, investment firms, and tech companies, reflecting growing apprehension.
Financial Giants Converge in Hong Kong Amid Concerns Over Political Situation
James Gorman (L), chairman and chief executive of Morgan Stanley, greets Bob Prince (2nd R), co-chief investment officer at Bridgewater Associates, as Colm Kelleher (2nd L), chairman of UBS Group and Christian Sewing (R), chief executive officer of Deutsche Bank AG, look on at the Global Financial Leaders' Investment Summit in Hong Kong on Nov. 7, 2023. Peter Parks/ AFP via Getty Images
Sean Tseng
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Hong Kong, once celebrated as a key international financial hub and a vital conduit for foreign investments into mainland China, is grappling with a shifting identity.

The city’s gradual alignment with the mainland, diminishing its unique status as a Special Administrative Region, has raised alarm bells in the global financial community.

This unsettling shift was starkly evident at the recently convened second Global Financial Leaders’ Investment Summit. Analysts observe significant changes in China’s business climate, prompting Wall Street leaders to seek insights into the Chinese Communist Party’s (CCP) strategies and policies.

The summit, themed “Living with Complexity,” took place in Hong Kong on Nov. 7, drawing luminaries like James Gorman of Morgan Stanley, Goldman Sachs’ David Solomon, UBS Group’s Colm Kelleher, and Deutsche Bank’s Christian Sewing, alongside more than 300 other prominent figures from the world’s leading financial institutions.

Hong Kong Chief Executive John Lee, addressing the summit, acknowledged the increasing complexities and challenges. A primary concern among attendees was the potential for a new financial crisis, with political factors playing a critical role.
Christian Sewing of Deutsche Bank voiced fears of geopolitical escalations rapidly destabilizing markets. He urged the financial sector to stay vigilant and regularly conduct stress tests.

Morgan Stanley’s James Gorman pointed out the potential political or geopolitical roots of future financial crises, highlighting the challenges faced by democracies worldwide.

Alicia Garcia-Herrero, Asia Pacific Chief Economist at BNP Paribas, starkly declared Hong Kong’s diminished role, doubting its revival as a global financial center. She foresees Hong Kong transforming into an offshore hub for mainland China, impacting job creation differently from before.

National Security Law’s Impact

This summit marked a significant appearance by He Lifeng, the Chinese Vice Premier, assuming a major role in international finance discussions. He underscored the financial sector’s importance to China and Hong Kong and reiterated plans to bolster Hong Kong’s international financial center status, a topic discussed at China’s Central Financial Work Conference.
Following the implementation of the National Security Law, the U.S. withdrawal of Hong Kong’s special status has seen its new stock fundraising rankings plummet from first to 11th globally.
Mr. He recommended three strategies for Hong Kong: enhancing its infrastructure and influence, expanding its international partnerships, and actively participating in the Guangdong-Hong Kong-Macao Greater Bay Area’s development.
Despite these efforts, the National Security Law’s enactment has seen Hong Kong’s Special Administrative Region status erode, aligning it more closely with mainland China. This shift has led to significant departures of international banks, investment firms, and tech companies, reflecting growing apprehension within the global business community.

Escalating Exodus of Foreign Capital

The European Union’s 2022 annual report on Hong Kong paints a concerning picture: a 12.5 percent migration of foreign capital away from the city, contrasted with a 17.5 percent increase in mainland Chinese enterprises establishing a presence there.

Hong Kong government statistics further underscore this trend, revealing a consistent drop in the number of foreign companies based in the city from 2019 to 2022.

The workforce in foreign enterprises has seen a significant reduction, with notable cutbacks at financial majors like Goldman Sachs and Morgan Stanley, decreasing by 25,000 to a total of 468,000 employees.

Victoria Harbour in Hong Kong. (Bill Cox/The Epoch Times)
Victoria Harbour in Hong Kong. Bill Cox/The Epoch Times

Reflecting this shift, Caton Technology, a broadcast technology firm with global connections, relocated its headquarters from Hong Kong to Singapore last year. Similarly, American circuit board manufacturer TTM Technologies departed Hong Kong for Malaysia this year.

Senior executives from various foreign companies have observed the diminishing distinction between Hong Kong and mainland China. Rob Jesudason, founder of Serendipity Capital, remarked on the perception of Hong Kong as “an extension of China,” leading many multinational corporations to reconsider their presence in the city.

This trend is evident in the recent closures by Australian financial institutions Westpac and National Australia Bank, with the latter planning a complete shutdown of its Hong Kong operations by early 2025.

In a significant move, UBS Group’s Asia-based global banking division recently reduced its workforce by about 7 percent, primarily impacting those in Hong Kong engaged in China-related activities. JPMorgan Chase also made cuts in its Asia division in June, predominantly affecting staff in Hong Kong and mainland China.
Compensation for Asian investment bankers has plummeted to its lowest since the financial crisis over a decade ago.

Outflow of $11.8 billion

Parallel to these developments, a substantial withdrawal of foreign capital from mainland China has been observed. The State Administration of Foreign Exchange of China reported a net outflow of $11.8 billion in direct investments in the third quarter of 2022, marking a historic downturn since China’s economic reforms began in 1998.

This reversal from a trend of robust foreign investment is a significant shift.

At the Global Financial Leaders’ Investment Summit, this reversal was a topic of keen interest. Analysts noted that financial leaders and multinational corporations are increasingly adopting a “cautious and watchful” stance toward the Chinese economy.

Amid the U.S.-China geopolitical tension, these entities strive to maintain a delicate balance, avoiding conflict yet finding it increasingly challenging to navigate the complex dynamics between Beijing and the West.

Investment advisor Mike Sun, with deep insights into Chinese politics and economics, told The Epoch Times about the cautious approach of Wall Street leaders and international financial institutions gathered in Hong Kong.

Their focus, he noted, is on “the significantly altered situation and business environment in China, with a keen interest in understanding the CCP’s intentions and strategies.”