Hong Kong Deepens Ties with Russia and Iran
According to the latest 2023 third-quarter “Hong Kong Residential Leasing” released by Savills, the residential rental market in Hong Kong has shown increased activity from July to August this year. Of particular note is the heightened interest from higher-budget tenants, including foreign nationals from Russia and the Middle East, who are considering establishing offices in Hong Kong. This has driven an increased demand for luxury apartments and townhouses on Hong Kong Island, resulting in a 4.2 percent increase in the overall townhouse rental index.In fact, the number of foreign companies owned by authoritarian states such as Russia, Iran, and Afghanistan establishing themselves in Hong Kong has been on the rise. According to a survey conducted by the “Liber Research Society” last year, there were as many as 35 newly registered companies in Hong Kong with names containing “俄罗斯” or “Russia,” a significant increase compared to the 13 recorded during the same period in 2021. Among these, four were Russian energy companies, registered in the six months following Russia’s invasion of Ukraine.
A number of Russian companies have chosen to establish themselves in Hong Kong as a direct consequence of Western sanctions imposed on Russian companies in the wake of Russia’s invasion of Ukraine. Hong Kong has become a major gateway for circumventing these sanctions. Even figures like Meng Wanzhou and Huawei, used a Hong Kong shell company, “Skycom,” to sell computer equipment to an Iranian telecommunications company, in violation of the United States sanctions against Iran.
Hong Kong ‘Compliant’ with Chinese Communist Party (CCP) Eases Russian Investment Concerns
According to a recent report by Nikkei Asia, more than six experienced lawyers in Hong Kong handling disputes involving Russian companies have revealed that, following the Russia-Ukraine conflict, many major Western law firms have abandoned their Russian clients. As a result, Russian companies have had no choice but to turn to Hong Kong for arbitration services, and an increasing number of them are signing contracts.The report also quotes Professor Julien Chaisse, a City University of Hong Kong trade law expert who specializes in international economic law and arbitration. He mentions that Russian companies, by resolving disputes in reputable legal jurisdictions like Hong Kong, can ensure the enforceability of their contracts in various countries. Even when facing sanctions, they can still smoothly pave the way for business transactions. Hong Kong’s arbitration system indirectly assists sanctioned companies in conducting commercial transactions.
Julien Chaisse further explains that the fact that the Hong Kong government does not scrutinize Russia’s activities in the region gives Russian companies the confidence to operate in Hong Kong and maintain connections with the global business community. They are also reassured by the Hong Kong government’s compliance with the CCP, making China a crucial economic partner for Russia in its response to Western sanctions.
Conversely, American and European investments are not buying into Hong Kong becoming a “puppet on CCP strings” and have also expressed their stance with their funds, leading to a continuous withdrawal of investments. According to a survey conducted by The American Chamber of Commerce in Hong Kong in the first half of the year, the results show that among the surveyed members, as many as 38 percent stated that the “Hong Kong National Security Law” had a negative impact on American businesses. Among these, 68 percent mentioned indirect impacts, while 23 percent pointed to direct consequences, such as Hong Kong employees leaving and changes in headquarters location.
In fact, many Wall Street giants, such as Morgan Stanley (NYSE: MS) and JPMorgan (NYSE: JPM), had previously downsized their investment banking staff in the Asia-Pacific region, including employees in Hong Kong. International hotel group Mandarin Oriental Hotel Group and the world’s second-largest spirits and wine company, Pernod Ricard, have also had reports of high-level executives relocating from Hong Kong. Deutsche Bank, Standard Chartered (Stock Code: 02888), and BNP Paribas either withdrew from Hong Kong office spaces or relocated core operations out of Hong Kong to save costs. Additionally, the Asia-Pacific headquarters of FedEx, the American courier delivery company, has also shifted from Hong Kong to Singapore.
Against the backdrop of the Russia-Ukraine war and the Huawei-Meng, Wanzhou incident, Hong Kong has repeatedly become a major gateway for authoritarian nations to circumvent Western sanctions. In the foreseeable future, Hong Kong may transform from an international metropolis attracting businesses from Europe and America to a city, leaning on Russia and Iran, as it moves closer to becoming a Mainland Chinese city.
