Risk briefing: Why are companies leaving Hong Kong?

Hong Kong has long been the shining light of not just Asian, but global business. A pivotal international hub and the gateway to key markets, particularly mainland China.

It boasts a transparent legal system, based on British common law, and favourable tax conditions. For decades it has been attracting multinational corporations and financial institutions with its infrastructure and commitment to free trade.

Its geographical position, alongside its growing importance in the international business landscape, is part of the reason Britain was so slow to ease its grip over Hong Kong as the Empire’s power waned in the 20th century.

However, in more recent years, cracks have started to appear in the veneer of this capitalist paradise.

Who has left Hong Kong?

Hong Kong had a peak of 333 US firms in 2012, but last year there were fewer than 240 US companies with regional hubs there.

In July 2020, The New York Times announced plans to relocate its Hong Kong-based digital news operation to Seoul. In October 2021, Amnesty International closed its two offices in Hong Kong.

In May 2023, FedEx announced it was moving its Asia headquarters and relocating employees from Hong Kong to Singapore.

In September 2023, National Australia Bank (NAB) said it would shut its Hong Kong branch, with Singapore, Tokyo and Shanghai the preferred customer outreach hubs in Asia.

Why did those companies leave?

While staff have struggled with visa applications and there were concerns over restrictions against free press, Stephen Dunbar-Johnson, international president of The New York Times Company called the national security law in Hong Kong “the final tipping point.”

The national security law in Hong Kong was introduced in 2020 by the Chinese government and raised concerns about the impacts on freedom of expression, political freedoms and the rule of law.

Anjhula Mya Singh Bais, chair of Amnesty’s International Board, made similar comments. She said: “This decision [to leave Hong Kong], made with a heavy heart, has been driven by Hong Kong’s national security law, which has made it effectively impossible for human rights organisations in Hong Kong to work freely and without fear of serious reprisals from the government.”

While FedEx, who claimed the move to Singapore would speed up deliveries in the region, and NAB, who cited customer behaviour, both named business reasons, the implication seems cleared that Hong Kong is not the free trade haven it was previously.

However, Julian Russell, director of Pacific Risk, based in Hong Kong, said he does not believe this trend will continue.

“Hong Kong remains a gateway to China, it is one end of the new silk road. Mainland manufacturing [companies] have sales offices in Hong Kong, foreign buyers have offices in Hong Kong, it is a place of East meets West,” said Russell.

“Hong Kong remains the safest jurisdiction to do business with China because the Hong Kong legal system has more certainty than elsewhere. The flow of money and information across Hong Kong’s borders remains unrestricted. To abandon Hong Kong is to abandon all of China.”

Understanding the risks

Russell said there are two types of risk, epistemic risk due to lack of knowledge, and aleatoric risk due to the “intrinsic randomness of nature”.

“Epistemic risk can be mitigated by research, aleatoric risk can be mitigated by insurance and multiple redundancy of systems.

”There is uncertainty due to geopolitical tension, but where there is risk there is also opportunity, the only thing that is certain is that there will be change, bad things will get better while good things will deteriorate in a cyclical pattern, managing the timing of these cycles is everything.

“But profit is the reward for accepting risk, and conversely, no risk means no reward. Business leaders only need to decide if the potential rewards equal the potential risks. Hong Kong remains the best place to build a base for business across Asia,” said Russell.

What specific challenges in Hong Kong should risk managers be aware of?

Russell said specific challenges to Hong Kong would include acquiring language and cultural skills, but this would apply to any country, while both local knowledge and understanding historical tensions are important.

“Although not unique to Hong Kong, perhaps the biggest risk here is to not recognise the misinformation war that is currently raging — determining what is real and what is not is becoming more and more difficult,” he said.

“False information is influencing people to buy or not buy goods, to invest in fraudulent schemes, and deception is becoming more and more elaborate.

“For example, we are receiving requests from the other side of the world where the client says, ‘I can see the photographs of factories on the new company website but I need conformation from someone on the ground to confirm there really is something there’.”

Russell said trust is falling and information needs third party confirmation, but identifying a third party that is genuine is equally difficult.

“False hostile company reviews exist with false positive company reviews. For bad actors with the resources, genuine information about historic malfeasance is being ‘scrubbed’ from the Internet. Nothing can be trusted,” he concluded.