China Business, Events

Hong Kong’s Demise and Merry Christmas

hong kong

Night before Christmas so slow day today, so I will use it as an excuse to reminisce a bit.

In August, 2019, in what now seems like an eternity ago, in Hong Kong for International Business: Stick a Fork in It, we were — as far as I know — the first to declare the end of Hong Kong.

It seems like an eternity ago, because when we wrote this, it struck many as a revelation and it was highly controversial. We got hate comments and hate mail and we were mocked by others. My favorite was the email I got from a Hong Kong lawyer, who called me a liar, a moron, and a no-nothing and promised I would be exposed for all of these things in the next year when none of what I said would come true. Most importantly, he said that Hong Kong would always remain very much separate from the PRC and my even questioning its ability to maintain a separate legal system showed my stupidity.

If you read the comments to that post, you will have the pleasure of seeing someone call me “a piece of turd” and another person tell me that I “don’t understand anything about arbitration.” But in all fairness, the comments also reflect many who agreed and many compliments of our blog as well, with my favorite being the following: “I don’t know why it is that this blog is the one that always seems to be the one to say what everyone is thinking, but it is exactly that that puts this blog at the front of my reading list every morning. Everyone has been talking about what you say here just nobody wrote about it yet.” My response to that was that “I think a lot has to do with our not being so tied to China.”

Our law firm “not being so tied to China” is truly the key. We are neutral in China in terms of our business and by that I mean that we think of ourselves more as international lawyers than as China lawyers and this means that if someone comes to us to draft a manufacturing contract for China, we say sure and we put one of our international manufacturing lawyers fluent in Chinese on it. But if someone comes to us to write a manufacturing contract for Mexico, we do the same thing, but with one of our international lawyers fluent in Mexico — better yet, we put our Mexican licensed and domiciled lawyer on it.

Anyway, I think with all that has been happening with Hong Kong of late and with so many others lately proclaiming the end of Hong Kong — A Farewell to the Hong Kong I Loved in Bloomberg earlier this week — I thought now would be a good time to reprise our much earlier proclamation on Hong Kong and let everyone have a go at it, to see how well it stood up. So without further ado, here you go.

Not sure why nobody has just come out and said this yet, but Hong Kong as an international business and financial center is no more. I take no comfort in saying this because I have many friends in Hong Kong and I’ve always loved going there, but Hong Kong’s special position is over. Kaput. Fini. Terminado. 完. законченный. Done. Over. No more.

I challenge you to say “one country two systems” with a straight face.  

For the last few months I have been relentlessly asking everyone I know in Hong Kong or who used to be in Hong Kong or who at one time contemplated setting up a business in Hong Kong how what has been happening in Hong Kong has and will or would impact their doing business in Hong Kong. Based on those responses and on my own experience with how international companies operate, I foresee the following:

  1. Companies that were deciding between Hong Kong or Singapore for their Asian headquarters will choose somewhere other than Hong Kong.
  2. Growing companies with offices in Hong Kong and with offices somewhere else in Asia will increase their hiring outside Hong Kong and decrease or eliminate their hiring in Hong Kong.
  3. Companies with offices in Hong Kong and with offices somewhere else in Asia will be move personnel from their Hong Kong office to their other offices.
  4. Fewer contracts will be drafted with Hong Kong as the venue for arbitration.
  5. Companies will move their Hong Kong bank accounts elsewhere. It is no coincidence HSBC stock hit its 52 week low today.
  6. Travelers will choose somewhere other than Hong Kong as their Asia stopover. It is no coincidence Cathay Pacific stock hit its 52 week low today.
  7. Many Hong Kongers will eventually go elsewhere.

I am not saying any of the above will be noticeable tomorrow or even a month from now, but I am saying that all of the above have already begun and all of the above will accelerate once China’s army goes in at full force, which is pretty much inevitable. Within two years Hong Kong will be a very different place than it is today and within five years it will hardly be recognizable for those of us who have been there within the last five years.

Since the inception of the US-China trade war, this blog has been relentlessly downbeat about the US-China trade war and its impacts. Way back in October 2018, we called the US-China trade war the “New Normal” and in Would the Last Company Manufacturing in China Please Turn Off the Lights, we forecast an inevitable sharp decline in China manufacturing. On May 8, 2019, in The US-China Cold War Starts Now: What You Must do to Prepare, we warned of a “straight line decline in US-China relations” and we laid out what businesses should do in response to that. Long before that, my law firm brought on three additional sourcing experts experienced with product sourcing from Southeast Asia and with other countries outside China.

Our gloomy predictions have angered many, and I get it. What we are saying is not pleasant, especially for those with companies or livelihoods that depend on free trade with China or on Hong Kong remaining as Asia’s leading business hub. But please understand that we are only calling things as we see them, not as we want them to be.

As for Hong Kong, we are now suggesting our clients (and you) (1) consider places like Singapore and Bangkok as your Hong Kong replacement, (2) implement plans for evacuating your Hong Kong personnel, (3) cease using Hong Kong arbitration clauses (except with Hong Kong companies), and (4) avoid going there unless truly necessary. If corporate responsibility or data protection are at the core of your business your Hong Kong decisions are more pressing.

What are you doing about Hong Kong?

Would love to hear your thoughts about Hong Kong today and Hong Kong tomorrow.

No matter what though, take care everyone and stay safe, and have a Merry Christmas.