American Business Confidence in Hong Kong Sinks

Trustee Chair in Chinese Business and Economics  >  Trustee China Hand

By Shining Tan and Yilin Wang

Just days since Beijing imposed its draconian national security law for Hong Kong, the city is already facing a looming exodus of foreign businesses. The new legislation criminalizes a series of actions – secession, subversion, terrorism, and collusion with foreign governments – and granted the Chinese government sweeping authority over local residents and foreign nationals, including the ability to oversee national security cases and stronger “management” of foreign media and NGOs. As a major blow to civil liberties and rule of law, the law has sparked serious concerns among the foreign business community.
A newly released membership survey from the American Chamber of Commerce in Hong Kong (AmCham HK) reflects the depth of these fears. Conducted within 10 days of law’s adoption, the most important result is the survey shows that over 35% of foreign businesses are considering relocating their capital, asset, or operations. 5.5% of those businesses are planning to relocate in the short-run and 30.1% in the medium-to-long run.
Figure 1: “In light of the passing of the NSL and recent developments, will your company consider moving capital/assets/business operations?”

78% of foreign businesses in HK are either somewhat concerned or extremely concerned about the new national security law. A large majority of respondents, 68%, expressed increased concerns since the legislation was enacted. As Figure 2 shows, businesses find the biggest concern to be the legislation’s ambiguity, which creates the danger of overly broad application by Chinese authorities.

Figure 2: Major Concerns about the National Security Law

The national security law just adds to the worries AmCham HK members already have had. In a survey conducted last October24% of the respondents reported possible plans to leave Hong Kong. That number increased to 29.4% in June 2020 (see Figure 3).

Figure 3: As Tensions Rise In Hong Kong, More And More Companies Are Considering Leaving

Consistent with this growing pessimism, the vacancy rate for Hong Kong office space hit a 15-year high of 10.7% at the end of June. Both economic and political uncertainties have driven foreign companies to vacate their HK offices at an unprecedented rate, constituting 61% of the total office space surrendered in the second quarter, an increase from 47% in the first quarter. Further withdrawal of foreign businesses will deliver an even larger blow to HK’s real estate market.

This survey reflects a dramatic decline in business confidence in Hong Kong. The expectation is that Hong Kong is quickly on its way to not having a free and transparent market or an independent judiciary and well protected civil liberties – in short, that the era of “one country, two systems” is ending. If so, Hong Kong could certainly continue to be economically viable as a regional financial center within the Greater Bay Area  in Guangdong, but it would cease to be a global financial hub and bridge between China and the rest of the world.

Trustee Chair in Chinese Business and Economics > Trustee China Hand 

Shining Tan is a research associate with the Trustee Chair in Chinese Business and Economics at CSIS. Yilin Wang is a research intern with the Trustee Chair in Chinese Business and Economics at CSIS.

Related Content from the Trustee Chair:
CSIS Commentary: Options on Hong Kong: A Suggested NSC Memo, June 2, 2020 
Opinion: “As Hong Kong is stripped of its autonomy and special status, how will the next chapter play out?” South China Morning Post, May 30, 2020
CSIS Critical Questions: Whither Hong Kong? June 14, 2019