Territory faces talent and capital drain after security law
When the imposing 17-floor office and retail building the Cabot changed hands for £380m last month, it was a welcome boost for Canary Wharf and its gleaming tower blocks that have been left deserted by the pandemic.
But the sale to businessman George Hongchoy's Link real estate investment trust also offered a foretaste of what could emerge from forces playing out in Hong Kong's streets thousands of miles away.
As China tightens its grip on the region, investors, residents and business owners in Hong Kong are increasingly eyeing opportunities abroad in case the clampdown becomes even more severe.
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While not yet in a rush for the exit, many are understood to have started preparing to move themselves or their money abroad, raising the prospect of an exodus of wealth and talent.
"A lot of people have opened an offshore bank account already," says Kevin Lai, chief economist at Daiwa Capital Markets, in Hong Kong. "They are waiting for a bad signal and then they can just press a button and it will take just a few seconds to take that money out. Local people are worried that the status quo is about to change very dramatically and we haven't seen this in our history."
Hong Kong's reputation as a free, fair and thriving region has been shaken over the last year after China's attempts to impose new extradition laws in June 2019 triggered protests and violence. Beijing's imposition in May of draconian security laws has ratcheted up tensions in Hong Kong and internationally – with the US revoking its special status as distinct from China and imposing sanctions aimed at Chinese officials involved in the crackdown.
The prospect of further sanctions, asset freezes under the new security law or capital controls is making many extremely nervous.
Wary of capital flight, the Hong Kong Monetary Authority, its de facto central bank, points to latest statistics showing net inflows. Bank deposits grew by 1.6pc during June. "Liquidity in our banking system remains ample and our foreign exchange and money markets have continued to operate smoothly," a spokesman says.
Yet experts believe a steady outflow of money from worried Hong Kong residents is masked by inflows of professional money attracted by higher interbank rates. "There were outflows of $10bn-$20bn (£7.6bn-£15.3bn) in the second half of last year," says Lai. "But then money came back in. So there are two forces."
Those inside Hong Kong are certainly starting to act. "Our friends, and friends of friends, are planning to leave and many have already left," says one prominent businessman, who declined to be named. "I suppose a lot of us are divesting or reallocating assets; it will be to overseas countries."
A survey by the American Chamber of Commerce in Hong Kong among its members in June found that 30pc of respondents were considering moving capital, assets or business operations in light of the new security law.
"The general attitude is to wait and see," says Tara Joseph, chamber president. "The law is so broad, people are trying to understand its ambiguity and see how it is implemented. If we saw it implemented in a way that affected the business community, that would send a shiver. And if we start to see the erosion of the rule of law, that will cause people to think twice about being here."
She hopes Beijing officials will clarify details of the implementation of the law, which threatens life imprisonment for offences such as "colluding with foreign countries and external elements".
The tension in Hong Kong could see more money sent to the UK, where infrastructure, property and retail sectors have long been a magnet for investors from the region.
The business "superman" Li-ka Shing's conglomerate CK Hutchison owns the pub chain Greene King, mobile phone network Three and pharmacy Superdrug. Link's purchase of the Cabot marked its entry into the UK, with more deals expected.
Official data from the Office for National Statistics shows that Hong Kong investors ploughed more than £3bn into the UK in 2017 and 2018, compared with £1.9bn in 2011 and 2012.
Families are said to be snapping up properties in the North of England. Property tycoon Ivan Ko has proposed building a Hong Kong-style city in Ireland, to be named Nextopolis, for residents who want to leave.
Interest is already rising in UK property. "We recently acted for an investor who decided to buy two properties of around £1m each," says Caspar Harvard-Walls, partner at Mayfair-based Black Brick estate agents. "He just wanted to move that money out of Hong Kong; he doesn't think he will come here."
But he is also seeing families who simply want to move, both expats and Hong Kong born. "They are future-proofing and giving themselves options to move," he says. "So they don't have to suddenly think, 'I am jumping on a plane with three kids, what am I going to do?'"
Lawyer Jean-Francois Harvey sees a similar pattern from the Hong Kong offices of his immigration law firm Harvey Law. He says cases have tripled in recent months. "I would say about three to four families have been moving out every week for the last two months," he says, destined for Europe, Canada and Australia.
"Also, because of Covid-19, people have realised they don't need to be here to control their business. People who thought they could not spend two to three weeks outside of Hong Kong suddenly realise it's possible."
Many clients are selling up in Hong Kong, he adds. But there's more than physical assets at stake. "Talent-wise, it's sad," he notes. "Hong Kong has been my home for 20 years. Really high-quality people are leaving."
