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Hong Kong’s 25 Years Under China: Business Appeal Suffers Amid Diminishing Freedoms

Forbes logo Forbes 6/30/2022 Robert Olsen, Forbes Staff

Chinese President Xi Jinping said Hong Kong had “risen from the ashes” after several severe challenges, as he arrived in the city on Thursday to celebrate the 25th anniversary of Hong Kong’s ​​handover from British to Chinese rule.

“Facts have proved that ‘one country, two systems’ has strong vitality. It can ensure Hong Kong’s long-term prosperity and stability, and safeguards the well-being of Hong Kong compatriots,” Xi said.

July 1st marks the halfway point of Beijing’s 50-year promise to maintain Hong Kong’s governance model under “one country, two systems”—a pledge that was intended to guarantee the city would retain its capitalist system and the same freedoms that had enabled it to become an economic powerhouse under 156 years of colonial rule.

Hong Kong's handover ceremony on July 1, 1997. Kimimasa Mayama/AFP via Getty Images © Provided by Forbes Hong Kong's handover ceremony on July 1, 1997. Kimimasa Mayama/AFP via Getty Images

But China has already breached that agreement multiple times, according to the U.K., and Hong Kong is now experiencing an exodus of businesses and people as Beijing continues to tighten its grip on local affairs—even the city’s Covid policies bear this out.

“The Covid policy is not being determined in the interests of Hong Kong, balancing its needs and requirements with the mainland and with the rest of the world,” says Simon Cartledge, an analyst who has lived in Hong Kong for three decades. “It’s being driven by Beijing’s needs and wishes and desires.”

As other countries have been gradually lifting their travel restrictions, Hong Kong has effectively cut itself off from the rest of the world by maintaining highly restrictive Covid policies which are similar to those on the mainland. And with no end in sight, many business people have been decamping to other cities in Asia that are more accessible, places like Singapore.

“Hong Kong is not going to look anywhere near as attractive to a lot of firms, particularly Western multinational companies and the staff they might want to bring in from overseas,” Cartledge says.

And business groups have been ringing the alarm. The Hong Kong General Chamber of Commerce warned in March that the city is facing an exodus of expatriates on a scale not seen since the early 1990s. The group’s message echoes recent surveys released by the European and American Chamber of Commerce which show that foreign companies are increasingly considering relocating their businesses out of Hong Kong.

Zinnia Lee/Forbes Asia © Provided by Forbes Zinnia Lee/Forbes Asia

For the past 25 years, Hong Kong had been ranked as the world’s freest economy by the Heritage Foundation, but the conservative U.S. think-tank dropped the city entirely from its annual ranking last year after Beijing began to arrest Hong Kong’s opposition groups and activists. The Heritage Foundation explained its decision by citing the city’s “the loss of political freedom and autonomy” which has made it “almost indistinguishable” from other major Chinese cities.

To be sure, many business leaders are still optimistic about Hong Kong’s economic prospects in the longer term. Robert Lee, a legislator from the territory’s finance sector, echoes a view held by others in the business community who believe the opportunities to make money in Hong Kong make up for problems elsewhere.

“For the business community, it’s really more about the potential of the market,” Lee says. “As long as investors feel like they’re still getting the opportunity to capture this [economic] growth, that’s the most important aspect.”

Zinnia Lee/Forbes Asia © Provided by Forbes Zinnia Lee/Forbes Asia

But steering clear of politics is no longer an option available for many businesses. Chinese officials expect public displays of support from the business community if they wish to avoid losing access to the lucrative mainland market.

“Businesses in Hong Kong have to take a political position in order to survive,” says Ivan Ko, who founded real estate management firm RECAS in Hong Kong back in the 2000s.

Ko was among the roughly 123,400 people who have already applied to immigrate to the U.K. under a new visa scheme that offers them a path to eventually attain British citizenship.

Hong Kong’s residents had organized peaceful demonstrations for well over a decade to remind the government of its promise to adopt universal suffrage as outlined in the city’s mini-constitution. But Beijing refused to adopt any meaningful reforms. As frustration mounted, the protests grew in strength in 2014, and then became violent in 2019, so Beijing hit back hard.

Hong Kong was rocked by anti-government protests in 2019. Chris McGrath/Getty Images © Provided by Forbes Hong Kong was rocked by anti-government protests in 2019. Chris McGrath/Getty Images

In June 2020, Beijing bypassed Hong Kong’s legislature and rushed through the national security law, which punishes acts of secession, subversion, terrorism and collusion with foreign groups. Since it was implemented, the police have arrested scores of opposition lawmakers, activists and journalists.

Less than a year later, Beijing went further by imposing new restrictions on the city’s electoral system that effectively rule out opposition politicians from holding public office. International condemnation swiftly followed the government’s actions, and it also raised questions about Hong Kong’s status as a global financial hub.

“The national security law is the most draconian legislation I have ever seen because it’s very widespread, it’s very vague and it’s very powerful in the sense of controlling the people and their freedom,” says Ko.

All eyes are now on John Lee to see how he intends to restore business confidence amid seemingly endless Covid restrictions and mounting concerns over the city’s liberties and freedoms. After the former policeman was formally anointed to become the next chief executive, he said, “We must expand our international connectivity, establish a more favorable business environment and increase our overall competitiveness.”

But Lee himself has been sanctioned by the U.S. government for his role in repressing the most recent pro-democracy demonstrations. The majority of Lee’s 45-year career has been focused on security matters, excluding a brief nine-month spell as Hong Kong’s chief secretary. His selection as the chief executive is seen by many as a clear signal that Beijing’s hardline approach to Hong Kong is set to continue.

Chinese President Xi Jinping (right) meets with John Lee in Beijing on May 30, 2022. Li Xueren/Xinhua via Getty Images © Provided by Forbes Chinese President Xi Jinping (right) meets with John Lee in Beijing on May 30, 2022. Li Xueren/Xinhua via Getty Images
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