As China moves to reintegrate Hong Kong, can Australia and Canada continue to be the destination of choice for business seeking an alternative?
Ever since Hong Kong was ceded by the Qing Dynasty in 1842 and established as a British colony in 1843, it has acted as the gateway to mainland China.
For almost 100 years it remained a safe and stable hub for West-Oriental commerce, ceasing only during the Japanese Invasion in World War II.
At the beginning of the 1960s, Hong Kong was China’s second-largest trading partner and leading export market. By 1986, they received 31.6 per cent of all Chinese exports. Some speculated the handover in 1997 would spell the end for this lucrative hub of trade and business, but Hong Kong refused to slow.
Foreign investment into Hong Kong in 1998 was worth a little over HKD$1.9 trillion (AUD$342.5 billion), and in the following 20 years to 2018, this had risen to over HKD$16 trillion (AUD$2.9 trillion).
However, according to the 2020 World Investment Report released by the United Nations Conference on Trade and Development (UNCTAD), Hong Kong’s 2019 foreign direct investment was 34.4 per cent, down on 2018. The report attributed this to continuing social unrest and a decline in corporate earnings.
As social and political uncertainty continues, the people of Hong Kong are looking for a new home to invest their capital.
Sydney has long been an alternative for those seeking opportunity outside of Hong Kong. This is due to its position as a global trading centre into the United States, Europe and the Asia-Pacific region.
Australia’s relative economic and political stability continues to draw foreign businesses that seek the certainty to implement long-term strategies. It is also uniquely placed geographically, with the advantage of being able to communicate and trade with Asia within similar time-zones – giving businesses a competitive edge over other global trading centres.
Yet, it is not just Sydney that has positioned itself as a hub for Hong Kong emigration.
Canada’s Vancouver has long been a destination for Hong Kong’s ex-pats. And, like Australia, Canada offers a stable, democratic, and openly multicultural society.
The bulk of recent immigration from Hong Kong to Vancouver started in the early 1990s after political instability in mainland China. Interestingly, one of the main attractors to Vancouver was the quality of education on offer.
Who’s on the move?
There are three clear groups of Hong Kong residents emigrating: Youth (including students and those just beginning their careers), mid-tier executives (including those in affiliate branches of global companies) and established business leaders (often from well-established families and businesses a long history in Hong Kong)
The first two of these groups are often seeking new and prosperous futures.
Hong Kong’s students and young professionals are some of the most distinguished in the region with the Times Higher Education ranking putting Hong Kong Polytechnic University in the top 100 in 2020 rising 15 places since 2019.
Hong Kong’s current education system provides a broad international and pro-market approach to learning, with students often capable of speaking English fluently (together with other regional languages and dialects), offering western businesses a bridge into China and wider Asia with an exceptional work ethic.
Young people from Hong Kong are also seeking to move to more democratic nations. This has significantly increased after more than a year of pro-democracy protests in Hong Kong over the recent Beijing moves and the imposition of new security laws in June 2020.
There is also a growing trend of mid-tier executives moving out of Hong Kong in search of overseas opportunities with their existing employers.
While Hong Kong has been steadily growing – except for the last twelve months – there are limited opportunities for future personal career growth from junior to mid-tier executive positions.
For those within large consultancies, firms and multinationals, current growth opportunities are trending toward western cities and markets such as Sydney, Vancouver and to a lesser extent, Singapore.
Executives looking to move forward in Hong Kong are often unable to find higher roles or the competition for a tiny handful of domestic jobs is so high that relocating can be a more viable option.
It should be noted that Hong Kong is not just a gateway city or a landing pad for multinationals wishing to do business in China. It also has large homegrown non-state-owned companies.
Established families and businesses from Hong Kong have invested in industries ranging from hotels and hospitality to infrastructure, shipping and logistics. Over the years, many of these families and businesses have diversified their investments to be less reliant on both Hong Kong and China.
These families and businesses have long been sceptical of mainland China, often owning homes in cities in other countries, with multiple passports and financial structures to ensure the safety of their investments.
These families are looking to overseas cities to ensure their generational wealth can remain in the hands of their families, and their businesses can operate freely.
These individuals, who unlike the youth and mid-tier executives, are primarily responding to push factors such as unstable political events and China’s recent move to tax Hong Kong citizens’ global income. Hong Kong’s new tax regime takes the potential tax rate of these families to 45 per cent, from about 15 per cent previously.
While Sydney and Vancouver have long been two of the preferred destinations for people from Hong Kong, they are challenged when it comes to business migration competition by Singapore.
Like Hong Kong, Singapore has long been considered a hub within Asia, with many multinationals housing their Asia-Pacific regional headquarters out of the city-state. Singapore has long-standing political and social stability while also offering an attractive taxation ecosystem.
One of the more significant barriers to mass migration towards Singapore is its stance on critical rights and freedom issues.
Singapore is known for curtailing people’s freedoms. In 2020 they ranked 158th out of 180 in the Worldwide Press Freedom Index, slipping eight places in 2 years.
Singapore has also legislated for indefinite detention without charge. While the original intent of this legislation was for terror-related matters, it has been used against political opposition and enforces strict mandatory national service requirements that apply even to permanent residents.
Taking advantage of the change
The changes to Hong Kong will create opportunities for both governments and businesses.
Governments are already beginning to take advantage of migration from Hong Kong. Britain has moved to create a pathway to citizenship for Hong Kong citizens who were born before Britain handed the territory back to China in 1997.
Australia has also provided a pathway to permanent residency for more than 12,000 people from Hong Kong. Canada and Australia have suspended extradition treaties and are rumoured to be moving to offer further incentives to attract business from Hong Kong.
Liberal Senator Andrew Bragg has been calling on the Federal Government to provide additional incentives for businesses, particularly in the financial services sector, to relocate to Australia, with the financial services sector currently employing over 260,000 people in Hong Kong. He has called for reforms to capitalise on Hong Kong’s ‘collapse as a credible financial centre in the region’. These reforms include lowering Australia’s company tax rate towards the 21 per cent Asia average and fast-tracking licence approvals.
Businesses are also taking advantage of Hong Kong’s reintegration into greater China. Be it through expanding into the void left by businesses that are moving, taking advantage of businesses that are distracted or taking advantage of the stability that is provided to them locally.
As Hong Kong-based businesses begin to move offshore to mitigate risk, there is also scope for businesses in Australia and Canada to step into the void.
Australian and Canadian businesses are also able to take advantage of Hong Kong businesses who are distracted by their local instability or political instability.
Businesses in stable environments can utilise this to implement longer-term strategies, plan for change with certainty and access financing at often decreased interest rates. If Australian and Canadian businesses can harness this, they will be able to grow and develop with certainty.
Those businesses that already have ties into Hong Kong will be well-placed to take advantage of Hong Kong’s reintegration into China. Companies that are engaged but not reliant on Hong Kong will be able to continue to reap the rewards of this gateway into the growth opportunities in China.
As Hong Kong continues a transition from a British colony to a wholly-owned territory of the Chinese government, it is sometimes oversimplified with suggestions of citizens and businesses fleeing to democratic and free market alternatives.
In reality, it is a more nuanced shift, impacted more by the pull factors of career advancement, stable political environments, and financial safe harbours rather than push factors from an increasingly assertive administration looking to control and exert its influence in Hong Kong.
Nevertheless, this is an opportunity for Australia. It can use careful domestic policy settings, to attract both business and talent from Hong Kong and welcome them to a new home – Australia.
Nick Campbell is the Chair of the Nexus APAC Group. He has worked across Asia in both the private sector and government on Strategy and Public Affairs. Find out more by visiting www.nexusapac.com.au.