As Chinese mainland authorities ramp up both troop manoeuvres and rhetoric to intimidate Hong Kong's demonstrators, the Special Administrative Region's business community is weighing up the price of protests which are slowing the Asian financial centre's growth and denting confidence.
BlackRock, the world's biggest investment firm, has postponed its flagship Asia Media Forum, scheduled to be held in Hong Kong in September, to early 2020. Clients of private banks have started asking about moving assets to other centres.
“The stability that people associate with Hong Kong has been shaken,” with a longer-term impact on international businesses which have interests there now unavoidable, says the head of Asia financial services for a major global consultancy.
But the finance industry is intrinsic to the territory's culture and ecosystem. Its actors are are also looking closely at the sociological factors which have driven existing tensions to boiling point and how these tensions can be diffused.
Hong Kong has a long history of civil insurrection. Running street battles between pro-Communist and pro-Nationalist activists in 1956 led to 59 deaths. Another 51 were killed in the 1967 “leftist” riots.
In those days the “oppressors” were British colonial rulers rather than the Chinese mainland authorities. But these episodes share much in common.
Unrest normally takes place at a time of great change in mainland China, which affects local sentiment. Grievances about one issue quickly escalate into general dissatisfaction with society. The disturbances normally manifest themselves in stand-offs between local youths and trade unionists on one side and the Hong Kong police on the other.
Millions of dollars of damage are done and factions such as Triad gangsters and contingents of mainland Chinese can become involved. Confidence in the territory temporarily suffers and residents look to sell properties and join family in Australia, the UK, US or Canada.
But crucially, previous outbreaks sparked social reforms, leading to Hong Kong becoming one of the Four Asian Tigers, alongside Singapore, South Korea and Taiwan.
Following the Christmas riots of 1981, Hong Kong’s government begrudgingly started to look at problems faced by its disaffected youth. These have since multiplied in a city living through a psychologically traumatic modern-day identity crisis and culture clash. Amid this inelegant transition, both local and international players are increasingly asking whether this is the best location for a financial hub for Asian private banking and financial services.
Depending on who you speak to, you hear a different story about the real roots of today’s demonstrations and skirmishes, which started as a peaceful protest back at the beginning of summer 2019 against an extradition bill, now described as “dead” by chief executive Carrie Lam Cheng Yuet-ngor.
Hong Kong-based branding expert Anant Deboor declares himself “utterly unsurprised” by the latest round of pro-democracy protests. Mr Deboor was previously head of Asian consulting at The Partners, now a flagship unit of the WPP global advertising agency.
His 2003 research of the 18 to 25-year-old age group in Hong Kong found a generation prone to bleak narratives, uncertainty and a lack of confidence in their identity. Other surveys carried out at the time found just 5 per cent of young Hong Kong residents happy with their lives compared to around 80 per cent across neighbouring countries.
He puts this down to idyllic, prosperous 1980s childhoods eventually shattered by nervousness and fear of a handover to communist China in 1997, amplified by the Asian contagion which decimated the region’s stockmarkets and economies during the same year. A recovery was followed by a further 9/11-induced crash and then the “killer blow” of the SARS respiratory virus which killed more than 250 in Hong Kong in 2003.
Just as they thought things were getting better, Lehman Brothers collapsed in 2008. Market crashes are particularly significant in Hong Kong, where indices are watched and traded by a large section of locals.
In those days, Chinese authorities began to get jittery at the regular demonstrations outside banks. Angry representatives of the 40,000 private clients who had been sold structured products called ‘minibonds’ by the banks organised demonstrations which the authorities tried to disperse.
These products, issued by Lehman, were worth a total of $2.5bn. Although they were marketed to families and retail investors, they had Synthetic Collateralised Debt Obligations hidden within their multi-layered structures.
Both banks and regulators clammed up about the nature of these opaque products, leading to further distrust of the government by a cohort who saw their parents suffer from the losses.
“Over this same period, China has gone from poor country cousin to Big Brother,” ventures Mr Deboor. “The Shenzen stockmarket is bigger than Hong Kong. We are now just 3 per cent of Chinese GDP, compared to 20 per cent at the time of the handover.”
Along with most of the territory’s residents, he laments the lack of leadership which this younger generation has been subjected to. There has been no discussion of a future programme for growth and inclusion or a commission addressing grievances, just bland condemnation of protestors as rioters, thugs or terrorists.
The current chief executive makes only occasional statements and is widely seen as an apologist for Beijing. Alleged corruption at the top of Hong Kong’s political elite led to the jailing of a previous chief executive, who was eventually acquitted on appeal.
Youngsters, often crammed two or three to a room, have watched the excesses of local elites and the more spacious housing, lower prices and better job opportunities experienced by their cousins on the Chinese mainland. They have also seen their native Cantonese language usurped by Beijing’s Mandarin.
“There may have been initial anger about the extradition bill, but Hong Kong people feel economically insecure and there is no beauty, aesthetics or human touch about the public housing in which many of them live,” says one senior Chinese-born private banker now living in Hong Kong. “We have already fallen behind Shenzen.”
Nerves are jangling in the city’s private banking community, its clients already suffering from 30 per cent market losses at the end of 2018, resulting from Donald Trump’s damaging trade war with China. Many fear Chinese military intervention.
Local assets are now cheap. Private banks say clients are beginning to look at buying into big blue-chip names. Banks report falling GDP, drastically reduced hotel occupancy and retail sales, especially with less footfall from mainland Chinese visitors.
Most private banks also have offices in Singapore, and the fear is some may shift resources there. Conspiracy theories abound, with middle class, prosperous entrepreneurs and professionals pointing to the “black hand” of foreign powers, especially the US, funding anti-Chinese protests through purchases of masks, umbrellas and protective equipment.
But the future is not all bleak. Voices of reason also abound, creating dialogue between the generations. Despite revolutionary slogans on the streets, few want independence. Most prefer to be part of the China-linked growth story.
But they do want a say in their own future, a guarantee that they will be part of a “one country, two systems” structure promised by China and, most of all, a strong, visionary and honest leadership.
