CCP’s Transformation of Hong Kong in Its Own Image Is Becoming More Apparent

Commentary

Beijing is making Hong Kong more like communist China by the day. In one respect, that must make Chinese Communist Party (CCP) leader Xi Jinping happy. But by driving out the Americans and the rest of the world, this trend also reduces Hong Kong’s global significance and consequently works against the CCP’s ambition to become financially, economically, and diplomatically dominant.

As of today, the city still retains its position as a global financial hub. According to the Global Financial Centers Index, it remains in the top three cities, along with London and New York. But other evidence shows that its stature is ebbing. As Beijing has asserted itself in the life and business of the city, the great foreign financial institutions and corporations that made Hong Kong truly global are leaving. Two years ago, Chinese firms in the city surpassed the foreign presence for the first time, and the gap has been widening since. Last year, foreign firms underwrote only 20 percent of the initial public offerings in the city, well down from only two years ago, when foreign firms underwrote half of such issues.

This dominance of Chinese players may seem like a victory of sorts for Beijing, but it has been accompanied by a reduced global orientation. And these trends are gathering momentum. Largely because of the foreign departure from Hong Kong, investment banking activity and revenues in Asia (excluding Japan) have sunk to their lowest level since 2010, a year that was still depressed by the financial crisis of 2008–09 and the global recession that followed it. New listings on the Hong Kong stock exchange have fallen to their lowest level in 20 years. Goldman Sachs, Morgan Stanley, and UBS have announced several rounds of layoffs in Asia, much in Hong Kong. International law firms are following suit.

This general loss of business and, hence, global stature has been accompanied by a clear reorientation away from international business and practice and toward a strictly Chinese focus. It is telling in this respect that corporate recruiters in Hong Kong increasingly insist that candidates speak fluent Mandarin. With more banking oriented toward China-based businesses, it has effectively become increasingly tied to the political directives coming out of Beijing’s centralized economic planning.

Mainland practice has also begun to take over much of Hong Kong’s investment banking. In the past, underwriters of new issues lined up the investors, as is common practice in London, New York, and elsewhere in the world. But in Hong Kong, listing companies are increasingly lining up investors even before underwriting occurs. This practice, referred to derisively as “family and friends” by American and European investment bankers, has caused these once-large foreign players in Hong Kong’s financial community to pull back.

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All this change in Hong Kong away from global practice in favor of a China-centric approach speaks to the CCP’s drive to get its way, at least in Hong Kong. However, this change, perhaps unintentionally, undermines Beijing’s ambition to play a significant role in global finance and eventually even see the yuan replace the U.S. dollar as the premier international currency. Beijing’s willingness to bear the expense of its Belt and Road Initiative speaks to this grand ambition, as does Beijing’s active cooperation with the currency initiatives of the so-called BRICS nations—Brazil, Russia, India, China, and South Africa. In these and other efforts to seek financial and diplomatic dominance for China, a vibrant, globally oriented Hong Kong would be a great asset, but that is not where the CCP is taking the city these days.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.