Extradition and Business
These have been an emotional few days in Hong Kong. Sunday 9 June saw the biggest post-1997 protest march over the government’s plans to enact changes to its extradition laws that would allow criminal suspects to be sent to the mainland. A reported one million citizens – about one seventh of the entire population – took part in what was a largely peaceful exercise of civic rights. A minor scuffle near the end quickly subsided.
On the following Wednesday when the local legislature was due to start detailed consideration of the bill, tens of thousands of (mostly) young people, many of them students, laid siege to the council building and the adjacent government headquarters. Many nearby roads, including important traffic arteries, were completely blocked in scenes reminiscent of the Occupy protest of 2014. Although the Council’s President announced work on the legislation would be suspended, the crowds did not disperse and some among them launched a coordinated attempt to enter the legislature. The police resisted forcefully, and went on to drive away all the protesters using tear gas, batons and rubber bullets.
The scenes, broadcast live on TV, shocked the local community which is generally very peaceful and enjoys a low crime rate. Many have queried whether the events will have a significant impact on Hong Kong’s attractiveness as a place to do business. Based on my eight and a half years’ experience running the government’s investment promotion agency, InvestHK, from its inception in July 2000 up to December 2008, I would expect any effect to be limited and short-lived.
That is not to say there will not be any impact at all. To the contrary, my biggest worry as a Hong Kong citizen is the effect on our young people. The flower of our youth now has a very jaundiced view of the government. They will be the core of the community’s future, yet they now feel estranged from the administration. It will take a very long time and require much effort to bridge the gulf between the two sides.
But existing and potential new foreign investors have a very different mindset. There is only one reason why any company invests abroad, and that is to add to its bottom line. Establishing a presence in Hong Kong can do that either by being a profit centre in its own right, or by enabling the company to do more effectively or more efficiently things that are currently done elsewhere (or not done at all).,
What do foreign investors look for? The checklist will certainly include physical infrastructure such as port, airport, internal transport, external transport links, reliable electricity supply, world class telecommunications infrastructure, reliable fresh water supply etc. Then there is soft infrastructure: the legal system, quality and independence of the judiciary, widespread use of English in business, efficient banking system, protection of intellectual property, ready availability of skilled personnel with an international mindset, ease of doing business and a business-friendly government and tax regime, anti-corruption efforts, free flow of information. Many locations have some of these qualities, but Hong Kong is one of the rare cities which has all of them.
Of course political stability comes into the picture at some point, but from a business perspective rather than an altruistic one. Decision makers in overseas companies will examine whether social unrest is likely to materially affect any of the factors listed above. If yes, then it is time to review investment. If no, then carry on with business as usual.
From a more macro perspective, is the government likely to be overthrown in a coup? Will the new government amend sharply the prevailing tax system and business environment? Will there be a whole raft of new inexperienced ministers who will need time to learn the ropes? In a corrupt environment, will it be necessary to bribe the new team? None of these scenarios are relevant to Hong Kong’s situation. It is now and forever more will be a part of the People’s Republic of China. Its main policies are laid down in the Basic Law and need not be varied even after 2047 when certain guarantees are scheduled to expire. The ministers are generally experienced and there are well crafted succession plans.
Hong Kong supports international businesses at different levels: as a market in its own right (over seven million residents with high per capita GDP plus 60 million tourists per annum); as a coordination centre for southern China; as a centre for China business at the national level; as a base for regional headquarters; as a springboard for mainland companies to go global; and for some companies for certain activities, as a global headquarters.
Of course Hong Kong has competitors at some of these levels. But it is hard to imagine a scenario where the recent events will upset the apple cart. If the main fear expressed by the demonstrators – the possibility of extradition to the mainland for certain categories of offender – is the key factor, then how would moving to a different city in China improve matters?
How will our disaffected youth respond to these developments? Partly that will depend on the final outcome of the extradition saga, and how quickly the government moves to mend bridges afterwards. A small number might make up their minds to emigrate and make plans to do so. But most will probably adopt a wait and see attitude. After all, the death of Hong Kong has been predicted many times before – at least once a decade during my time here. In the short term, life goes on, there will be wives to woo, children to support. Career and business opportunities will open up – many of them, paradoxically, in the mainland. Serious damage will arise only if the government fails to learn its lesson and persists with hard-line anti-democratic policies. That could spark a brain drain which would adversely impact the business environment, including of course for foreign investors.
Overall, then, my conclusion is that the recent unrest is most unfortunate from a social perspective, is greatly to be regretted and substantial efforts should be made to restore equilibrium. But the underlying business situation is not affected.
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