Hong Kong’s Brain Drain Worsens as Expats, Locals Flee City
By Isabella Steger, Denise WeeKiuyan Wong, and Yasufumi SaitoJanuary 11, 2022 (Bloomberg)
- Political crackdown, Covid policies unlikely to ease in 2022
- Mainland influence deepens in education, markets and business
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Pedestrians make their way through Central district in Hong Kong. Photographer: Paul Yeung/Bloomberg
An exodus of expatriates and locals from Hong Kong is poised to intensify in 2022, as policy makers continue their crackdown on civil society and brush off an increasing uproar over aligning with mainland China’s Covid Zero strategy.
A population outflow that was triggered by the 2019 protests deepened last year to a record as the realization that the city’s strict Covid policies are here to stay sank in, and the impact of the national security law imposed by Beijing continued to roil public life. The effects of the brain drain in sectors such as education, health care, and even finance will likely be felt by residents for years to come.
“With everything that’s happening in Hong Kong, the strict quarantine rules and the national security law, banks and companies across the broader financial services sector are looking at their footprints in the region and where they want people based,” said Simon Roberts, chairman for Asia at executive search firm Sheffield Haworth. “If the government’s current zero-Covid policy continues, then come the end of the school year in the summer of 2022, there will be a further mass exodus.”
Still, for many Hong Kong expatriates and foreign companies, the impact of the security law was tolerable, or even welcome, as it put an end to months of disruptive protests. A more pivotal factor in deciding to leave or stay is the virus strategy, which now is becoming even more draconian, with almost all arrivals requiring 21 days in isolation, large numbers of incoming flights slashed and no timetable on the mainland border re-opening.
Even as big banks shrug off geopolitical tensions and continue to push into China, the data show that the city is losing its appeal. The number of American firms with regional headquarters continued to shrink, while people are increasingly thinking about relocating to Singapore, which is open for international travel, or even the mainland, as the utility of being based in Hong Kong for access to China wanes.
What’s emerging is a city that’s becoming increasingly dominated by mainland Chinese influence. In the economy, this means more Chinese firms are setting up hubs as those of other countries leave. In schools, children as young as six are being inculcated with patriotic education. Some of the city’s top academic minds are either leaving Hong Kong universities or academia entirely, while student bodies are becoming dominated by a mainland influx. Civil society groups such as trade unions and human rights groups are closing in droves or exiting, and pro-democracy media houses are shuttering while journalists are being arrested.
Hong Kong officials have maintained the drumbeat, against mounting criticisms from residents and industry groups, that its strict Covid policy is working, touting the city’s economic recovery.
Population
Hong Kong’s population decreased at a record pace in the 12 months that ended in June. The city saw an outflow of 89,200 residents, leaving its population at about 7.39 million, according to government data. That maintains the 1.2% rate of population decline set at the end of 2020, the biggest drop in at least six decades. The government attributed the decline partly to fewer people coming to work and study in Hong Kong amid strict border controls.
But in a sign that the political upheaval is transforming the city, 88,800 Hong Kongers applied for British National (Overseas) visas in the first three quarters of last year, according to the U.K. Canada also started a special visa program in February, receiving 8,237 applications as of Sept. 30, according to a spokeswoman for Immigration, Refugees and Citizenship Canada.
People leaving are also taking their savings with them, even though the authorities moved to bar BNO passport holders from withdrawing their funds. Outflows from the mandated retirement plan from people leaving the city hit the highest in at least seven years in the three months through September. A report released in December from the Mandatory Provident Fund Schemes Authority showed HK$2.6 billion ($334 million) was permanently pulled, up 24% from the previous quarter and the highest since at least 2014.
A spokesperson for the MPFA said that permanent withdrawals aren’t solely due to people emigrating, but also include those who moved back home or to the Chinese mainland. The MPFA also said that due to investment returns and contribution inflows, the amount of withdrawal claims would also increase.
Business
The number of American companies with regional headquarters in Hong Kong fell to an 18-year low, bolstering arguments that the city’s national security campaign and Covid Zero strategy are eroding its appeal as a global financial center.
Among firms leaving the city are New York-based hedge fund Elliott Management Corp., which has been winding down its Hong Kong operations in recent years. German multinational BASF SE also plans to move its regional division to Singapore this month, according to a LinkedIn post by its Asia-Pacific president.
At the same time, the number of mainland Chinese firms with regional headquarters in Hong Kong rose by 5% from 2020, totaling 252. Mainland Chinese bankers are also increasingly holding more senior jobs in the city. According to data from regulator the Securities and Futures Commission, the percentage of licensed asset management firms in Hong Kong that are from mainland China doubled from 6% in 2010 to 12% in 2020, from 127 firms to 397.
Hong Kong’s Covid Zero policy is also making life tougher for global firms in the city. A survey by the Asia Securities Industry and Financial Markets Association, the top lobby group for financial firms in the city, found almost half of major international banks and asset managers are contemplating moving staff or functions away. The industry body has called on the government to provide a roadmap to exit Hong Kong’s Covid Zero strategy and to ease restrictions.
A December study by the British Chamber of Commerce said that “as the rest of the world opens up to international travel, there is a risk that Hong Kong will become increasingly isolated as an international business centre.” Businesses that use Hong Kong as a hub to manage their activities on in China are considering scaling down their operations and moving them to the mainland, while those that use the city as a headquarter for the broader Asia region are considering moving senior executives or functions to other locations in Asia, notably Singapore, the chamber said.
To assuage some of the anger of business executives undergoing quarantine, the Hong Kong Monetary Authority has been delivering goodies including wine during hotel isolation for some, while others, including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, were exempted from quarantine. A growing number of financial firms are also offering hotel quarantine subsidies for employees.
Money Flows
Hong Kong is no longer in the top three listing venues globally as a widening crackdown by China on a vast range of industries hit investor sentiment and share prices. Initial public offerings in the Asian financial hub raised $43 billion in 2021, behind both the Nasdaq and New York Stock Exchange as well as Shanghai, data compiled by Bloomberg show.
It marks a drop in ranking from the first half, when the city came third with $31 billion. Shanghai has since pulled ahead, with $58 billion raised in 2021, the data show. Hong Kong was among the top three IPO exchanges worldwide in 2020 after grabbing the top spot in 2019 and 2018.
IPOs have dried up in Hong Kong since the summer as President Xi Jinping’s push to align companies with his vision of “common prosperity” caused many firms to delay listing plans. The city’s new listings have also underperformed, as some major tech names that initially did well after listing early in the year lost altitude amid Beijing’s clampdown targeting giant startups with vast data on Chinese citizens. The Hang Seng Technology Index has slid almost 50% since a high in February.
Another potential sign of outflows is in the real estate market, where much of Hong Kongers’ wealth is held. A growing number of properties are being listed for sale in Hong Kong, as more residents leave the city or cash out. According to a Bank of America report in January 2021, over 89,000 apartment units could be sold over the next five years, as a result of emigration to the U.K.
Still, Hong Kong’s home prices are hovering near a record high, as the market remains resilient despite the political tension. But even there the demand can be attributed to mainland cash. The daughter of a Chinese tycoon from Guangdong province across the border was recently revealed as the buyer of Asia’s most expensive apartment, according to a report by the South China Morning Post. She paid $640 million for an apartment in the exclusive Peak area.
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Education
Beijing has put the blame for Hong Kong’s recent unrest squarely on the city’s education system, which it believes is not patriotic enough. Alongside the imposition of the national security law also came a suite of changes to the education system, including flag-raising ceremonies, censorship of sensitive historical events in textbooks, and a complete overhaul of the liberal studies subject, which was designed to teach critical thinking skills. Hundreds of teachers have been investigated or fired for their views, and it’s likely that in the future they’ll have to pass a test on the national security law.
The Education Bureau has said that international schools don’t need to fully incorporate the national security curriculum, but they do “have the responsibility to help” students “acquire a correct and objective understanding and appreciation” on the concept of national security.
These changes in the education system are driving away both pupils and teachers. According to data from the Education Bureau, enrollment at elementary and secondary schools is at the lowest level in two decades, with some 19,300 students withdrawing in the past school year. That included about 5,280 from private and international schools. A recent survey found that almost 1,000 teachers have left Hong Kong in the past school year, almost double the previous two years combined.
The political crackdown has also extended to universities, where members of student unions have been arrested and vibrant political debate and protests have been all but snuffed out. At the end of last year, authorities removed pro-democracy monuments, including the Pillar of Shame statue to memorialize the 1989 Tiananmen Square crackdown. Coupled with strict Covid-19 border rules, that’s making university campuses less attractive to foreign students. The gap between the number of international pupils and mainland Chinese students has been steadily growing in the last two decades and widened further during the pandemic.
