Headlines accusing leading local banks of having a hand in international money-laundering have raised a few eyebrows recently. The real surprise, however, is that any brows moved at all. After all,
as far as entrepreneurial legal advice, creative accounting and associated “financial services” activities go in Hong Kong, what else is new?
At base, a “service economy” can be defined as follows. One takes in other people’s dirty laundry and – for a fee – washes it whiter than white. Along the way, the person doing the laundry either pretends not to notice or keeps quiet about the nasty smells and dubious stains encountered in the process. Ultimately, it is the job of the washerman to get the clothes clean, not pass judgment or investigate how they came to be quite so filthy in the first place.
Hong Kong has been a service economy for the international China trade since the 1840s; Macau performed the same function (as it still does) for three centuries before the British colony was established. From the beginning, Hong Kong was simply “that kind of place” and in consequence the colony attracted, and created, “those kinds of people”. Legal protection on private property created a safe haven for excess funds from elsewhere. Exactly how these funds were originally acquired was seldom – if ever – seriously scrutinised. Throughout its urban history, Hong Kong has offered a bubble of stability in an uncertain world. Other service-based economies – Singapore for Southeast Asia and, increasingly, Dubai for the Middle East and Africa – tend to have the same parasitic effect on their surrounding areas. If neighbouring states, and their economies, functioned effectively, these service centres would lose their appeal.
Hong Kong’s “comparative advantage” has remained constant over time. Probably the most humiliating aspect of China’s “century of national humiliation” was how readily Chinese businessmen
flocked to the legal and other protections the British colony offered. At the least, Hong Kong’s laws (unlike those in the rest of China) were not arbitrary. In consequence, the colony was a safe haven for businessmen (and others), their families, commercial activities and financial assets – and everyone knew it.
During the turbulent 1940s and 50s, ethnic Chinese from across Southeast Asia and beyond parked some of their assets in Hong Kong. Indonesian-Chinese flight capital flowed in during the early
50s as the economic policies of Indonesia’s first president, Sukarno, targeted first Dutch and then Chinese businesses.
Thai-Chinese money (and at least one prominent Bangkokbased Chiu Chow banking family) decamped to Hong Kong following the 1957 coup. Malaysian- Chinese investment increased
substantially following the 1969 Kuala Lumpur race riots and racially divisive economic policies that took effect through the 70s and 80s. Philippine-Chinese capital arrived in the 60s as Ferdinand Marcos steadily consolidated his power base and that once-promising economy began to curdle. The list continues.
Tax domicile plays a role in all this entrepreneurialism, too. Increased numbers of long-term British residents who once would have retired “home” to grow roses in some picturesque Wiltshire village now remain here. Hong Kong’s attractions are manifold – not the least of which is the ready availability of inexpensive domestic help as one ages.
The local direct tax rate also makes life very appealing. Why be assessed to the hilt in a cold, damp climate and do your own housework in your dotage when, instead, it is possible to spend 90 days a year there (split up over a few periods) and enjoy the best of all possible worlds?