Banking & finance
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
A man enters the departure terminal at Hong Kong International Airport on March 29, 2022. Photo: SCMP / K. Y. Cheng

Hong Kong risks losing companies to ‘stickiness’ in other cities, threatening its international hub status, advisor warns

  • Relocation costs have prevented corporate flight from Hong Kong despite disruptive quarantine rules, but willingness to pay those costs is rising, warns the FSDC
  • Hong Kong must retain its role connecting China to the world and should further integrate with the Greater Bay Area, the advisory body’s chairman says

The costs of moving operations out of Hong Kong have limited an exodus of international firms during the Covid-19 pandemic, according to the chairman of a government-backed advisory body charged with maintaining the city’s status as an international hub.

But that same “stickiness” will make it difficult for Hong Kong to lure companies back once they establish operations elsewhere, according to Laurence Li Lu-jen, chairman of the Financial Services Development Council (FSDC).

“There is a cost to both the firm and the person to relocate a role,” Li said in the annual report the council released on Monday. “In the past couple of years, Hong Kong has benefited from this stickiness. But firms and people are increasingly willing to pay the cost. If the roles and people are relocated, over time they will become sticky in another place. Attracting them back will be an uphill task.”

The city must keep talented individuals and international companies in the city and not allow any deterioration of its position as an international centre in China, Li said.

Laurence Li Lu-jen, chairman of Hong Kong’s Financial Services Development Council, photographed in August 2018. Photo: SCMP / Jonathan Wong
His comments come as many firms have revealed their willingness to consider moving at least some operations, largely because of a talent shortage and disruption to business blamed on the city’s tough quarantine rules.
Hong Kong is one of the few places, alongside mainland China, that continues to maintain stringent Covid-19 restrictions, with incoming travellers required to undergo seven days of quarantine.
Struggling with a talent shortage exacerbated by that rule, almost a third of the international insurance companies in Hong Kong are thinking about relocating their global and regional teams, leaving only staff focused on the Hong Kong market, according to a survey by the Hong Kong Federation of Insurers (HKFI) in February.
Last October, a survey by the Asia Securities Industry and Financial Markets Association, whose members include Goldman Sachs and JPMorgan Chase, showed that nine out of 10 companies found it difficult to operate in the city because of the policies. Around half of them said they were contemplating moving staff or functions away as a result.

‘Faster, daily Covid PCR tests could replace Hong Kong hotel quarantine’

“Admittedly, prolonged travel restrictions pose impacts on the ability of the financial services industry and its professionals to carry out their international functions,” Li said in an interview with the Post.

To address this issue, the government would first need to relax travel restrictions on those arriving in Hong Kong from mainland China and overseas, he said.

A resumption of travel to mainland China would also be ideal. “That would be something that of course causes negotiations, but we must recognise that it also depends on the circumstances that are not within our control,” he said.

Besides keeping talent in place, Li said Hong Kong should also do more to further integrate with the Greater Bay Area, which he described as “a historic trend” that “will bring us many benefits”.

“We must not forget that we can contribute, and therefore deserve those benefits, only if we stay international and connected to the world,” Li said.

Despite the challenges, Li remains positive about the outlook for Hong Kong. Just a few days after celebrating the 25th anniversary of Hong Kong’s handover back to China on July 1, the authorities announced the introduction of Swap Connect and kicked off the trading of ETF Connect on July 4.
These, in addition to the Stock Connect scheme introduced in 2014, the Bond Connect begun in 2017 and the Wealth Management Connect scheme launched last year, allow international investors access to many markets via Hong Kong, strengthening the city’s role as a connector between China and the rest of the world.


Hong Kong's travel restrictions are increasingly difficult to justify

Hong Kong's travel restrictions are increasingly difficult to justify

“Lately, concerns have been raised that geopolitical tensions may hurt Hong Kong’s role as an international financial centre,” Li said. “But that is too simplistic a view.”

Since China’s economy is already woven into the world’s economy, Hong Kong will remain crucial, he argued. “Geopolitical tensions will only cause people to prefer to use the safest, most established platform – Hong Kong,” he said.