Hong Kong says it is open for business again. Will the world buy it?

Hong Kong

At a financial summit in Hong Kong this week, the city’s leader triumphantly told a roomful of Wall Street executives that the Asian hub was back in business. “The worst is behind us,” he declared.

Two days later, hundreds of thousands of rugby fans descended on the city’s biggest stadium for the Hong Kong Sevens, its biggest (and usually booziest) sporting event of the year, which had been suspended since 2019 due to political unrest and, later, Covid. 19

The two high-profile international events sent a clear message: After nearly three years of border closures, mandatory quarantines, and restrictions on business and meeting places, Hong Kong was reopening.

For much of the pandemic, the semi-autonomous Chinese city maintained some of the strictest restrictions in the region, including one of the world’s longest mandatory quarantines for international arrivals. With a sinking economy and growing concerns that Hong Kong was falling behind as the world moved on, the government finally opened the city’s gates in September and ended formal quarantine to relieve millions of people.

“We were, are and will continue to be one of the world’s leading financial centers,” Hong Kong leader John Lee vowed at Wednesday’s summit, attended by more than 200 investors from 20 countries. “You can take that to the bank.”

On Friday, ahead of the start of the Sevens, Hong Kong Rugby Union chief executive Robbie McRobbie hailed the tournament’s return as a “catalyst, an edge”, a sign that “Hong Kong is still a vibrant and resilient city”.

But experts warn that the drive to revive Hong Kong, while welcome and long overdue, faces many challenges.

The isolation of the last years, combined with the constant political repression, has taken its toll, they said. As Lee and other leaders have emphasized, the reopening Hong Kong is not the same city the world knew before the pandemic, and the true impact of that change remains to be seen.

Last year, as many tourist destinations reopened and restrictions were eased, Hong Kong was stuck in a different reality.

Restaurants, bars and gyms were often forced to close or limit their hours. The apartment buildings were put on lockdown for the day. At one point, public gatherings were limited to two people. And most residents hadn’t left the city in years, unable or unwilling to spend three weeks in hotel quarantine upon their return at their own expense.

Businesses were hit hard. The sevens tournament makes up 95% of the Hong Kong Rugby Union’s revenue, so “we’ve had three years of layoffs and cutbacks,” McRobbie said.

Many disillusioned residents chose to leave for good; in the past year, the city experienced the largest decline in population since records began in 1961. Companies also began to look elsewhere, especially Singapore, Hong Kong’s longtime regional rival.

But Hong Kong authorities, eager to reopen the border with mainland China – which shows no sign of easing its strict zero-Covid policy aimed at eradicating infections – were reluctant to loosen restrictions, fearing cases would go up and close that door.

Then a serious outbreak fueled by the highly contagious Omicron variant earlier this year ended Hong Kong’s hopes of maintaining zero daily cases.

Under mounting public pressure, the government lifted flight bans with some countries and shortened hotel quarantines in March, but these small concessions did little to bring people back.

According to media reports in August, some Wall Street banks warned that their executives would only attend Wednesday’s financial summit if there was no quarantine travel – a widely speculated factor behind the government’s recent decision to lift quarantine.

The city’s financial leaders held their breath at the news.

“We’ve been closed for too long,” said Sebastian Paredes, chief executive of Singapore’s DBS bank’s Hong Kong operations. “We are starting to open following other places in the world that have already opened. And this is a testament to the fact that Hong Kong is back.”

Attendees of the Global Financial Leaders' Investment Summit in Hong Kong on November 2nd.

Alicia Garcia-Herrero, chief Asia Pacific economist at French investment bank Natixis, agreed that the week’s dual events were “a big sign of Hong Kong moving away from Covid restrictions into a new world”.

However, other restrictions lead to a competitive disadvantage.

International visitors must be tested for Covid within seven consecutive days of their arrival in Hong Kong, and restaurants, bars and gyms are banned for the first three days. But the tests don’t stop there: bars and clubs that don’t serve food require proof of a negative rapid antigen test from all patrons.

The mask mandate is also in place, indoors and outdoors, although photos from the financial summit show people sitting at tables with their faces uncovered. Health authorities, including the city’s Finance Secretary Paul Chan, declared the case a “recovered case” after he tested positive for Covid after arriving from a trip abroad on Tuesday.

Hong Kong's Financial Secretary Paul Chan speaks at the Global Financial Leaders Investment Summit in Hong Kong on 2 November 2022.

These rules “still largely prohibit the overseas travel market,” Hong Kong rugby chief McRobbie said. Before the pandemic, approximately half of Zazpi’s fans came from abroad; this year, he said that this number is “negligible”.

The prolonged isolation and financial difficulties have also created challenges for companies hoping for a comeback. Many people have left the sports and events sectors in recent years for more stable jobs, leaving the industry short-staffed, McRobbie added.

This partial reopening has left the city in an awkward Covid limbo, said Vera Yuen, an economics professor at the University of Hong Kong.

“If we want to open our border with mainland China, our restriction is too soft … so it is not allowed,” he said. “But if we want to open up to the world later, we are still too strict. We are currently stuck in the middle, hoping to see better policies in the future.”

Others have also warned of growing political challenges. “There is no doubt that the clouds are coming to Hong Kong from various angles,” said banker Garcia-Herrero, referring to the West’s response to Beijing’s sweeping national security law imposed on Hong Kong in 2020.

According to this law, pro-democracy activists have been imprisoned or exiled, independent newsrooms have been closed and former members of parliament have been targeted. Meanwhile, authorities have changed school curricula to emphasize Chinese history and culture, and pushed for greater economic cooperation in the Greater Bay Area, a national scheme to tie southern China’s Guangdong province closer to Hong Kong and Macao.

The law has been widely criticized by foreign governments and human rights groups, and the United States has punished Lee and other senior Hong Kong officials for their role in the crackdown. Hong Kong authorities have repeatedly claimed that the law has restored order and stability to the city following the 2019 anti-government and pro-democracy protests.

For the United States and the European Union, national security laws and repression were “a game changer when it was agreed,” Garcia-Herrero said.

These rising tensions could cause problems for Hong Kong’s trade and diplomatic relations with other countries. Hong Kong offers more freedoms than other Chinese cities, so it has long been seen as a gateway between the mainland and the West, a position that is increasingly precarious as civil liberties erode.

“The West would now understand that Hong Kong is not only part of China, but closer to China than before,” said economics professor Yuen. “The worst-case scenario is that the West would treat Hong Kong the same as mainland China, and then Hong Kong would suffer such sanctions.”

And it is likely that they will continue to grow closer together. In an effort to stem the brain drain, the government is spending HK$30 billion ($3.8 billion) to attract global businesses and new talent, which Yuen said is expected to attract “a lot of mainland workers” who may be eager. escape a tougher cross-border labor market.

Despite these geopolitical frictions, some say Hong Kong’s inherent advantages will allow for a renaissance, even if the city is headed in a different direction than before.

Asia doesn’t have many other financial centers that can match Hong Kong’s open regulatory environment, low wage taxes and existing financial infrastructure – “So while the image may be tarnished a bit, there’s not much else to go to.” said Garcia-Herrero.

Yuen echoed this point, saying the city’s proximity to China remains attractive to businesses and investors looking to tap into the continent’s vast and lucrative market.

Passengers at the departure hall of Hong Kong International Airport after the government lifted hotel quarantine on September 26.

“We can connect to China and have some autonomy and (be) different, given the different Covid policies and (governance) systems,” he said.

But, as both experts acknowledge, the way forward is now fraught with new risks. International businesses may come to Hong Kong, but be careful how much they invest in the city, given the threat of US sanctions and regional conflict.

Today’s Hong Kong is increasingly under Beijing’s control, and China is increasingly powerful on the world stage, with leader Xi Jinping entering a third term surrounded by loyalists. Tensions between China and its rivals have led to growing divisions “as the world deglobalizes,” Garcia-Herrero said, the effects of which inevitably spill over to Hong Kong, caught in the middle.

“It will never be, in my opinion, what it was when Hong Kong opened up to both the West and the East,” he said.