Hong Kong is changing. Too bad outsiders see only decline

The city has had a rough ride and some things have faded, like the dominance of Western business leaders in Hong Kong’s executive suites
But the city is stepping up its Greater Bay Area integration and making new connections with formerly neglected markets. Dramatic change is afoot

David Dodwell

Published: 9:30am, 24 Feb 2024

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The narrative predicting the imminent death of Hong Kong is alive and well, and it is probably as misplaced as it has ever been.

Ever since 1984, when Britain acceded in the Sino-British Joint Declaration to Chinese pressure to return Hong Kong when London’s colonial leases finally ran out in 1997, there have been those across the world predicting the imminent collapse of Hong Kong.

Most famous was the Fortune magazine cover story “The Death of Hong Kong” in June 1995, written by veteran correspondent Louis Kraar: “It’s time to stop pretending,” he wrote. “The naked truth about Hong Kong’s future can be summed up in two words: It’s over.”

Fortune’s sister publication, Time magazine, returned to the narrative in September 2001 with a little more caution: “Hong Kong is not quite dead, but it is bleeding.” When Kraar died in March 2006, Hong Kong’s death was still nowhere to be seen, though the narrative remained intact.

So it was fascinating to see the normally measured Stephen Roach, who formerly headed Morgan Stanley in Hong Kong and is now a faculty member at Yale, fall victim to the same doomsday narrative. Earlier this month, he wrote in the Financial Times, “It pains me to admit it, but Hong Kong is now over.”

For proof, Roach turns to Hong Kong’s appalling stock market performance – stock market capitalisation has halved since its peak in February 2021 – pro-democracy protests, “debt, deflation and demography” in China and the technology-focused US-China conflict.

There is no question that Hong Kong has had a rough passage since 1997. But the truth through this period is more one of remorseless challenges and resilience than it is of death throes.

Hong Kong has been humbled by numerous unanticipated setbacks since 1997, but few of these can be blamed on Beijing and most have nothing to do with the undoubted ineptitude of our own administration. From the Asian financial crisis in 1998 and avian flu in 1999 to the dotcom crash in 2000, Hong Kong has been beset by an unending series of challenges.

Amid the severe acute respiratory syndrome outbreak in 2003, the global financial crisis of 2007 and the decade of low-interest quantitative easing policies around the world, Hong Kong has struggled to regain its stride despite China’s steady growth and opening up. Many households have seen family incomes stagnate for years, widening Hong Kong’s already-wide wealth gap and laying foundations for the politically catastrophic stresses that boiled over in the 2019 protests.

Persistent indecisiveness and procrastination on the part of Hong Kong’s own top officials has inflicted harm. This morale-sapping ineptitude reached its peak with their shambolic management of the Covid-19 pandemic. But this in no way leads to a conclusion that Hong Kong is on death’s door. There is radical change, yes, but not terminal illness.

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The biggest change has been the rising presence of mainland companies and executives. Mainland companies today account for about 77 per cent of Hong Kong’s stock market capitalisation, compared with 16 per cent in 1997.

For many years, the city’s entrepreneurial dynamism has been fuelled by ambitious and innovative mainland business leaders. Those business leaders have settled in large numbers in Hong Kong, building strong links with their other mainland businesses, not because of Hong Kong’s domestic market but because of our concentration of distinctive capabilities which are still largely absent on the mainland.

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This includes not just our rule of law, capital markets and interconnection with other markets but also our community of legal and accounting professionals with a unique capacity to help mainland companies draw up contracts which can establish their roots in international markets. This also allows international businesses to understand mainland companies’ reports and accounts so they can operate effectively in China’s still-opaque economy.

It is true that the Western business leaders who once dominated Hong Kong’s executive suites have been progressively replaced by ethnic Chinese, and that is a death of sorts to many who once were contributors to – and beneficiaries of – Hong Kong’s success. But let’s be clear. For Hong Kong, this is simply change, not death.

The change involves more engagement with the mainland’s economy and exploitation of new opportunities in the Greater Bay Area. It involves more engagement with the Global South, with the Brics economies and countries that are part of the Belt and Road Initiative accounting for a larger share of the global economy than the traditionally dominant advanced economies.

According to the International Monetary Fund’s most recent World Economic Outlook notes, the world’s advanced economies accounted for about 63 per cent of global GDP in 1980 while emerging economies accounted for 37 per cent. By 2023, that balance had reversed as emerging economies accounted for about 59 per cent of global GDP and advanced economies 41 per cent.

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In short, observers from the outside see decline. From here, we see dramatic change that is focused on new and formerly neglected markets – change that excludes the United States and Europe.

I have said for the past 25 years that no one has ever bet against Hong Kong and won. Despite some turbulent decades and a story of inept local leadership, that remains true today. The narrative of collapse was wrong in 1997 and is wrong today, thanks to Hong Kong’s distinctive roles and a resilience that remains as strong as ever.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades