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OPINION

Hong Kong: The lucky city

What does the future hold for Hong Kong, and by default for its overseers in Beijing? Euromoney’s China editor, stuck in lockdown in a Hong Kong hotel, considers the options.

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Australia is often called the 'lucky country' for a variety of reasons: its weather (mostly good), natural resources (ample) and quality of food and drink (generally excellent).

It has its problems – you don’t want to tangle with a saltwater crocodile – but even its distance from the outside world is a blessing in the pandemic era, allowing Australia to close its borders and batten down the hatches. It has the third-lowest rate of Covid-caused deaths per head of population among all big economies, after South Korea and China.

But luck is an intangible concept. The word doesn’t appear in the Bible, whose scribes had little appetite for random fortune, favouring absolute cause-and-effect.

The concept of geographic luck came to mind while I was locked down in a Hong Kong hotel for the full 21-day local quarantine experience.

On one particularly dull day – quarantine in my case spanned the whole of the festive period including New Year’s Eve, and involved dividing time between reading, working, yoga, eating mince pies and watching ‘Die Hard’ – I got chatting to an investment banker.

This isn’t unusual for a financial journalist. But at one point, stumped for the next conversational gambit, I asked him what the future held for Hong Kong. Surely, I posited, if the last four years tell us anything, it’s that the city’s luck is running out.

Quite the opposite, he replied: Hong Kong’s greatest days are still ahead. He pointed to the number of super-sized initial public offerings set to take place in the city in 2022.

“Which ones are you underwriting?” I asked.

“I can’t tell you that,” he replied, laughing. But he added: “The better question is which ones aren’t we on.”

What luck

We argued the toss for a bit. On the one hand, Hong Kong has been Asia’s ‘world city’ for decades, an English-speaking bastion of free trade and common law, home to a vibrant stock exchange and, in recent times, the main financial conduit to and from China.

On the other, recent times have been tough. Civil unrest, entire summers riven by riots and scuffles at the airport. When Covid entered the fray, Beijing leaped at the chance to impose a highly controversial national security law. Dissent was stifled and journalists arrested.

Hong Kong has started to feel ever more like an archetypal Chinese city.

This new year, 2022, is the half-way mark between 1997, when the sun set on British rule, and the legal expiration in 2047 of ‘one country, two systems’, a concept dreamed up by leaders Deng Xiaoping and Margaret Thatcher that guaranteed the former colony’s autonomy.

What will China and, by default, Asia look like by mid-century?

So, with that in mind, what will China and, by default, Asia look like by mid-century?

Predicting the future is generally a fool’s game, but here are a few attempts. In the decades ahead, China will ‘invade’ or ‘reacquire’ Taiwan, depending on your definition. That may result in nominal sovereign control or full dominion, but president Xi Jinping has set out his stall; any other outcome, to him and the Party, is inconceivable.

Asian countries will slowly align with either China or the US – assuming America itself stays united. Japan and Australia will favour an alliance with Washington, and South Korea with Beijing. Singapore will remain neutral and India nominally non-aligned.

China’s economy by mid-century will be very large and advanced, but it will only be quite rich. A decade-long profusion of individual and corporate financial wealth generation from the early 2020s, in which its capital markets flourished, funding an exciting new generation of enterprises, will by now be a distant memory.

Three decades hence, its capital markets will exist, less to foster innovation, than to support the steady growth of those banks, firms and state vehicles that already exist, as well as the dual sovereign units of currency, comprised of a ‘standard’ and ‘digital’ yuan.

Some of this capital will be generated locally, but much more will flow in from around the world, including from investors in countries that do not see eye-to-eye with China.

Central city

And what of Hong Kong? It will be fine. Because Beijing never fully lifted capital controls – all the better to direct money that flows in – the city remained central to the Party’s needs.

A decision by China’s regulators to crack down on local firms listing abroad, began in earnest in the early 2020s and has never ended.

That will benefit all the country’s bourses, but none more so than Hong Kong. In 2022, for the first time in a quarter-century, no mainland firms at all will sell shares in New York.

By contrast, there will be a dozen $1 billion-plus IPOs by Chinese companies in Hong Kong. Didi, which first delisted from the New York Stock Exchange, will lead the way, followed by e-commerce operator Pinduoduo, electric car maker Nio and publisher and virtual event platform Tencent Music Entertainment.

In 2022, Hong Kong’s stock exchange will lead the world in IPO volumes, and never look back. It will also be transformed into a true global private banking hub, courtesy of the surprisingly rapid expansion of China’s Wealth Management Connect scheme.

The city will have problems, to be sure. When the Covid era is finally declared over in 2025 and it reopens its borders, it will never quite recover its sense of thrilling vibrancy. As its air gets cleaner, so does life, and it becomes known as a place to do business, but not to have fun.

But that doesn’t matter. Hong Kong will thrive in the first half of the 21st century thanks to its adroit financial regulators, but mostly because it does what it is told by Beijing. It follows rules and profits accordingly. Little wonder historians will come to call it the lucky city.

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