Tourists take photo of the skyline of buildings at Tsim Sha Tsui, in Hong Kong, in May, 2023.Tyrone Siu/Reuters
Only a few years ago, Hong Kong appeared to be losing its appeal as a global financial centre, the Chinese territory’s international reputation battered by mass protests, a subsequent national security crackdown and some of the world’s toughest pandemic restrictions.
Tens of thousands of people were leaving each year, both Hong Kong-born residents and expats, many of whom decamped for Singapore − as did their employers, with the number of companies choosing the Southeast Asian city state as their regional headquarters dwarfing that of once dominant Hong Kong by 2023.
Today, however, sees Hong Kong positioning itself as the safer, more stable alternative to another rival financial hub: Dubai, which is struggling to stem the flood of capital and talent leaving the city as a result of the U.S.-Israeli war against Iran.
“The more uncertain the external environment becomes, the more companies see Hong Kong as a key gateway for fundraising and overseas expansion,” Hong Kong Financial Secretary Paul Chan wrote this month. Pointing to “increased asset allocations to Hong Kong by investors,” he said the city was emerging as a “reliable safe haven for capital” amid the conflict in the Middle East.
Government agency InvestHK has made a similar pitch, with director-general Alpha Lau saying last month that “not only Middle Eastern money, but companies and countries that have traditionally used Dubai as a hub, have now shifted mostly to Hong Kong.” InvestHK declined to make Ms. Lau available for an interview. She did not respond to a request for comment.
Raymond Yeung, Hong Kong-based chief economist for Greater China at ANZ, said: “What Hong Kong can offer is a more stable environment, I think that’s pretty obvious, but how much of a flow there is will ultimately depend on the attractiveness of the assets” to move money into.
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He said that so far it was unclear how much the government rhetoric matches reality.
“I’ve heard a lot of talk about this safe haven flow from the Middle East, but have not been able to find out how much the flow is,” Mr. Yeung said.
With low taxes, sunny weather and a seemingly endless supply of luxury properties, Dubai has long presented itself as a haven for the global elite. The United Arab Emirates city has seen its population of millionaires grow 102 per cent in the past decade, according to research by Henley & Partners, to 81,200, about half the number of millionaires who call Hong Kong home.
But Iranian drone strikes targeting sites in Dubai, including several hotels and the city’s international airport, one of the busiest in the world, have shaken the confidence of many expats − as has an ongoing crackdown on foreigners sharing conflict footage online, a reminder of the authoritarian nature of the UAE’s government.
According to the Financial Times, about 10 to 15 per cent of British nationals living in Dubai before the war have now left. Facing headlines about the death of the “Dubai dream,” the UAE government has reportedly tapped into the city’s large foreign influencer population to pump out nearly identical videos in which the hosts say they aren’t scared of the war “because I know who protects us,” interspersed with videos of senior Emirati officials touring malls and hotels.
“The U.S.-Israel war on Iran is upending that crucial aura of security in Dubai,” Jim Krane, a fellow at Rice University’s Baker Institute, told CNBC last month. “Dubai’s economic model is based on expatriate residents providing the brains, brawn and investment capital. You need stability and security to bring in smart foreigners.”
This used to be Hong Kong’s selling point as well. It offered easy access to China and other Asian markets without the risks, legal and otherwise, of doing business in them directly. That image has been shaken by the city’s rapid democratic backsliding in recent years, but compared with much of the Middle East, and even Singapore, Hong Kong remains freer by most measures.
Economically, too, Hong Kong has a lot going for it, said Mr. Yeung of ANZ. This includes exposure to Chinese assets, a U.S. dollar-pegged currency, a booming IPO sector, efforts to build out markets for tokenized and cryptocurrency projects and a new gold trading centre.
Drew Bernstein, a managing partner at tax and accounting consultancy MBP Global, said, “Right now, we are seeing a significant reallocation of capital from the Gulf to both Hong Kong and Singapore.”
“Hong Kong’s challenge is that it is firmly part of the China geopolitical sphere, so its prosperity remains closely tied to broader geopolitical stability in the APAC region and the tenor of U.S.-China relations. That is the X factor that Hong Kong’s government has zero influence over,” he told The Globe and Mail.
“Middle Eastern money tends to be very cautious about these U.S.-China dynamics, given the region’s deep commercial and security ties to the U.S. That could be a limiting factor for Hong Kong and give Singapore an edge.”
Other similarly low-tax jurisdictions such as the Swiss canton of Zug, which said last week it was seeing a big spike in inquiries from clients based in the Middle East, are also competing with the two Asian financial hubs.
Hong Kong’s messaging is sometimes undermined by other government priorities as well. At the same time that Mr. Chan and Ms. Lau were pitching investors, new national security regulations requiring criminal suspects to hand over phone and computer passwords or face prison sentences were making headlines around the world and prompting a U.S. security alert.
Speaking ahead of Wednesday’s annual National Security Education Day, Hong Kong’s secretary for security, Chris Tang, defended the new requirements, saying they “will not affect Hong Kong’s international image.”
Mr. Bernstein said that “ultimately, Hong Kong is for players who want China access, not those seeking a China-neutral shelter. Singapore will capture the latter. Hong Kong wins the former.”