Known as Asia's World City, Hong Kong has been the world's largest business hub for over two decades until September 2022.
The arrival of Covid-19 brought a bad omen for the city. Strict Covid-19 norms and a steady exodus ensured the fall of the financial centre. Hong Kong lost its position to Singapore. The decline was fast and steady. The city was ranked third, behind New York and London in the Global Financial Center’s Index in September 2021.
Cut to 2022, its fall from grace became official after Global Financial Centres Index (GFCI) declared the rival city Singapore as the top financial centre in Asia.
Hong Kong has slipped to the fourth spot.
So what made the city lose its spot?
The global finance hub lost its sheen as it continued to follow China's policy in trying to keep Covid cases to a minimum even as the rest of the world opened up.
The indications of Hong Kong’s loss of status looked imminent after it maintained one of the strictest pandemic entry policies. China’s zero-Covid policy spelt doom for the city, as its decision to open up to the Communist country necessarily meant closing down to the rest of the world. Hong Kong’s toeing the China line throughout the pandemic, battered its economy and deepened a brain drain as rival business hubs kept flourishing.
The net outflow from the financial hub since the start of the pandemic stood at more than 200 thousand local and foreign residents. Statistics show more than half of that exodus occurred during the 12 months to the end of June. Hong Kong's mid-year population dipped by 1.6% to 7.29 million. It was the steepest year-on-year drop on record.
In contrast, rival banking and investment centre Singapore posted a 3.4% increase over the same period.
Hong Kong’s fall has alarmed China with Chinese President Xi Jinping asking City’s chief executive John Lee to adopt urgent measures to shore up its economy.
Lee, a pro-Beijing leader, was reminded about the task soon after he was elected the leader of Hong Kong after winning an election held through a closed voting system in May.
Hong Kong’s chief executive, in his first speech on October 19, has set out the administration’s priorities for the upcoming year, announcing various measures to attract both global talent and businesses. He maintained that security is another main focus.
These include the creation of a specialised office to attract “strategic enterprises''. Under its ambit, there will be offices across the globe set up to attract businesses towards Hong Kong as an investment destination. Special visa schemes are also in the pipeline to increase the ease with which such individuals can enter the city.
Lee also set aside HK$30 billion (S$5.43 billion) for a “co-investment fund” to attract firms to the city.
“Hong Kong is one of the most competitive economies in the world." It also serves as an important gateway connecting the mainland with global markets,” he told lawmakers in the Legislative Council, adding that they must be both aggressive and proactive in competing for enterprise and talent.
Brain drain and the exodus
Once a top economic powerhouse, the city remained a shadow of its former self. The city lost its talent. The first half of 2022 saw 130,000 Hong Kong residents fleeing to other cities. The year saw a 1.2% rate of population decline, the biggest drop in at least six decades. As people realised that pandemic measures were there to stay, the brain drain continued even more.
In the first three quarters of 2021, 88,800 alarmed Hong Kong dwellers applied for British visas. Expats and others continued deserting the city as they preferred Singapore to Hong Kong. The new city, according to them, guaranteed more rights for finance and business.
According to Lee, Hong Kong has lost approximately 140,000 workers. For the first time, the Hong Kong government has acknowledged the recent drain of talent. Hong Kong is staring at a full-blown recession, with the fiscal deficit soaring.
Hong Kong’s loss was Singapore’s gain
Hong Kong’s decline was precipitated by the loss of talent which was reinforced by the withdrawal of foreign companies from the city. The number of US businesses with regional headquarters in Hong Kong fell to an 18-year low in 2021. The trend was not only limited to US companies.
The city’s troubles led German multinational BASF to move its regional division to Singapore in early 2022. The trend of declining foreign direct investment in China continued.
Meanwhile, the number of mainland Chinese companies with regional headquarters in Hong Kong rose by 5% between 2020 and 2021. City schools, universities, and civil society groups are also becoming increasingly dominated by mainland China.
The shift in talent flow from Hong Kong to Singapore was a top reason for the growth in the latter’s financial sector. Over 718 Hong Kong professionals moved to Singapore in 2021, according to recruitment firm Robert Walters.
Their exodus triggered a shortage of good talent. Top professionals followed their post-pandemic desire for a job change. Work-life balance, freedom, and job satisfaction were their top priorities.
Singapore proved to be a rare safe haven, with its adequate infrastructure and tax breaks and benefits.
The road ahead to revive the economy
Over the last few years, Hong Kong has seen quite a bit of unrest and a spate of pro-democracy protests that have contributed towards essentially crippling its economy. Beijing’s response to the protests that rocked the city and made waves across global social media channels was the passage of sweeping national security laws in the Chinese Parliament.
The city’s authorities realised the need to shore up its economy. It was evident after Lee announced the move to give preferential treatment to ‘top talent’, which is defined as people who earn HK$2.5 million or more in a year or graduates from the top 100 universities around the world with relevant working experience.
One of the prime moves is his ‘decent’ housing plan in a bid to help citizens get on the housing ladder. To address the issue, about 1,58,000 new public housing units will be available in the next five years—a 50 % uptick from the same period in the past five years, Lee announced.
Despite strict pandemic norms resulting in a crippled economy, Lee, however, did not announce their rollback, a move that may attract further criticism though his administration would curb a few harsh measures, such as scrapping quarantine for international travellers.
Hong Kong's reputation as a business hotspot has suffered a setback over the past few years. But a silver lining is finally in sight with a recent survey conducted by job search website Indeed showing that Hong Kong remains “one of the top 10 cities in Asia for expats looking for jobs overseas."
The survey also ranked the city third, just behind Singapore and Tokyo, when it came to a city’s appeal among expatriates.
It also revealed that more than half (53%) of Hong Kong residents were looking for an “opportunity to advance professionally” while nearly 40% said “they wanted to experience something different”.
The former Britain-administered city’s current rulers still see an opportunity to revive its lost glory in recent times after the ‘Brand Hong Kong’ initiative backfired during the Covid onset.
Some of the reasons behind preferring the city are the low cost of housing as well as the cosmopolitan lifestyle. The city, however, seems to have lost its appeal as far as earnings are concerned. Almost half (48%) of those surveyed claimed they did not earn enough money in the financial hub.
Talent hunt on war footing after a late awakening
For a long time, Hong Kong’s government has played down any looming talent crunch with the logic that combating the coronavirus was its top priority. With no real measure to retain talent and swathes of non-local, especially European and other Asian workforce, the financial hub continued to be deserted by reputed companies in droves creating a gloomy environment. The city began losing the talent war to other rival cities.
The authorities only kept hoping to bring together talent from local and international sources without any concrete steps to attract talent. The government's PR machinery promised reforms to development in the financial sector, fostering local talents and attracting foreign talents for the long-term development of the Hong Kong economy.
Before the pandemic, the city already suffered from a narrow talent pool in the technology sector, particularly related to software. This problem can be attributed to several factors.
The outflow of expatriates, local talent, and travel restrictions were the primary reasons. Around the same time, there was an increasing demand in the technology sector.
Historically limited investment from organisations in developing entry-level technology talent and higher risk adversity from the candidate market due to global economic uncertainty also contributed to the downfall. With a smaller talent pool and a smaller proportion of that pool actively open to opportunities, the bidding war has intensified. Salaries are being pushed up and organisations are struggling to meet their hiring goals – both to maintain current resources and to meet future growth targets.
The demand for global talent has increased as economies around the world recover from the Covid-19 pandemic. As a result, the global talent hunt has begun on a war footing among nations. Due to the "hangover" from border closures, talent flow between countries has slowed, causing companies to cling even more tightly to their current employees.
Several cities and countries have stepped up efforts recently to attract global talent, including Dubai, Thailand, and Malaysia. Among these initiatives is the work pass introduced by Singapore in August. The pass allows foreigners earning at least S$30,000 a month to work for several companies at the same time.
However, several challenges remain. Weak employer branding trends, a shortage of skilled labour and stiff competition for the limited talent pools all contribute to challenges in identifying potential employees.
It will be interesting to see how Hong Kong deals with the various challenges lining its way as it tries to regain its lost glory.