Hong Kong-The political opposition has been cancelled. Free speech is stifled. The next one is the independent court system.
But even though Hong Kong’s top leaders have adopted a stricter approach to this city of 7 million people, they are fighting for a crucial electoral district: the rich. Despite the increasingly authoritarian rule of the Chinese Communist Party, senior officials are still preparing new tax cuts and other sweeteners to portray Hong Kong as the main place to make money in Asia.
So far, the publicity work is still in progress. Cambridge Associates, which has $30 billion in investment funds, said in March that it plans to open an office in the city. In recent months, investment managers have established more than one hundred new companies. Wall Street̵
“Hong Kong is the city of global billionaires second only to New York,” said Paul Chan, the finance minister of Hong Kong, at an online gathering of financial executives this year.
Beijing cannot easily scare away Hong Kong’s bankers and financiers. The former British colony remains the main gateway to the international financial system. Chinese companies need it to raise funds from global investors. These companies and wealthy Chinese also rely on it to more easily transfer money overseas.
Therefore, Beijing is reaching a cautious balance. It is depriving the people of Hong Kong of their freedom to stop brutal challenges to Communist rule, such as the sometimes violent anti-government protests that broke out two years ago. At the same time, it is trying to attract the city’s financial class to prevent it from migrating to another business-friendly place, such as Singapore.
Fred Hu, former chairman of Goldman’s Greater China business, told Chinese officials: “This is a one-party country, but they are pragmatic and don’t want to hurt business.”
Mr. Hu said that for non-political financial types, these changes have little impact. Mr. Hu is also the founder of Primavera Capital Group, a private equity firm. He said: “If you are a banker or a trader, you may have political opinions, but you are not a political activist.”
In order to attract the wealthy, Hong Kong is completing a major tax deduction that will mainly benefit private equity, hedge funds and other investors. Officials are trying to simplify the work of urban financial planners who contact wealthy mainlanders. Chinese companies are selling stocks worth tens of billions of dollars in Hong Kong, which has improved the profitability of Wall Street Bank.
In Hong Kong’s recent move, last week’s proposal to limit the number of companies that companies must disclose their ownership may conceal the wealth of cities where the Communist Party’s elite has long saved money.
Not everyone has been won. Since Beijing promulgated a broad national security law last summer, more than 1% of residents have left. Hundreds of billions of dollars of funds flowed out of local bank accounts in Hong Kong and flowed into jurisdictions such as Singapore.
The tension in Hong Kong’s dazzling office building has tightened. Even executives who expressed sympathy for the government refused to speak publicly so as not to worry about being caught in political exchanges between Beijing and world capitals such as Washington and London. Once the school is over, Hong Kong’s strict regulations on the flu pandemic may also inspire some foreigners to leave in the summer.
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However, currently, financial companies are doubling down on investing in Hong Kong. Neal Horwitz, an executive recruiter in Singapore, said, “Unless the ship breaks down, the finance may stay in Hong Kong.
Among the largest products offered to investors, Hong Kong proposes to exempt taxes on investment income, the so-called “carried income”, which is usually earned by private equity investors and hedge funds. Officials have discussed the plan for many years, but the bill was not introduced until February, and the bill may be passed by the Beijing-led legislature in the coming months.
Similar tax breaks have sparked criticism from other places, including the United States. Xie Zhiwei, a professor of finance at the Business School of the University of Hong Kong, said that Hong Kong is worried that lack of such benefits will lead to financial flight.
He said: “To keep these people around, we must give tax incentives.”
Hong Kong has also proposed a plan called “Wealth Management Connection”, which will enable mainland residents in the Southern Greater Bay Area to invest in Hong Kong’s hedge funds and investment companies. Officials boasted that this would give foreign companies the opportunity to reach 72 million people. Officials in Hong Kong and mainland China signed an agreement in February to launch the pilot program at an unspecified time.
Ou Jingjing, executive director of the Hong Kong Financial Services Development Commission, said that wide-scale travel restrictions have slowed the development momentum of the proposal, but this is still a top priority.
Ou Jinhui said: “I want to emphasize the importance of the Chinese market to global investors.”
Mainland funds have helped Hong Kong look more attractive. Data from data provider Dealogic shows that last year, Chinese companies provided a record US$52 billion in funding for companies that sold new shares on the Hong Kong Stock Exchange. This year’s IPO has raised US$16 billion, including US$5.4 billion in Kuaishou, which operates Chinese video applications. The record-breaking start was partly helped by Chinese companies that were pressured by Washington to avoid raising funds in the United States.
Managing these products helped Goldman Sachs and Morgan Stanley climb to the top of the Asian industry rankings for measuring bank fees. A Goldman Sachs spokesperson said that by 2021, the number of recruits in Hong Kong will increase by nearly one-fifth compared with last year. A spokesperson said Morgan Stanley has doubled its recruitment rate this year.
Credit Suisse CEO Thomas Gottstein said in mid-March that it would triple the number of employees in mainland China. A spokeswoman said that the increase in Hong Kong employees was part of it. Bank of America has increased its staff in Hong Kong, while Citibank said it will employ as many as 1,700 people in Hong Kong this year alone.
The British bank HSBC (HSBC) is facing pressure from the Chinese state media. Noel Quinn, chief executive of HSBC, said in February that, despite this, it is still considering transferring some of its executives to Hong Kong because it is “critical to approach growth opportunities.”
After officials lowered regulatory barriers in August to establish legal structures similar to those used in low-tax, opaque jurisdictions such as the Cayman Islands and Bermuda, investment funds also flocked to Hong Kong. Government data show that 154 funds have been registered since then.
City officials also proposed last week to allow companies to conceal sensitive ownership data, a move that could benefit companies and Communist Party officials. The measure may take effect immediately in May and does not require legislators’ approval. Critics say this will make it almost impossible to trace the individuals behind Hong Kong-registered companies.
“The proposed law will promote corruption, fraud and other crimes,” said David Weber, a former Hong Kong banker and long-term investor.
This can also help senior Chinese leaders who are sensitive to any allegations that they are using their identities for personal gain. According to a clue that can be partially traced through public records, the family of China’s top leader Xi Jinping and the third largest official of the CCP Li Zhanshu once owned Hong Kong property.
Although the officials welcome business, they made it clear to the financial and business circles that they would never disagree. In March of this year, Chinese Vice Premier Han Zheng praised the performance of the stock market and the financial industry at a political advisory group meeting, but clarified its limitations.
“The signal to the business community is very simple,” said businessman Michael Tien, a former Hong Kong legislator who participated in closed-door meetings. “Stay away from politics.”