President Trump’s decision to begin stripping Hong Kong of its special trading status could make American banks less attractive employers in the territory over the long term.
The President said on Friday that he would remove policy agreements with Hong Kong – including an extradition treaty, commercial relations and export controls – in response to the national security law that China plans to impose on Hong Kong, which critics say undermines the territory’s autonomy. But while he said the move would cover “the full range of agreements” that the US has with Hong Kong “with few exceptions”, the speed and full scope of the administration’s actions remain unclear.
The decision has not gone down well among the sizable US business community in Hong Kong, including in the finance sector. Nearly a third of the city’s restricted license banks, those that mainly focus on investment banking and capital market activities, are owned by US interests. “It would be a serious mistake on many levels to jeopardise Hong Kong’s special status, which is fundamental to its role as an attractive investment destination and international financial hub,” the US Chamber of Commerce said in a statement.
Goldman Sachs, JP Morgan, Citi, Morgan Stanley, and Bank of America base their APAC headquarters in Hong Kong because the city is a gateway for capital flowing in and out of mainland China. This status could be put at risk, depending on the extent of the US sanctions.
“If in the long term the US treated Hong Kong just like China, US banks may be inclined to bypass Hong Kong on mainland deals,” says a senior banker in Hong Kong. “So banks’ ultimate focus could be to expand and hire in the mainland,” he adds. Citi, Goldman Sachs, Morgan Stanley and JP Morgan are already targeting growth in China following Beijing’s decision last year to relax ownership laws for foreign firms.
Still, US banks have a lot to lose in Hong Kong and any business transition to the mainland would take years and is itself likely to be fraught with difficulties as US-China relations sour. US banks accounted for 19% of investment banking fees booked in Hong Kong last year, or about US$309.8m, according to Refinitiv.
Former Jefferies trader Warwick Pearmund says US banks in Hong Kong would “certainly lose out” under a tough American sanctions regime. “But Chinese banks would continue to gain, as might other Asia-focused banks,” adds Pearmund, who is now an associate director at search firm Hamlyn Williams in Hong Kong.
In the long term, this could erode US banks’ status as elite employers in the finance sector, and boost the hiring drives of Chinese firms, say recruiters in Hong Kong.
“Looking ahead, the loss of Hong Kong’s preferential trade status will affect corporate investment into US banks, as well as the Hong Kong dollar exchange relationship with the US dollar, and visa-free travel for Americans,” says Stanley Soh, a Hong Kong-based country director of financial services solutions. “New restrictions may further impact the financial transactions which US banks conduct in Hong Kong, which in turn affects the numerous capital raising efforts of Chinese businesses,” he adds.
The US move could include potential sanctions on businesses – particularly banks – operating in Hong Kong that are found to be supporting anyone in violation of the ‘one country, two systems’ model, says Benjamin Quinlan, a former UBS banker who runs a Hong Kong finance consultancy.
Hong Kong’s Secretary for Commerce and Economic Development Edward Yau told CNBC that trying to diminish Hong Kong as a financial hub via sanctions would only serve to hurt US and other foreign businesses in the city.
Meanwhile, Financial Secretary Paul Chan Mo-po has said that the US decision to revoke preferential treatment for Hong Kong will have “little impact” on the city’s economy and could lead to strengthened ties with Europe and Japan. “Sino-US conflicts will not affect Hong Kong’s position [as an] international financial center and also brings new opportunities,” he told a press conference yesterday. Chan appeared to become teary-eyed when he delivered this line, but he has posted on Facebook that he was not crying and was affected by the cameras and lighting.
In the short-term at least, Chan may be right. “Hong Kong's status as a financial capital will remain intact and it will continue to be the gateway into China's vast economy,” says Soh. “US banks’ ability to win top-tier deals and offer competitive compensation means they will continue to attract the best talent in the short to medium term, despite the US-China row,” he adds.
Photo by Aaron VanPoole on Unsplash
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