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Illustration: Sarah Grillo/Axios

Given its assault on democracy, imprisonment of publishers, and a slew of human rights violations, "stable" might not be the first word that springs to mind with respect to Hong Kong. But amid social and political turmoil, one key part of the economy has remained unfazed: its legendary financial services sector.

Why it matters: Beijing's increasing control and influence over Hong Kong is seen by many banks and investors as more of a feature than a bug. While there are certainly downsides to staying, for the time being, the upside seems to be even greater.

  • As Asia Group principal Kurt Tong wrote in a recent essay for Foreign Affairs, "Politics only narrowly affects the core incentives that guide financial and business decisions."

The big picture: Hong Kong has been a gateway to mainland China for centuries. As China begins its crackdown on companies raising foreign capital and listing on foreign exchanges, that's only going to strengthen Hong Kong's hand as the go-to place where shares of Chinese companies can be traded in a fully convertible currency.

Where it stands: Western investment banks are hiring thousands of new employees in Hong Kong, many of them hailing from mainland China.

  • They're very unlikely to make any kind of pro-democracy waves, after seeing what happened to local banking giant HSBC when it fell afoul of the Chinese Communist Party.
  • Hong Kong has already seen $27.4 billion of IPOs in the first half of this year, per EY's latest global IPO report, making it the third most popular IPO venue in the world. (That's nothing new: It's been in the top 3 every year since 2013.)
  • At this pace, Hong Kong is going to set a new IPO proceeds record this year, especially given the fact that, as EY Asia-Pacific IPO chief Ringo Choi notes, "geopolitics and tightened regulatory oversight encourage Chinese companies to switch from the U.S. to Hong Kong for their IPO."

The other side: Recent moves by Beijing are weakening some of the core transparency tenets that have provided a foundation for Hong Kong's financial services sector.

  • What they're saying: "I do not see why journalists should have the privilege” of using the official registry of companies, Hong Kong chief executive Carrie Lam said in March.

Threat level: Hongkongers and foreign bankers are openly talking about leaving the country, for fear of the new national security law or just of not receiving a balanced and honest education for their children.

  • In a recent American Chamber of Commerce survey, 42% of members said they were considering moving away.
  • The pandemic didn't just hurt Hong Kong's economy; it also closed many international borders, making it much harder for Hongkongers to leave. Once countries like Australia reopen, expect a pickup in emigration from Hong Kong.
  • At the same time, however, there's no shortage of highly qualified mainland Chinese eager to take their place.

The bottom line: Hong Kong has comfortably retained its top-tier status as a global financial center s0 far — it's in fourth place in the latest Z/Yen ranking, behind only New York, London and Shanghai.

  • "So long as there’s money to be made here, money’s going to come here," says Michael Schuman, the Hong Kong-based author of Superpower Interrupted. "The finance center can run perfectly nicely here being run primarily by mainlanders."

Go deeper

Oct 26, 2021 - World

How unheeded warnings about China are now hurting Chinese Canadians

Illustration: Sarah Grillo/Axios

For years Canadian officials prioritized trade with China and ignored warnings from Chinese Canadians that the Chinese government presented a serious political and moral challenge, a Canadian journalist argues in a new book.

Why it matters: An earlier response by democratic governments could have relieved the pressure on Chinese diaspora communities and sent a strong message to Beijing that exporting authoritarianism wouldn't be tolerated.

Judge nixes Gulf of Mexico oil leases in climate-focused ruling

Tug boats prepare to tow the semi-submersible drilling platform Noble Danny Adkins through the Port Aransas Channel into the Gulf of Mexico on December 12, 2020 in Port Aransas, Texas. Photo: Tom Pennington/Getty Images

A federal judge on Thursday canceled the Biden administration's late 2021 sale of new oil-and-gas drilling leases in the Gulf of Mexico.

Why it matters: The ruling that the greenhouse gas emissions analysis by the Interior's Bureau of Ocean Energy Management (BOEM) was insufficient is a win for green groups that challenged the decision, as they seek to curb fossil fuel production.

45 million Americans under winter storm watches near New England

Computer model projection showing the winds moving around the powerful East Coast storm on Saturday Jan. 29, 2022. Credit: https://earth.nullschool.net

Nearly 45 million Americans are under winter weather alerts and warnings from North Carolina to northeastern Maine Thursday night, as a major winter storm threatens the region.

Why it matters: It is predicted to be the biggest blizzard since 2018 to strike the Northeast with more than 2 feet of snow possible in parts of eastern Massachusetts, according to the National Weather Service.