What’s the price of business stability in Hong Kong? Does it include the suppression of human rights?

Only a year ago, Hong Kong was in a state of near-chaos. Hundreds of thousands of Hong Kong residents were hitting the streets in opposition to a proposed bill to allow extraditions to mainland China. The measure was subsequently withdrawn, but served only to trigger an even greater wave of protests over China’s progressive weakening of the Basic Law that allowed Hong Kong to function semi-autonomously — under the idea of “one country, two systems” — for 50 years after the British returned control of the territory to China in 1997.

The protests upended normal life in Hong Kong for nearly a year, disrupting its reputation as a stable place for conducting international business, especially finance. In particular, Hong Kong had long been viewed as a logistical gateway to mainland China, although the latter’s aggressive buildup of factories and infrastructure over the past few decades has served to lessen the territory’s importance in that respect.

Last summer, China finally cracked down on dissent in Hong Kong with enactment of a National Security Law that threatened draconian punishments, even life imprisonment, for a wide range of ill-defined offenses, including “succession,” “subversion,” “terrorism” and “collusion with foreign forces.” Even peaceful protests and the chanting of “anti-China” slogans are banned under the law, which seeks to extend its reach beyond the territory to Hong Kong citizens anywhere in the world. With passage of the measure, many observers declared Hong Kong’s Basic Law, and its independence from the mainland, to be dead.

Some citizens continued to speak out in opposition to the law, leading to hundreds of arrests, although a handful of high-profile activists fled the territory. Additionally, a slate of pro-democracy candidates was banned from running in the fall legislative elections, which Hong Kong’s government ended up postponing by a year. Further tamping down public protest was the arrival of the coronavirus pandemic, which has made large public gatherings dangerous if not deadly for most of this year.

Scattered protests have continued, especially against the election delay, but the National Security Law appears to have largely achieved its goal of muffling dissent and returning Hong Kong to a semblance of everyday life, at least for now. Things are sufficiently quiet, in fact, for business interests to declare that Hong Kong is once more a reliable place for investment, finance and trade. Indeed, some believe the territory’s position in that regard to be stronger than ever. 

“Known as the global sourcing capital of the world, Hong Kong is the post-pandemic gateway to diversifying supply chains throughout China and Southeast Asia,” says Minesh Pore, chief executive officer of sourcing platform provider BuyHive. What’s more, he says, the U.S.-China trade war “is actually beneficial for Hong Kong startups and supply-chain diversification.”

As evidence of Hong Kong’s vibrancy, Pore cited the spinoff from Alibaba Group Holding Ltd. of Ant Group, a financial-technology provider that triggered the largest initial public offering in history, targeted at around $34.5 billion. Shares were to be listed simultaneously on the Hong Kong and Shanghai stock exchanges. But last week, regulators for the Shanghai exchange derailed the offering, citing unspecified issues that “may fail to meet information disclosure requirements.” Hong Kong’s exchange quickly followed suit.

Pore nevertheless argues that Hong Kong will continue to benefit from its status as an open, small-market economy, allowing it to absorb the benefits of any post-pandemic economic recovery in the U.S., EU, and Japan. All have in place bilateral relationships with Hong Kong.

In addition, Pore says, Hong Kong will continue to have access to mainland China, even if the rest of the world doesn’t. The U.S., for one, has suspended its bilateral agreement with the territory in response to China’s passage of the National Security Law, while Australia has done the same for its extradition treaty with Hong Kong.

Such actions could make foreign bankers nervous about keeping their money in Hong Kong. But Pore says their cash reserves are easily replaceable by China, under the unlikely scenario of American and European banks shifting assets elsewhere. “On a macro level, all the China money flowing into the U.S. and Europe would then flow into Hong Kong,” he says. “Cash liquidity isn’t a problem for China, while the EU and Europe are struggling with it.”

With China relying less on Hong Kong for its infrastructure, including ports, airports and roads, the latter can turn its attention to supporting the growing economies of Southeast Asia, acting as a hub between that region and the mainland, Pore says. “The Hong Kong market has just the right size, pricing hierarchies, tax laws and infrastructure to pilot solutions cost-effectively.”

Hong Kong is also in good position to support Southeast Asia’s growing production capability, he adds, as manufacturers worried about impacts of the trade war and rising Chinese factory wages go looking for cheaper sourcing options. Many producers moving to places such as Vietnam, Cambodia, Myanmar, the Philippines and Thailand have set up headquarters in Hong Kong to trade with the U.S., Pore notes.

Nor is he worried about a “brain drain” caused by the flight of skilled labor from Hong Kong in response to the stifling of civil liberties. “If half the population of Hong Kong were to leave, it would take just days for them to be displaced by mainland Chinese,” Pore says.

All of which might well be true, but it nonetheless demands the question: At what price? Did it take the crushing of once-promised freedoms to make Hong Kong safe for capitalism again? Or would the territory’s staying power as a hub of global trade and finance be assured under the tenets of the Basic Law, absent mainland meddling?

“On an emotional level, I may not be in agreement [with China’s actions],” says Pore. “But from a business perspective, it’s a good situation for Hong Kong.” Assuming that one is able to separate the fortunes of business from those who make it run.