Since last year's protest movement rocked Hong Kong, more and more people are talking about pulling their money out of the city. The protests were followed by the imposition of China's draconian national security regime on Hong Kong, leading many to argue that the city has lost its status as an international financial center, although others claim it will be enhanced. Bankers and others in the financial sector are feeling this conflict keenly. Can financial analysts maintain independence? "There has been a sense of pressure ever since Jul. 1," Cheun Wai-yip confides in me at a tea shop that supported the anti-extradition protests. "I think now that the National Security Law has been implemented, there is no hope of salvaging Hong Kong." Cheun means that Hong Kong has not only lost its core values, such as freedom of speech and the rule of law, it has also lost its status as an international city of finance. The Law of the People's Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (SAR) took effect at 11p.m. on Jun. 30, 2020. Cheun says that when he first read the law's draconian provisions, he uttered a Cantonese expletive cursing its stupidity. Cheun was born and raised in Hong Kong, and started working in the financial sector immediately after graduation. He is currently working for a foreign financial institution. While he makes more than a million Hong Kong dollars annually, Cheun is still seen as an upwardly mobile member of the middle class. He was actively involved in last year's anti-extradition movement, and is one of the few stalwart supporters in the financial sector. "China can't even tolerate the slightest criticism, so it's highly unlikely to tolerate serious bad-mouthing," Cheun says, adding that there has long been an unspoken rule in the financial sector. "You don't have to be pro-China, but you can't oppose it either," he states. This means that the National Security Law hasn't had much impact on the day-to-day running of this sector. Everyone is just being a bit more careful. "I used to have clients chatting with me and showing concern about the situation in Hong Kong. I would discuss the nature of the Chinese Communist Party, and how Hong Kong people felt about it, but now I really have to think about what I'm saying," he admits. Generally, personal political opinions aren’t expressed in analytical writing in the financial sector. The most important thing is to show things as they are; even negative appraisals should be allowed in any free financial market. For example, when a hedge fund wants to sell a certain market short, it may issue strongly negative remarks, including criticizing the development guidelines and policies of the country in question, Cheun explains. "In the United States, you can criticize the government for saving Boeing, but if a similar situation happened in China, you wouldn't be able to do the same from Hong Kong nowadays," Cheun says. Former HSBC economist and current Southern District Councillor Kelvin Lam agrees: "I don't know exactly what the rules are, or where the lines are drawn," he says. "That's the most terrifying thing about this." Frankly, he says, free speech has been criminalized in Hong Kong. So it's to be expected that financial analysts will censor themselves when writing analytical reports - to protect their jobs and their personal safety. "I used to say one thing and write another. My writing style was fairly pro-Chinese, but it would be different when I was talking to clients," Lam says. "Now, there's no difference between the two." He is further worried that, as more financial professionals censor themselves, this will hinder the flow of information, making the task of objective analysis even harder. Public trust in Hong Kong-based analysts will then also be affected. "Company executives have told me in the past that they see Shanghai-based analysts as more open-minded, while Hong Kong-based analysts were seen as more conscientious," Cheun says. "But that was before the National Security Law. Now, I think a lot of people are going to be keeping quiet, and the role played by the analyst will be lost." Will data be seen as a state secret? Similar fears have started to seep into the accounting profession as a result of the National Security Law. "The National Security Act is like a sword of Damocles above our heads that could fall on us at any time," Chan Man-sing, an accountant with many years of experience, says. "We already deal with company secrets in this job. Will the data we process now become a state secret too?" Chan works at a small accounting practice in Hong Kong, after spending many years at one of the Big Four accounting firms. On the evening he speaks to WhyNot, it is 10 months to the day since the death of former University of Science and Technology student Chow Tsz-lok, who fell from a parking garage while running from police during a protest. Chow died on Nov. 8, 2019, during a clash between police and residents of Tseung Kwan O. He was confirmed dead at 8:09 p.m.. Before starting the interview, Chan says he wants to observe a minute's silence for Chow at precisely 8:09 p.m. He says that accountants have always had a conservative public image, but during the protests he found out that not all of his colleagues only care about money. Chan says the National Security Law is an additional threat to people working in his industry. He recalls that, while auditing a large mainland Chinese company, he discovered that the company had increased its revenue by tens of millions of yuan for no apparent reason. The company couldn't provide a reason or any documentation to explain. The director of the company asked Chan just to take his word for it. Chan's boss, who was on a deadline, agreed. Then, during the second year of the audit, Chan's colleagues discovered that the company had retroactively split the incoming funds over several months, which was inconsistent with the original statement which stated that the money already existed as a lump sum. "While there is a requirement for listed companies to publish their financial records, accountants always get to see more in-depth information," Chan says. "So do these published accounts only show the good news, but not the bad? Will we be accused of breaking the National Security Law if we doubt or criticize mainland Chinese enterprises?" "The most important thing in the accounting industry is whether or not you have personal moral principles," Chan says. Asked how, as a person of principle, Chan thinks his firm will deal with problems in a mainland Chinese company in future, he replies: "That will depend on who is behind the company. If it's the government, then the chances are that we'll just go along with whatever they say." Will foreign capital leave? Will Chinese investment replace it? In June, before the National Security Law was imposed on Hong Kong, HSBC China's WeChat official account published an article stating that Wang Dongsheng, vice chairman of HSBC and chief executive officer for the Asia-Pacific region, had signed a street petition in support of the law. As a former employee of HSBC, Kevin Lam comments frankly that the goal of all overseas financial institutions is to increase profitability and protect the interests of their shareholders. HSBC's business is more dependent on mainland China than elsewhere, and the bank could have faced constraints on its business there if it hadn't made a strong statement. "I understand why it has to do this, but it is up to the public to judge whether the bank is right or wrong," Lam says. Asked whether the National Security Law will harm Hong Kong’s freedom of speech and judicial independence, Cheun says bluntly: “Overseas financial institutions don’t care about these values, so their words are meaningless. They only care about money." He says that the Chinese government has bent over backwards to support the financial markets, with a large number of Chinese companies listing in the city, including JD.com, Yum China, and Nongfu Spring. He says Beijing is trying to turn Hong Kong into a Chinese Nasdaq. Hong Kong's Hang Seng Index plummeted 1,300 points to around 22,930 on May 22, the day after China's National People's Congress (NPC) approved the National Security Law. But the market soon stabilized, even rising on the day after the law took effect to around 25,000 points. "Some pro-China players in the sector feel that the government is taking good care of them," Cheun says. "We have made more money this year than in the past 10 years. Our industry is full of vested interests, and they can only make more money from taking a pro-China stance." Not all players, perhaps. In September 2020, reports emerged that Japanese financial services group SBI was considering pulling out of Hong Kong. SBI said it was due to the National Security Law weakening the attractiveness of Hong Kong as a financial hub. According to Lam: "Foreign investors won't all leave at once, but they will leave gradually. It will take another two or three years for the full effects to become visible." Only time will tell if Lam is right. But for the Hong Kong-based employees of these institutions, leaving may be the priority, and may be a key factor in the withdrawal of foreign capital. "Sometimes a company decides where its headquarters is based on where its regional director wants to live," Cheun explains. "I've heard that the senior executives of several banks are making plans to sell up their premises in Hong Kong and get out. They will still claim to be based in Hong Kong, but in fact they're going to be in Singapore." Lam thinks that the main concern for these people is their kids. "They all want their children to grow up in a free society, and the influence of the National Security Law is likely to be felt in international schools too," he says. As for Cheun, he says he will consider leaving Hong Kong for London or Singapore if he decides to start a family. The biggest winner will likely be the Chinese government In October 2019, Law Ka-chung resigned as chief economist and strategist at the Bank of Communications in Hong Kong. Law, whose predictions earned him the nickname Dr. Doom, tells WhyNot that alliances began shifting in the financial sector as early as the 2014 Occupy Central pro-democracy movement, with Hongkongers being gradually pushed out. The Financial Times reported in mid-August that in the first half of this year, Chinese-funded financial institutions had hired more than 2,100 investment bankers in Hong Kong, four percent year-on-year, with their numbers fast approaching the staff count of foreign financial institutions, which has hovered around 2,500 for many years. "Chinese companies are hiring more people, on orders from higher up," Cheun says. "Their first priority is to support the financial markets, and the second is to assimilate us," Cheun states, adding that even overseas institutions tend not to hire graduates of Hong Kong universities. He says that the capital markets and investment group CLSA is the best example of the takeover of overseas institutions in Hong Kong by mainland Chinese personnel. When CITIC Securities acquired CLSA in 2013, the company said its original management structure would be retained. But with the departure of a number of overseas senior executives in recent years, CLSA has become a truly Chinese-funded enterprise, Cheun says. According to a Bloomberg report from September this year, CITIC Securities has asked CLSA to participate in China's five-year plan, further evidence of Beijing's influence over Hong Kong's financial sector. Lam says he also heard that financial institutions stopped recruiting graduates from several local universities after last year's protests. It's now common practice for them not to hire anyone from Hong Kong, as they can recruit employees from overseas with the same skills, avoiding political risks. Lam, who was elected to the District Council seat that Joshua Wong was disqualified from standing for, says he wants to go back to the financial sector rather than being a full-time councillor. But in today's political environment, he hasn't been offered a single interview, despite having applied for a large number of jobs. "I would prefer to go back to working in an international institution, but there is no way they are going to hire me," he says. Will Hong Kong still be an international financial center? Answering concerns about whether Hong Kong can maintain its status as an international finance center in the wake of the National Security Law, the city's financial secretary Paul Chan wrote recently: "Hong Kong’s success is based on such elements as the rule of law, a free flow of information and capital, and freedom of speech and the press. The National Security Law for Hong Kong safeguards these important values and ensures the long-term prosperity and stability of Hong Kong." Around the same time, a Canadian think tank, the Fraser Institute, released its World Economic Freedom Annual Report, ranking Hong Kong as the most liberal economy. But the report also forecast that China's intervention in Hong Kong would weaken the rule of law there. "The value of Hong Kong lies with the fact that foreigners still believe that the system here can protect them," Chan says. "From an accounting point of view, if you are entering the mainland market as a Hong Kong company, you may still be protected by Hong Kong laws," he explains. "But if Hong Kong law and Chinese law are treated the same, then it's over." Hong Kong accountants are generally still able to stick to their profession and maintain its respectability. The Hong Kong Accounting Standards they follow are closer to international standards than those in mainland China are, he says. He worries about the draconian National Security Law. "If Hong Kong law can change so quickly, how much longer can the accounting profession hold out?" he wonders. In the financial sector, the concern is that the law will spook the international community, according to Cheun. In particular, a number of U.S. economic sanctions on Hong Kong and Chinese officials in recent months, as well as an end to Hong Kong's status as a separate trading entity, have sparked concerns in the sector that the Hong Kong dollar-U.S. dollar currency peg could collapse, if relations between Beijing and Washington deteriorate further. "The most valuable asset in Hong Kong is the U.S. dollar," he says. "If Hong Kong is truly assimilated and even decoupled from the U.S. dollar, why would overseas investors choose to come to Hong Kong over Shanghai?" "Forget about being an international financial center; Hong Kong won't even be considered an international city," says Lam. He doesn't think Beijing cares if Hong Kong is assimilated into the rest of China, and that the ruling Chinese Communist Party will be happy to keep the city as a source of U.S. dollar denominated investment, and as a limited channel through which foreign investment can enter mainland China. "Hong Kong has already lost that which made it special," Lam says. "Once you destroy those things, the city will die." Names have been changed at interviewees’ requests.
