Hong Kong's Financial Status Plummets EUI from Fourth to Ninth Place Amidst Global Rankings and China's Grip

Hong Kong's business ecosystem has caused the EIU to downgrade it to ninth place and the Global Financial Centers Index to rank it fourth.

China's tight control over cross-border money flows and its grip on private lives provide a new challenge for the financial giant, which is now torn between a Middle Eastern pivot and closer ties with mainland China.

Investors are voting with their money and turning to other markets as Beijing tightens its grip on Hong Kong's whole way of life, including the economy, and pessimism about China's post-pandemic recovery endures.

The Hang Seng is roughly back to where it was during the latter days of Hong Kong's British colonial rule, more than 25 years after Hong Kong was returned to China.

China's Recent Crackdowns

With the implementation of a harsh national security legislation on the city, the tightening of regulations around corporate behemoths like Tencent and Alibaba, and the raids on foreign businesses operating on the Chinese mainland, Hong Kong has had firsthand experience with China's recent crackdowns.

Along with Chinese banks and other IT businesses, many of the largest Chinese corporations are dual-listed in Hong Kong and China and account for a sizable share of the Hang Seng Index.

China's economy has also had difficulty recovering from the COVID-19 pandemic and Beijing's severe pandemic restrictions. This has been compounded by persistent structural problems such as a declining population, rising local government debt, and a sluggish real estate market.

With the exception of the pandemic, the official growth rate for the gross domestic product in 2023 was 5.2%, the lowest level in decades.

Dwindling Trust and Declining Investments

Foreign investors' trust is declining, even though Beijing insists that China is open for business. With inflows falling 8% to $157.1 billion last year, China saw a decline in foreign direct investment for the first time in a 12-year period.

Analysts project that since early 2021, the stock markets in China and Hong Kong have lost around $6 trillion, or more than 25% of the US economy's total production.

Bloomberg data shows that over the last three years, the Hang Seng has dropped 50% while China's CSI 300 Index, which tracks the top 300 businesses on the Shanghai and Shenzhen stock markets, has dropped more than 40%.

Rather, investors are swarming to other markets, such as the US and Japan, where experts anticipate a positive 2024.

The biggest firms on the Tokyo Stock Exchange are represented in the Nikkei 255 Index, which reached highs last week not seen in more than 30 years, while the S&P 500 in New York finished at an all-time high on Thursday for the sixth day in a row.

The "one country, two systems" agreement is meant to protect Hong Kong's rights and freedoms until 2047, yet such rights and freedoms are dwindling, which has exacerbated the crisis of trust.

The city's independent media and political opposition have all but vanished since the national security law was passed in 2020, and hundreds of individuals have been detained for nonviolent acts connected to speech and activity.

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