Tokyo, Sydney aim to lure edgy Hong Kong financial firms, but Singapore a top draw
Australia, Japan and other nations are readying incentives to attract banks and asset managers in Hong Kong that are worried about the new security law imposed by the Chinese Communist Party (CCP), but finance sector experts said even if they move, it will be to Singapore.
High taxes and costs, bloated bureaucracies and cultural differences in some Indo-Pacific nations present formidable challenges for the Hong Kong financial institutions to relocate even partially, the experts said. Singapore’s similarities to Hong Kong are an advantage, though the Southeast Asian city-state has not been seeking such business.
The CCP imposed a tough national security law July 1, 2020, on Hong Kong, regional home to many global financial groups, prompting companies to reassess their operations there. (Pictured: Hong Kong’s central financial district)
Hong Kong’s financial regulators said they had been approached by institutions concerned about the law, but they said it would not affect operations.
Nonetheless, rivals hope to benefit from the concerns.
“The political upheaval in Hong Kong has created an opportunity for Australia and Sydney to become a stronger regional financial center,” Australian Sen. Andrew Bragg wrote to the nation’s treasurer in July 2020, proposing policy changes.
Japan included attracting “excellent human resources” to form a global financial center in an economic policy road map in July, following official remarks it could win business from Hong Kong.
Ruling party draft proposals include visa support and streamlining approvals for investment management licenses.
Smaller financial centers are also trying their luck.
Busan in South Korea is offering tax breaks and rent-free offices to financial firms, while Taiwan’s top regulator said he hoped the island’s rule of law and democratic values would attract business.
However, the mooted reforms do not move the dial enough, say some professionals.
“Tokyo will, frankly, struggle to steal significant market share from, let alone replace, Hong Kong,” said Steven Tran, a partner at law firm Mayer Brown in Hong Kong, who was previously based in Tokyo for four years.
Tran said Japanese taxes, together with a perceived greater level of bureaucracy, higher labor costs and less English language fluency, would make it harder for financial institutions to operate regional hubs from Tokyo.
Hong Kong’s corporate tax rate of 16.5% is a little over half that of Japan’s and Australia’s, and among the lowest in the region.
Convincing senior staff to give up an international lifestyle in Hong Kong is another challenge.
“Typically, when expatriates move to Japan, they need much more hand-holding than when moving to Hong Kong,” said Jeremy Laughlin, a Tokyo-based business development manager at Santa Fe Relocation.
Language and cultural difficulties as well as the absence of adequate financial infrastructure could scupper the efforts of South Korea and Taiwan.
Cultural issues are less difficult for Australia, but Financial Services Council CEO Sally Loane said Australia needs tax reform and regulatory changes to align its fund management industry with other Indo-Pacific jurisdictions to attract Hong Kong business.
Institutions have not made major moves from Hong Kong but are circumspect even about discussing contingency plans because the topic is sensitive and many hope to expand in mainland China.
Singapore is seen by some as the most likely beneficiary of any relocation, thanks to its corporate tax rate of 17%, a business-friendly environment and its standing as a financial center.
“Everyone is competing for talent but in terms of population, economic profile and ease of doing business, Singapore is the most similar to Hong Kong,” said Jason Salim, a Singapore-based analyst at risk consultancy Control Risks.