Hong Kong tourism braces for backlash from new security bill that threatens autonomy

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Just as Hong Kong has passed the coronavirus crisis and tourism players launch their first recovery steps to get locals to vacation at home, the city is hit by a new round of protests against a new one. national security law which has far-reaching ramifications.

It’s hard to imagine that the unrest will end in the next few months as the bill, approved by the Chinese parliament on May 28, is drafted and implemented before September. While the continued protests will hamper the Hong Kong Tourist Board’s recovery efforts, it is the long-term effect of the bill on Hong Kong’s status as the world city of Asia, plaque turning point financial and, therefore, travel gateway which is the big concern.

Authorities in Beijing and Hong Kong say the bill is intended to protect the city – by combating secession, subversion, terrorism and acts that endanger national security – not eroding freedoms including Hong Kong. Kong enjoys as part of one country / two systems with China. The United States, embroiled in a trade war with China, enters the fray seeing the bill as a clear sign that Hong Kong is no longer self-sufficient, and will therefore remove the special trade treatment it gives Hong Kong.

Hong Kong’s independence is what makes it attractive and why it is a source of intrepid go-getters. Steal this, and Hong Kong is gone. Fears that it will become just another Chinese city like Shenzhen or Shanghai have been aired privately or publicly since the protests began nearly a year ago, as in this Skift story, What if Hong Kong Falls? , in August 2019. However, the United States is the first to say openly that it is not an “what if” but that it has happened.

Hong Kong has become “political football,” said Marco Förster, senior partner at Dezan Shira, a pan-Asian company that guides foreign companies in establishing and growing their businesses in the region.

“What is to be feared is that this will further contribute to Hong Kong’s downward spiral journey and there will be a brain drain,” Förster said. “If companies find that China’s larger presence in the city interferes with fair arbitration, they will look for alternatives, especially when there are appropriate ones in a region like Singapore. Many business leaders who were still hesitant about moving their headquarters to Asia-Pacific may finally make the trip. “

Without a doubt, this will impact travel segments such as business, meetings, events, and most importantly, Hong Kong’s position as a travel hub in Asia in the future. Hong Kong airport is the busiest in the world for freight (4.8 million tonnes moved in 2019) and the busiest in Asia for passenger traffic (71.5 million tonnes handled last year ). It connects 220 destinations by 120 airlines. Air routes from Hong Kong to North America have grown the fastest in the past five years, according to the International Air Transport Association.

Singapore revealed last week that it received $ 9.3 billion (S $ 13 billion) in investment commitments in the first four months of the year, exceeding $ 7 billion (S $ 10 billion). Singaporean dollars) forecast for all of 2020. These include Idaho. Micron technology that produces dynamic random access memory, flash memory and USB keys.

While Singapore has always maintained that it prefers Hong Kong to continue to prosper because a bigger pie is better for everyone, part of the windfall could be due to uncertainties over the friendly rival.

“We are still seeing a growing interest in clients moving to Singapore,” said Förster. “The city-state is emerging as the go-to choice for foreign conglomerates trying to tap into the Asian market for multiple reasons, and yes, the shadow cast over Hong Kong is one of them. A big reason, however, is also the growing interest in the ASEAN market. “

It is not just business, but a brain drain that is at stake. Emigration consultants are responding to hundreds of new calls from Hong Kong residents while some of them are speeding up decisions to buy property in Hong Kong. overseas, according to this South China Morning Post article.

“A brain drain will lead to a considerable drop in the quality of service in sectors such as travel and hospitality, as a large number of expatriates still run these companies today,” observed Antonio Teijeiro, founder of China Hotel Solutions. .

To warn

One should be wary of people who get ahead of themselves, however, especially when the details of the security law, or the privileges the United States will take away, are still unknown. These privileges include more flexible visa agreements, lower U.S. tariffs that make Hong Kong more attractive as a transit point for freight, and more flexible controls on imports of U.S. technology than their counterparts in mainland China, according to this article from the Nikkei Asian Review.

In fact, the bill could be a good thing for many businesses affected by the protests, such as travel and tourism, restaurant and retail, said Benjamin Quinlan, CEO and Managing Partner of Quinlan & Associates. , a Hong Kong-based strategy consulting firm.

“Ultimately, if the legislation can restore a sense of calm in the city, it would be a big plus for travel,” said Quinlan, who was born in Hong Kong. “It would restore the confidence needed to visit the city and, given Hong Kong’s strong record in containing coronavirus infections, that’s a double benefit. We could see a decent increase in the return of mainland travelers, who make up the vast majority of tourists to Hong Kong. “

But he agrees that this needs to be balanced against wider geopolitical tensions. “There are so many moving parts, and the uncertainty of how this is all going to play out is not great for many businesses operating in the city.”

Aviation specialist Shukor Yusof at Endau Analytics is realistic that Hong Kong will inevitably lose some of its dynamism.

“Beijing does not intend to destroy Hong Kong as a hub of international trade, but has taken a calculated risk in China’s best interest in the long run. Hong Kong will inevitably lose some of its vibrancy, appeal and verve, but all of this cannot be attributed to the heaviness of China, but a new world order is at stake in the 21st century when the former British colony is less valued as a center than, for example, Shanghai.

“Unfortunately, business will be badly affected, putting enormous pressure on Hong Kong businesses, especially those that rely on travel such as airlines and the hospitality sectors. Further unrest and unrestricted protests will only happen. that prolong his pain amid the ongoing pandemic, ”Yusof said.

Dezan Shira’s Förster is equally grim about Hong Kong’s tourism outlook, saying its airport is barely functioning, its flag carrier Cathay Pacific has suffered massive layoffs and its “often disproportionate hotel industry” has faced challenges without precedent since the start of the trade war. , protests and the pandemic.

“The upcoming uncertainties facing Hong Kong will accelerate its downfall and could cause the city to lose its status as Asia’s global city, financial hub and, therefore, travel hub,” Förster said. . “Alternatives are nearby to quickly fill in the gaps. Mainland China, heavily dependent on domestic tourism, is already back on its feet. Not to mention, some of the travel players in Hong Kong, such as Mandarin Oriental [Hotel Group], strongly benefit from their presence on the continent.

“In short, the travel industry in China will not feel a dramatic impact, at least not directly. Its dependence on international travel is too low. Hong Kong will be the big loser in the short and long term. If a travel bubble between Hong Kong, China and say Vietnam or Singapore soon emerges, it could give some Hong Kong businesses that depend on travelers the crucial cash injection necessary for their survival. “

He doesn’t think the old Hong Kong hotel chains like Mandarin Oriental or New World would be moving their headquarters to mainland China anytime soon. “They can still take advantage of the Chinese market, repatriate profits or reinvest them in other projects in metropolitan France. They could move an increasing part of their management and internal operations to China, but Hong Kong’s tax regime is very attractive nonetheless, ”he said.

According to Förster, there are nine “classic” advantages of starting a business in Hong Kong: low taxes, free flow of information, world-class infrastructure, a traditional gateway to China, rule of law. , clean governance without corruption, liberal economy, skilled workforce and international way of life.

But they are cropped.

“Hong Kong’s tax system remains an important incentive for many businesses. There is practically no capital gains tax, VAT [Value Added Tax] or sales tax in Hong Kong and which will likely remain unchanged even amid the rough waters the city faces. The free flow of information is also a reason to stay in Hong Kong, at least in the short term.

“Many investors who want to tap into the Chinese market no longer need to set foot in Hong Kong. From a fiscal point of view also, preferential rates can be obtained directly now due to the fact that an increasing number of countries are signing double taxation agreements with China. Thus, being the traditional gateway to the continent could become obsolete.

“Later, Hong Kong’s traditional rule of law, fair international arbitration, and attractiveness as a safe haven for businesses and expatriates could be most at risk. “

Yusof of Endau Analytics summed up: “Let there be no doubt: Hong Kong’s future will not be determined by the United States or the United Kingdom, but by China.


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