Hong Kong’s COVID bet may pay off, despite big business’s complaints to the contrary

The president of the American Chamber of Commerce in Hong Kong used strong language this week to explain her decision to step down from her leadership position next year.

Tara Joseph, who has consistently criticized Hong Kong’s COVID strategy, told Reuters that “it is not in my nature to advocate on something, and then embark on quarantine like a stooge,” referring to the three weeks of mandatory hotel quarantine she would have had to go through upon returning to Hong Kong from the U.S. (She gave more circumspect comments to the South China Morning Post in a later interview, noting that the city’s quarantine was one reason among several for her decision to leave.)

Joseph is in good company. Hong Kong’s international business community is united in its frustration over the city’s tough travel restrictions, which require in-bound travelers to isolate for at least two weeks in designated quarantine hotels. Groups like the Asia Securities Industry and Financial Markets Association (ASIFMA) warn that the city risks losing its status as an international business center if the strict rules continue. 

The complaints over Hong Kong’s quarantine protocols have gone international, with Goldman Sachs’s David Solomon and J.P. Morgan’s Jamie Dimon—the latter of whom earned a rare quarantine exemption—saying the city’s quarantine restrictions hurt their banks’ ability to hire and retain global talent in the city. 

The city’s tough COVID rules are already encouraging foreign businesses to change how they operate. FedEx recently closed their pilot base in Hong Kong in response to tight rules on aircrew. Official data show that the city is losing regional headquarters from foreign businesses, as companies like Commerzbank relocate.

Even Hong Kong’s top advisors have questioned the city’s COVID approach at times. Bernard Chan, convenor of the city’s Executive Council, which advises the chief executive on policy decisions, wrote for the SCMP that “time will tell if this is a sustainable strategy.”

So why is the city sticking with it?

The government’s stated strategy is that it wants to restart quarantine-free travel with mainland China first before opening to other countries. And as much as expatriates may grumble about their home countries being relegated to second place, the prioritization makes economic sense for the city.

Hong Kong is less international than people think. About 9.4% of Hong Kong was non-Hong Kong Chinese according to the city’s latest census data; in contrast, Singapore reported earlier this year that 27% of its population were non-citizens. Those figures are measuring slightly different demographics, but it’s a reminder that much of Hong Kong’s population is local—far more so than Singapore’s, London’s or New York’s.

The city’s financial system is tied closely to mainland China. Hong Kong’s largest IPOs, like those from Kuaishou, JD Logistics and Trip.com this year, come from Chinese companies. Mainland China also represents the biggest source of new listings. In a pre-protest, pre-COVID world, the number of visitors from mainland China dwarfed that of vistors from other countries.

And depending on what metric you look at, Hong Kong’s COVID record beats just about every other place in the world right now. The city of 7.5 million has recorded 12,396 cases and 213 deaths in the pandemic and logged zero local COVID cases for months. Even during its worst outbreaks, the city never imposed the drastic lockdown measures seen in North America, Europe, or even across the border in mainland China.

The Hong Kong government’s missteps do complicate any reopening decision. Low vaccination rates among the elderly and waning immunity against more transmissible COVID variants mean that any loosening of rules would lead to a resurgence of cases—and deaths.

However, the perception of a strong track record likely bolsters the government’s decision to ignore complaints.

The “COVID zero” debate is a bit of a rude awakening for the foreign business community: it has less influence than it thought it had. 

Hong Kong’s government is betting that the city’s COVID strategy won’t hurt its status as a financial center in the long-term. And, at least for now, evidence suggests it’s right.

Wall Street banks—including Goldman Sachs and Citi—have ramped up their hiring plans in Hong Kong to tap into the China market. The loss of regional headquarters from foreign companies has been entirely offset by new headquarters from mainland Chinese firms. And Hong Kong’s economy grew by 7% in the first nine months of 2021, year-on-year, beating the government’s estimates (though Q3 growth came below analyst expectations).

The argument that foreign talent may be unwilling to come to or stay in Hong Kong may not be a persuasive one, especially if positions could be filled by local or mainland Chinese candidates. 

Hong Kong’s foreign business community likely believes that being an international finance hub requires global businesspeople. Hong Kong’s government may believe it just needs global business, never mind who staffs it.

More Eastworld news below.

Nicholas Gordon
nicholas.gordon@fortune.com

This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at eamon.barrett@fortune.com.

EASTWORLD NEWS

India smog

Indian regulators have closed six of 11 coal-fired power plants within a 300km radius of New Delhi, as a toxic smog has smothered the Indian capital for close to two weeks. Authorities closed schools and colleges in the city indefinitely, too, and have banned private construction work until Nov. 21. Environmentalists say the smog is a regular occurrence and that the government has not done enough to prevent the poisonous haze from engulfing the city. Just last Saturday, at the COP26 climate conference, India—which generates over 70% of its electricity from coal—resisted international consensus to “phase out” coal power. Financial Times

Crypto crackdown 2.0

China has already banned mining cryptocurrency, but now the government is cracking down on any holdouts, lambasting the industry as “extremely harmful” and a threat to China’s net-zero targets. Crypto miners have all officially moved out of China already—previously the world’s largest hub for Bitcoin mining—but the government estimates some 10% of miners remain. Beijing resents the high energy costs of crypto mining, which officials say is an unnecessary drain on domestic energy supplies. China is slowly emerging from an energy crisis, which slowed production in the country’s manufacturing hubs. Fortune

Overstimulating

Japan is preparing to issue $350 billion in fiscal stimulus to counter the economic slowdown of the pandemic. The government has already delivered $770 billion in fiscal spending since the beginning of the pandemic, roughly equal to 17% of GDP. The latest injection is part of a stimulus package Japan’s new leader, Prime Minister Fumio Kishida, is preparing to unveil Friday. The package also proposes issuing $872 to every household with children younger than 18. FT

Korea’s urea shortage

South Korea is suffering a shortage of urea solution—an industrial fluid used to cut emissions from diesel engines and to produce agricultural fertilizer. The shortage is a threat to South Korea’s trucking business, which runs on diesel engines, and could have ripple effects for the whole economy. Last month, China imposed restrictions on urea exports, precipitating Korea’s supply pinch (although, the country still has three months of national reserves.) Industrial urea is produced from coal, which China recently suffered a shortage of. Nikkei

MOVERS AND MAKERS

Paytm — Shares in India’s largest digital payments provider plunged 26% in its debut Thursday, shocking investors who had piled into the country’s largest-ever IPO.

AirAsia — Malaysian budget airline AirAsia is finalizing negotiations to sell its Indian sub-unit to its joint venture partner, Tata Group. The Malaysian company holds 16.33% of AirAsia India, having sold the first tranche of its stake to Tata group last year. Tata currently owns over 80% of the regional airline.

Garuda — Indonesia’s flagship carrier Garuda has submitted a restructuring plan to its creditors as the state-owned airline struggles to stay solvent. Garuda has $5 billion of liabilities maturing in the next year, against just $403 million in cash holdings.

Evergrande — Indebted property developer Evergrande is selling the entirety of its stake in streaming services HengTen Network for $273 million, anticipating a loss of $8.5 billion on the sale of its 18% stake. Evergrande has been divesting non-core assets or weeks, as the company collapses under a mountain of debt.

Baidu — China search giant Baidu reported a $5 billion revenue increase for the quarter ending September, as sales in the group’s cloud services surged 73%, offsetting a slowdown in advertising sales. Baidu reported a net loss of $2.57 billion for the third quarter.

Fugaku — Japan’s Fugaku supercomputer retained its position as the world’s fastest supercomputer for the fourth consecutive round of rankings, according to an industry report released every June and November. Fugaku has performed as the fastest supercomputer in each report since June 2020.

Huarong — State-owned asset manager and “bad bank” China Huarong is raising $6.6 billion from an equity sale, with purchases led by Citic. The equity sale is a continuation of the massive government bailout Huarong received in August.

GM — GM’s plans to exit India by selling its local unit to China’s Great Wall Motors has stalled, as geopolitical tensions between India and China strain. GM and GWM signed a deal on the sale in January 2020, but Indian authorities roadblocked Chinese investment in the country later that April

FINAL FIGURE

130

Hong Kong has ordered 130 cargo and passenger pilots to undergo a mandatory 21-day quarantine after three pilots tested positive for COVID-19 upon returning to Hong Kong. The 130 pilots now in quarantine all stayed at the same hotel as the three infected pilots. The harsh measure threatens to disrupt the city’s supply chains and deals a further blow to flag carrier Cathay. Hong Kong’s intense quarantine requirements for arrivals have curbed tourism to the city over 90%, tanking Cathay’s revenues.