HONG KONG – Hong Kong is now fully back in business and it wants the world to know.

Since its reopening after three years of Covid-19 isolation, the city has gone all out to woo back the mainstays of its economy.

From foreign students, working professionals and big businesses to tourists, fine diners, music lovers, art enthusiasts and the clubbing crowd, it is leaving no stone unturned.

In his annual policy speech – akin to America’s State of the Union Address – on Oct 25, Hong Kong Chief Executive John Lee announced that the city would develop its “headquarters economy” to attract enterprises from the world over to set up their bases here.

Foreign professionals in Hong Kong can now also travel from the city to China on multiple entry visas.

For many big multinational corporations (MNCs), however, it may have come a little too late.

Some have publicly and completely relocated their regional headquarters out of a city that once consistently topped rankings of global companies’ choices of where to set up their Asian hubs.

But more enterprises have been taking a subtler route, discreetly moving large parts of their staff and operations elsewhere and redefining what a head office means.

While the number of global companies with regional headquarters in Hong Kong has fallen some 8.4 per cent since 2019, the number of staff engaged by such firms has dropped by a whopping 30 per cent in the same period, according to official data.

And many of these MNCs are opting for Singapore, even as they welcome Hong Kong’s latest raft of business-friendly measures.

‘Can’t put all eggs in one basket’

Logistics giant DHL, for example, has been rapidly expanding its operations in Singapore.

In 2022, the American-founded German MNC inked a four-year deal with Singapore Airlines for the national carrier’s crew to fly DHL freighters based at Changi Airport on cargo routes between parts of Asia and North America.

In October, it launched an additional route – from Singapore to the United States via Japan – under that partnership.

In the same month, its supply chain arm said it would invest €350 million (S$508 million) in South-east Asia, including increasing its total warehouse space in Singapore by more than 50 per cent.

“We have been expanding dramatically in Singapore,” Mr Christopher Ong, managing director of DHL Express Singapore, told The Straits Times.

“During the pandemic, we learnt that we can’t put all our eggs in one basket... If a location gets shut down, we can’t fulfil our jobs. So, through our multi-hub strategy, we are able to have alternatives.”

Hong Kong’s stringent Covid-19 restrictions saw its borders shut for about three years.

With the dearth of visitors, air cargo capacity – two-fifths of which come from passenger planes – plunged, and the city’s cargo business was significantly disrupted.

DHL’s air network in Asia comprises four main hubs – Hong Kong, Shanghai, Singapore and Bangkok – but Hong Kong has long been regarded as one of the logistics giant’s top three global hubs, alongside Leipzig in Germany and Cincinnati in the United States.

The city remained the world’s busiest cargo airport in 2022 despite a 16.5 per cent drop in the volume of air cargo it handled compared with 2021, according to data released in July by aviation non-governmental organisation Airports Council International World. Singapore ranked a distant 16th.

“Hong Kong will continue to play a very critical role in the air cargo market,” Mr Ong said. “But during the pandemic, while governments did what they thought was best for their populations, businesses had to adapt to those challenges on the ground.”

While the senior executive said that it made sense to bypass the city and use Singapore for cargo coming from South-east Asia, he admitted that compared with Hong Kong, Singapore might not always be the most efficient base from which to fly cargo to certain parts of the world, such as Japan and the United States.

“But in Hong Kong’s big cargo airport, there is also often the challenge of congestion, so we are diversifying such risks,” he said, adding that the pandemic helped accelerate the move.

One of DHL’s main rivals, FedEx, announced in May that it was moving its Asia headquarters and relocating employees from Hong Kong to Singapore, though it planned to retain a “significant” presence in the city.

‘Not depending on just one location’

In the consumer goods industry, conglomerate British American Tobacco (BAT) has shifted its Asia headquarters from Hong Kong to Singapore.

While the British MNC did not widely publicise news of the move, it confirmed with The Straits Times that it had in 2022 designated Singapore as its new regional headquarters covering the Asia-Pacific, the Middle East and Africa.

BAT significantly downsized its Hong Kong office where most of its Asia regional operations used to be located, and moved 44 Hong Kong-based staff to Singapore, including its regional director Michael Dijanosic.

But it retained a presence in Hong Kong, including a domestic and global travel retail team, the company said.

“Like any global company, we continuously evaluate our global operations,” a BAT spokeswoman said. “As part of this ongoing review, we decided Singapore was the best fit for our headquarters moving forward, given its strategic relevance and commercial sustainability as our regional headquarters.”

Company insiders said some roles once based in Hong Kong were now also being managed in locations elsewhere, such as Malaysia and Pakistan.

The sources asked not to be named as they had not been authorised to speak to the media about the company’s operations.

One source involved in the decision-making process said this reflected the MNC’s evolving way of managing its regional businesses so that “operations are now no longer dependent on just one location”.

The insider said the relocation from Hong Kong – made when the city’s borders were still shut under its tight Covid-19 measures with no end in sight – was based on two key factors: international mobility and efficiency.

Among BAT’s options in the region, Singapore scored high on these points.

These factors played a more critical role in the relocation decision than other elements like security concerns, the source added, referring to the imposition of a national security law in Hong Kong that many have attributed to the city’s outflow of businesses and talent in recent years.

In the finance industry, the move by big global companies out of Hong Kong has been more widely documented.

In September, National Australia Bank said it would shut its Hong Kong office with around 50 staff and consolidate its operations in China, Singapore and Japan over the next 18 months.

Fellow Australian MNC Westpac Banking Corporation closed its Hong Kong branch in June; its Asia headquarters was already based in Singapore prior to the pandemic.

Others like Germany’s Commerzbank and the Royal Bank of Canada have also announced their decisions to move their regional hubs and operations from Hong Kong to Singapore.

The changing notion of ‘headquarters’

“Anecdotes abound of companies and executives having made the move during the pandemic, often quietly, shifting families and capital, from Hong Kong to Singapore,” said Mr Curtis Chin, inaugural Asia Fellow of the Milken Institute, a non-profit, non-partisan economic think-tank.

“Becoming a ‘headquarters economy’ will take more than a flurry of policy announcements. Implementation is critical. Perception is also critical. The reality, too, is that for some companies, the very notion of ‘what is a headquarters’ has changed.”

Once relocated, many MNCs may not be inclined in the near term to reverse their decisions, especially if the move entailed high costs.

But therein also lies the logic of other companies that choose not to widely publicise the relocations of their regional offices and staff, allowing pragmatic businesses to keep their options open as situations evolve in cities around the world.

Perhaps in part as a way to counter the economic impact of the gradual shift away from Hong Kong by the big international companies, the local authorities have also been aggressively wooing Chinese enterprises, selling the city as an increasingly important gateway to help them gain a share of the global market.

The number of Chinese companies with a presence in Hong Kong rose by more than 30 per cent over the past four years, the South China Morning Post reported.

By the end of 2022, the number of Chinese enterprises regionally headquartered in Hong Kong had surpassed that of American firms with regional hubs in the city for the first time in at least three decades, Bloomberg reported.

“Singapore controls its own destiny (while) Hong Kong’s destiny will be shaped by Beijing, with all the benefits, opportunities and challenges that that implies,” said Mr Chin, who is a former US ambassador to the Asian Development Bank.

“At the end of the day, Hong Kong and Singapore will remain world-class cities attracting talent and capital from around the region and beyond… There’s more than enough room for both Hong Kong and Singapore in their ranks. More than the number of headquarters, cities should also be competing on liveability and sustainability.”