HONG KONG - For the first time since protests began in June 2019, Hong Kong has returned to a state resembling business as usual, with residents no longer facing transport shutdowns, quarantine, social distancing restrictions or a mask mandate.

Yet the legacy of the past few years means the city has a number of obstacles to overcome to return to its former condition, especially if it wants to compete with its rival Singapore.

At stake is bragging rights as Asia’s primary international finance hub.

Charting economic rebound

The city entered 2023 trying to dig itself out of a deep economic hole: Gross domestic product (GDP) contracted 3.5 per cent last year, the third time since 2019.

The end of Covid-19 restrictions and China’s reopening are expected to spur local growth and spending, with economists recently raising their median forecast for GDP expansion in 2023 to 3.4 per cent. Early signs of recovery include a 7 per cent jump year on year in retail sales for January.

But challenges remain with economists saying consumption, property investment and external trade will continue to face pressure from rising interest rates. A massive fiscal deficit also presents concerns, as does an exodus of highly skilled workers.

Stemming talent exodus

Since 2020, tens of thousands of people have left. Among them are scores of bankers, lawyers and other professionals who have traditionally helped to make this a freewheeling, international entrepot. While that outflow is slowing, according to the latest data, the city’s population continues to shrink at a time when the birth rate is among the world’s lowest.

Hong Kong leader John Lee has launched programmes to attract global talent. These include a two-year visa plan launched in October 2022 for high-income workers and top university graduates. So far, the result seems mixed. Most of the roughly 10,000 applications for that programme so far are from China, according to local media.

It is still not clear whether some of the top banking positions which shifted away from Hong Kong will return. Bloomberg previously reported that Bank of America and Citigroup relocated big dealmakers and senior equities staff to rival hub Singapore, which is also trying to entice more talent workers with its own visa programme.

Luring back global events

Next week alone sees the return of the Credit Suisse Asian Investment Conference, the HKMA-BIS Joint Conference of central bankers, a family office event titled Wealth for Good in Hong Kong Summit, as well as international art fair Art Basel.

Hong Kong is also hoping events such as the Rugby Sevens tournament will bring in much-needed tourists after the prolonged border closure.

The city is seeking to challenge Singapore, which snapped up some key events and exhibitions – including major wine and spirits fair Vinexpo – as Hong Kong lagged behind in its removal of Covid-19 restrictions. In 2022, Singapore hosted a slate of high-profile events including the Milken Institute Asia Summit, the Forbes Global CEO Conference and the Singapore Grand Prix.

Singapore is seeking to capitalise on its momentum with the launch of Art SG, South-east Asia’s largest-ever art fair.

Boosting tourism

The number of visitors arriving in Hong Kong in January was 93 per cent less than pre-pandemic levels, mostly because mainland Chinese were still kept at bay by Covid-19 restrictions.

To that end, the government has launched a campaign called Hello Hong Kong. The centrepiece of the promotion is the giveaway of half a million air tickets this year, mostly by flagship carrier Cathay Pacific.

The number of visitors jumped to about 1.5 million in February, according to the local tourism board. That is triple January’s amount, but still the lowest for any month pre-pandemic since 2004.

Capacity constraints may also hold the city back. The Airport Authority says Hong Kong’s airport is operating with 32 per cent fewer employees than before Covid-19, and a labour shortage has capped the ability of airlines to quickly resume all the travel routes that were paused.

Rebuilding reputation

Not only did the pandemic curbs hurt the city’s ties to the broader global economy, so did political strains as Beijing imposed its sweeping security law on Hong Kong that was condemned by several Western governments. At the same time, strained ties between China and the West imperil Hong Kong’s position as a go-between.

The United States sanctioned Chief Executive John Lee and other top officials over the national security law, and made it harder to export sensitive American technology to the city. Tension abounds in the corporate sector, too, with mainland Chinese firms holding regional headquarters in Hong Kong outnumbering American ones for the first time.

With little policy recourse to overcome worsening US-China relations, Hong Kong will have to diversify its allies and investment partners.

Mr Lee appears to be trying to do so. He kicked off international travel with a high-profile visit to the Middle East in February. South-east Asia is also being targeted, with Mr Lee travelling to Thailand in 2022.

Still, the government is also courting more traditional allies as it seeks to restore global ties. One of Hong Kong’s most senior finance officials is planning to visit Britain in April in the territory’s first ministerial-level trip to the country in three years, the Financial Times reported this week.

The proposed trip by financial services secretary Christopher Hui is the first since the UK accused China of violating the Sino-British Joint Declaration, it said.

Reviving markets

Promoting Hong Kong as a financial centre globally has become all the more pressing given the poor performance of its stock and property market.

The Hang Seng Index is down almost 30 per cent since June 6, 2019, the last trading day before a mass demonstration kick-started the protest movement. While the China-dominated gauge rallied to a two-year high in early 2021, President Xi Jinping’s crackdown on everything from tech to property weighed on the city’s equities. A rally sparked by China’s U-turn on its zero-Covid policy has petered out amid concern over the nation’s economy.

Tighter rules on Chinese companies listing overseas on national security concerns have meant a sharp drop-off in Hong Kong share sales, with proceeds from listings last year slumping 69 per cent to a decade-low. There were no debuts at all in February, the first time that has happened for any month since 2012.

The regulator has now published rules that tone down curbs on firms seeking to sell shares overseas, which may lead to a revival in Hong Kong. The city is also seeking to boost listings by non-Chinese companies.

Hong Kong will need to work hard to reverse the outflows of people, businesses and capital, especially against its rival Singapore. BLOOMBERG