Jan 20 2020
The Year Ahead in Hong Kong

Rarely have the forces shaping Hong Kong’s fortunes tugged in such opposing directions. On the one side are the continuing street protests and on-again/off-again US-China trade war. On the opposite side are the city’s ambitions to serve as a hub for digital innovation. Pulling in yet other directions are forces driving integration of the economies of southern Chinese cities: forces that could lead to the rise of strong rivals to Hong Kong – or reinforce its role as gateway to the mainland.

Doing business in Hong Kong will require global executives and their advisers to face a complex range of conditions. Below is a list of those that are most likely to shape the climate for foreign corporations and investment firms operating in the city in 2020 – and on which their executives may face calls from stakeholders to express a point of view or a clear company policy.


1. Street protests 

The protests have continued into 2020, albeit with less vigor. Demonstrations may resume in more pitched fashion if the trials of those arrested last year are deemed unfair and protesters’ demands remain unmet. What happens will have implications on the way companies deal with employees in Hong Kong holding divergent views on the situation, recruit and retain local and international talent in the City, and respond to the concerns of investors who may become skeptical of Hong Kong’s long-term prospects. 

2. Trade tensions

Will the US and China definitively conclude trade negotiations? Trade friction between the two superpowers has been the greatest source of uncertainty and most severe drag on investment into and from China. Continued seesawing could pressure some firms with a foothold in China to reaffirm their commitment to the country, but might complicate the efforts of others to justify further investments in China or transactions with Chinese partners. 

3. Political risk and China’s “unreliable entities” list

Chinese officials have suggested that they will blacklist firms they consider to be acting against China’s national security and the commercial interests of its companies. Many questions about the so-called “unreliable entities” list remain (such as what constitutes condemnable behavior, and what are viable remedies); however, based on the events of last year, the stakes for business of political missteps are steep. 

4. Liquidity crunch 

Several Chinese companies, including some listed on the Hong Kong stock exchange, may find themselves challenged to secure new lines of credit or refinance debt. Corporate debt in China tops 150% of GDP, which may lead to a painful reckoning in 2020. The market was spooked last year when a Chinese state-owned commodities trader defaulted on US dollar-denominated debt. Other defaults or forced restructurings could lead to a tightening of credit, and precipitate liquidity challenges at companies with even modest leverage ratios.

5. Slowdown in China 

The market in Hong Kong has come under pressure because of concerns about slowing economic growth in China. Perceptions will be as important as reality. Is the slowdown seen as a natural stage of China’s development into a mature, advanced economy – or indicative of more severe economic challenges?

6. ESG concerns on the rise 

The field of environmental, social and governance compliance is becoming more professionalized in Hong Kong and on the mainland, and scrutiny of companies has intensified from the government and NGOs wary of “green washing,” as well as a public more attuned to product quality, environmental safety and proper working conditions. Perfunctory measures and lip service will no longer suffice. It is becoming increasingly important for companies to establish and publicize their ESG credentials as part of their license to operate in this market.

7. Innovation 

Mainland China and Hong Kong are hotbeds of investment and innovation in potential growth areas, such as AI, blockchain, electronic payments, autonomous driving, 5G networks and the Internet of Things. The emergence of viable use cases for these technologies should support their continued adoption as well as investment into local startups. However, there may be greater regulation to ensure the security of consumers’ data as well as harsher consequences for lax protections or misuse of such data.

8. China’s Greater Bay Area 

The development of the region that encompasses major cities in southern China including Hong Kong, Guangzhou, Shenzhen and Macau, among others, will continue to be a priority for China. Integration of these cities and their strengths – Hong Kong as a financial and maritime hub, Shenzhen as a digital tech hub with a growing stock exchange, Macau as a gaming and entertainment center and Guangzhou as an international commercial hub and proving ground for new technologies – is a major economic initiative for Beijing. Several domestic and international companies and financial institutions have openly aligned themselves with this growth initiative, both in rhetoric and in substance, by building their presence in the region.

While the promise of investing and doing business in China remains undeniable, the stakes of an impolitic, evasive or uninformed off-the-cuff remark have risen. As uncertainty around each of these conditions varies from day to day, executives must be prepared to respond to a broader range of questions and concerns from employees, investors and business partners as well as home- and host-market regulators than ever before. Vigilant monitoring of events and regular reassessments of the challenges they pose and a company’s position on them will help avoid missteps.