The protests that have gripped Hong Kong for over seven months have been credited with taking a heavy toll on the economy. The impact on the tourism sector has received particular attention - in October, for example, the number of visitors from the mainland dropped 46.9 per cent compared to the previous month.
These stark figures are compounded by anecdotal accounts of students, academics, businesses and professionals considering leaving Hong Kong.
Hong Kong entered a technical recession in October, with government officials and other commentators warning - some with resignation, others with delight - of darker economic times to come.
Although the damage the protests have done to the fabric of our civil society is clear, the extent of the economic damage has been exaggerated. Hong Kong's economy is far more resilient than we have assumed and will certainly rebound in the long term.
Data from the December 2019 report on the Hong Kong economy by the Census and Statistics Department and my own research with Professor Sida Liu at the University of Toronto on Chinese and foreign law firm collaborations in the Hong Kong legal sector paint a brighter picture.
First, dips in tourist rates do not amount to the economic damage that pundits claim, because tourism was never a big part of Hong Kong's economy to begin with. According to the Census and Statistics Department, inbound tourism in 2018 accounted for a mere 3.7 per cent of Hong Kong's gross domestic product and outbound tourism 0.8 per cent.
While its sister special administrative region, Macau, relies on inflows of tourists because of a lack of trade, Hong Kong is a global financial paragon because it has one of the world's largest concentrations of commercial, trading and banking institutions.
The bread and butter of Hong Kong's economy are its financial and professional services markets, which accounted for 19.7 per cent and 12 per cent respectively of Hong Kong's GDP in 2018. Thus, it is these two markets that we should look to as the most accurate economic weather vanes. Both continue to be strong, despite the protests.
Second, the human capital we see departing from Hong Kong largely consists of junior professionals and those on temporary contracts. Senior professionals and the most prestigious firms continue to remain in the city.
Fluctuations among senior-level personnel are far more revealing of shifts in a market, because it is these people who broker the most significant deals. For instance, when Elaine Lo left her position of 40 years as senior partner at global law firm Mayer Brown JSM to join Chinese firm Jingtian and Gongcheng LLP as senior partner in 2018, taking with her a lifetime of connections, the legal world shook. Her move ended the debate on China's prominence in the global legal market and Hong Kong's part in its rise.
From the 1980s onwards, Hong Kong has been the site from which foreign law firms reach into the Chinese market. Western law firms have set up regional headquarters in Hong Kong, both bringing in personnel from abroad and hiring local lawyers, allowing them to participate in the lucrative regional deals from the immense market that a modernising China represented.
Today, some have even merged with Chinese law firms, using Hong Kong as their headquarters, such as the 2012 merger between Chinese law firm King and Wood and leading Australian firm Mallesons Stephen Jaques, which in 2013 merged with elite British firm SJ Berwin to form King and Wood Mallesons.
However, over the past two decades, the opposite has been happening as well. Chinese law firms have been using Hong Kong as the platform to build inroads into Western law firms and markets. This intermingling has lucratively revitalised entire areas of practice in Hong Kong, including mergers and acquisitions, whose value spiked fivefold during this period.
Chinese law firms have also been collaborating with mid-level professionals in Hong Kong tasked with setting up local offices destined to later merge with them. For example, Chinese law firm Llinks Law worked with Hong Kong's Vivien Teu and Company until 2018 before moving on to Dennis Fong and Company.
Simultaneously, Chinese law firms have brought rosters of foreign professionals into Hong Kong, such as when the 2012 King and Wood Mallesons merger pulled in numerous Australian and English legal partners.
In becoming a conduit for Chinese-to-Western and Western-to-Chinese investment and recruitment, Hong Kong has evolved into an important destination for attracting senior talent and training junior personnel.
All of this is made possible by the high degree of economic freedom afforded by Hong Kong's Basic Law and its business-friendly tax system.
Hong Kong's long history attracting foreign investment, beating out even Singapore, points to the city's unique position in the Asia-Pacific as a frontier of both Western and Chinese business, a fertile ground for human and financial capital and a robust economy more than capable of weathering the latest social turmoil.
Anson Au is a visiting professor in the School of Humanities, Social Science and Law at Harbin Institute of Technology and a PhD student in sociology at the University of Toronto
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