Hong Kong, remade in Beijing’s image, rebounds as a global financial center

HONG KONG – After the streets of this fabled city filled with sometimes violent pro-democracy protests – and then emptied just as suddenly amid a strict covid quarantine – many people thought Hong Kong was finished as a global financial center.

Four years later, the Fragrant Harbor has rebounded. The number of initial stock offerings is up, and multinational businesses are no longer heading for the exits. Earlier this year, Hong Kong for the first time surpassed Switzerland as the top global hub for offshore financial assets with $2.9 trillion, according to the Boston Consulting Group.

But Chinese rule has chilled the city’s once freewheeling political climate, especially since Beijing imposed a tough national security law in 2020. Today more than ever, China is both Hong Kong’s greatest attraction and its greatest risk.

The entrepôt’s proximity to the mainland means unparalleled access to Chinese capital. But its status as sovereign Chinese territory leaves it at the mercy of geopolitics. This month, a top U.S. lawmaker sought a formal review of Hong Kong’s participation in a special Federal Reserve crisis-fighting program, citing Beijing’s repressive rule.

“A lot of freedoms – whether it’s press, selling books, and other types of dissent – have effectively been quashed,” said economist Stephen Roach, senior fellow at the Paul Tsai China Center at Yale Law School. “It’s not altogether clear to me that Hong Kong is going to have enough economic vigor to thrive on its own.”

Not long ago, such doubts seemed absurd. Even after the 1997 handover of control by Hong Kong’s former colonial masters in London, the city remained a vibrant world center of finance and trade.

When Beijing regained sovereignty of the territory, Chinese leaders promised to guarantee Hong Kong significant autonomy under a unique “one country, two systems” framework that would preserve the city’s capitalist economy and relative political freedoms. But after repeated pro-democracy protests in 2014 and 2019, Beijing imposed a draconian national security law that critics said effectively criminalized political dissent.

Since then, the authorities have arrested dozens of activists, journalists and lawmakers. In February, Jimmy Lai, 78, founder of a leading pro-democracy newspaper, was sentenced to 20 years in prison after being convicted of colluding with foreign forces and publishing seditious materials. Several independent bookstores have closed under pressure from the authorities.

“There is an incredible resilience among Hong Kongers. But the reality is that vibrancy and that sense of real political engagement and debate and people on the streets – that has been virtually stamped out,” said Sarah Brooks, Amnesty International’s deputy regional director for Asia.

President Donald Trump told reporters he raised Lai’s case with Chinese President Xi Jinping during their recent Washington summit.

Last month, Beijing’s influence was highlighted with the release of the territory’s first five-year plan, a standard feature of Chinese Communist Party governance. The document committed Hong Kong’s government to several new initiatives, including development of the “Northern Metropolis,” a trio of high-tech centers along sprawling road and rail corridors in a largely rural area abutting Shenzhen.

“I’m suspicious of turning [economist] Milton Friedman’s favorite market economy into a planned economy,” said Roach, who spent 30 years with Morgan Stanley, including five years as Hong Kong-based Asia chairman from 2007 to 2012.

Many in the local business community dispute Roach’s downbeat assessment. If Hong Kong is no longer precisely what it once was, the city remains a dynamic financial gateway with a major port, world-class restaurants and hotels. The iconic Star Ferry still plies the waters between Hong Kong Island and Kowloon. The dim sum at Michelin-approved Tim Ho Wan still dazzles.

There are other promising signs.

Next week, finance ministers for the 21-nation Asia Pacific Economic Cooperation (APEC) group, which includes the United States, China, and Japan, is scheduled to meet here for two days.

Hong Kong authorities are considering offering generous tax cuts to woo foreign asset managers away from rival financial centers such as Singapore. The pandemic-era exodus of expatriates appears to have crested. And in a recent American Chamber of Commerce in Hong Kong survey, 92 percent of global businesses said they do not plan to move in the next three years.

“Hong Kong’s got its mojo back,” said Lyndon Chao, head of equities for the Asia Securities Industry and Financial Markets Association.

Still, geopolitics shadows the financial sector. Rep. John Moolenaar (R-Michigan), chairman of the House select China committee, earlier this month questioned Hong Kong’s eligibility for a Fed program that effectively provides temporary U.S. dollar loans to foreign central banks during financial crises.

Adam Clermont, a Hong Kong attorney who debated Roach in an August exchange on LinkedIn, blames the Western media for promoting a “negative narrative” about Hong Kong. He is also critical of the pro-democracy protesters, saying they overreached in 2019 by making “maximalist” demands of the authorities that effectively sabotaged their own cause.

Personal freedoms in Hong Kong compare favorably with those in the United States and the United Kingdom, where some individuals have been sanctioned for social media posts that the authorities deemed threatening, said Clermont, an American who has lived here for 14 years.

“If you don’t talk about the government. If you don’t say ‘down with the [Chinese Communist Party],’ there’s no problem,” he said. “I’m not in favor of regime change.”

Many in the local business community cite the revival of the city’s financial sector as evidence that Hong Kong can thrive under Chinese rule. Through the first half of the year, only the Nasdaq posted more initial public offerings.

Through Oct. 12, 117 companies completed their initial stock sales in Hong Kong this year, nearly equal to the 119 in all of 2025. More than 450 additional companies are awaiting regulatory approval for their listings, an exchange spokesman said.

Nearly all of the companies listing here, however, are mainland Chinese, another sign of how closely Hong Kong’s fortunes are intertwined with those of the mainland. A decade ago, many global companies sought to diversify their investor base by listing in Hong Kong in addition to New York or London.

Since Chinese companies typically pay lower fees to the banks that take them public, the mainland’s dominance of the Hong Kong listings means less money flowing into the city. Last year, investment banks earned $579 million on Hong Kong listings, down from $932 million in 2020, according to LSEG. Companies paid banks an average fee of 1.37 percent of deal value, well below the long-term average of more than 2 percent.

“I call it China’s international financial center. It’s becoming a narrower place to make money,” said Fraser Howie, who has co-authored three books on the Chinese financial system.

Indeed, other sectors have struggled. Hong Kong’s airport remained the world’s busiest airfreight center last year. But the local port – once the world’s busiest – handled nearly 40 percent fewer shipping containers last year than in 2017, according to maritime authorities, as more modern facilities at nearby Yantian and Guangzhou siphoned off business. And it took four years for hotel room occupancy to recover to pre-pandemic levels, according to the Hong Kong Tourism Board.

“It’s been slow. We see the demographics changing. We have a lot more Asian travelers,” said Mahesh Harilela, whose family owns hotels in Hong Kong. “My goodness, the number of conventions that are taking place in Hong Kong have grown significantly, and that’s drawing a lot of more interest.”

The Hang Seng stock market has staged an impressive 50 percent rally since early 2024 but remains well below its 2021 peak.

Hong Kong is valuable to Chinese leaders.

Under a 12-year old program known as “stock connect,” mainland investors can buy shares in designated companies on the Hong Kong market and global investors can buy certain companies listed in Shanghai and Shenzhen.

The program gives Hong Kong listed companies access to the mainland’s growing pool of investor capital, which potential rivals like Shanghai cannot offer due to China’s restrictions on capital flows. Nearly one-quarter of the exchange’s daily turnover last year came from southbound flows, the exchange said.

China is seeking to buttress Hong Kong’s financial heft by expanding its role as a center for gold and commodities trade. Beijing’s long-term ambition to increase the yuan’s global role also may run through Hong Kong, said economist Andrew Tilton of Goldman Sachs.

“It is still a very useful gateway. It’s a place where international firms and people feel very comfortable. It’s outside the capital controls. It’s a place where they can experiment with a lot of different financial development schemes,” he said.

Still, competing images of Hong Kong’s reality are likely to persist. Critics see a once-lively multiethnic crossroads suffocated by Chinese authoritarianism. Defenders say Beijing will ensure Hong Kong’s success as an example to Taiwan, which the Chinese government claims as its territory, of the “two systems” approach.

The duality was reflected in two recent developments. This month, the Fraser Institute, a leading free market think tank in Canada, named Hong Kong the economically freest city in the world.

The announcement came a few weeks after the latest reminder of the limits of Hong Kong’s freedom when a judge sentenced three organizers of a vigil for the 1989 Tiananmen Square crackdown to lengthy prison terms.

Before the national security crackdown in 2020, “you could exist as an activist in Hong Kong more or less like you could do so in Paris or New York or Brasília,” said Amnesty’s Brooks. “Now, it looks an awful lot more like Beijing.”