Hong Kong Lawyers

Three months ago, in Hong Kong for International Business, Stick a Fork in It, we predicted the slow demise of Hong Kong as an international business center. Many wrote us to say they agreed. Many wrote us to say they vehemently disagreed. Those who disagreed argued that we had underestimated the grit and the resilience of the people in Hong Kong. My general response was to say that I truly appreciate that grit and resilience, but that it would be no match for the much greater power of Mainland China.

Our previous post stated the following:

Not sure why nobody has just come out and said this yet, but Hong Kong as an international business and financial center is no more. I take no comfort in saying this because I have many friends in Hong Kong and I’ve always loved going there, but Hong Kong’s special position is over. Kaput. Fini. Terminado. 完. законченный. Done. Over. No more.

I challenge you to say “one country two systems” with a straight face.  

For the last few months I have been relentlessly asking everyone I know in Hong Kong or who used to be in Hong Kong or who at one time contemplated setting up a business in Hong Kong how what has been happening in Hong Kong has and will or would impact their doing business in Hong Kong. Based on those responses and on my own experience with how international companies operate, I foresee the following:

— Companies that were deciding between Hong Kong or Singapore for their Asian headquarters will choose somewhere other than Hong Kong.

— Growing companies with offices in Hong Kong and with offices somewhere else in Asia will increase their hiring outside Hong Kong and decrease or eliminate their hiring in Hong Kong.

— Companies with offices in Hong Kong and with offices somewhere else in Asia will be move personnel from their Hong Kong office to their other offices.

— Fewer contracts will be drafted with Hong Kong as the venue for arbitration.

— Companies will move their Hong Kong bank accounts elsewhere. It is no coincidence HSBC stock hit its 52 week low today.

— Travelers will choose somewhere other than Hong Kong as their Asia stopover. It is no coincidence Cathay Pacific stock hit its 52 week low today.

— Many Hong Kongers will eventually go elsewhere.

I am not saying any of the above will be noticeable tomorrow or even a month from now, but I am saying that all of the above have already begun and all of the above will accelerate once China’s army goes in at full force, which is pretty much inevitable. Within two years Hong Kong will be a very different place than it is today and within five years it will hardly be recognizable for those of us who have been there within the last five years.

We went on to discuss how we have been “relentlessly downbeat about the US-China trade war” and its impacts as well:

Way back in October 2018, we called the US-China trade war the “New Normal” and in Would the Last Company Manufacturing in China Please Turn Off the Lights, we forecast an inevitable sharp decline in China manufacturing. On May 8, 2019, in The US-China Cold War Starts Now: What You Must do to Prepare, we warned of a “straight line decline in US-China relations” and we laid out what businesses should do in response to that. Long before that, my law firm brought on three additional sourcing experts experienced with product sourcing from Southeast Asia and with other countries outside China.

We then noted how many do not appreciate our gloomy predictions but that telling the truth as we see it is our job here:

Our gloomy predictions have angered many, and I get it. What we are saying is not pleasant, especially for those with companies or livelihoods that depend on free trade with China or on Hong Kong remaining as Asia’s leading business hub. But please understand that we are only calling things as we see them, not as we want them to be.

We then advocated for businesses preparing for a new and different and decidedly worse Hong Kong:

As for Hong Kong, we are now suggesting our clients (and you) (1) consider places like Singapore and Bangkok as your Hong Kong replacement, (2) implement plans for evacuating your Hong Kong personnel, (3) cease using Hong Kong arbitration clauses (except with Hong Kong companies), and (4) avoid going there unless truly necessary. If corporate responsibility or data protection are at the core of your business, your Hong Kong decisions are more pressing.

I am writing about Hong Kong again because twice in the last two weeks I have sat next to someone on an airplane with major Hong Kong connections and I had hours to talk to them about Hong Kong, and those conversations — along with everything else we have been seeing and hearing over the last few months — all confirm that Hong Kong is indeed over.

We are hearing all that we have predicted, but one thing we did not quite predict is the growing animosity between Hong Kong and the Mainland. Three months ago, we were not sure what efforts the PRC would make to “preserve” Hong Kong, and it is now looking like the answer is very little.

We have been consistently hearing of all that we predicted above and more, including the following:

— Going to Hong Kong on the way to the PRC is likely to subject you to increased scrutiny when you arrive in the PRC.

— Companies looking to form WFOEs in China are telling us they have heard that using a Hong Kong entity to own the WFOE is now a “bad idea.” Our China WFOE lawyers have not actually seen this to be the case, and even those who tell us this do not have any real evidence to back it up, but just the fact so many believe this is telling.

— Some of our own clients are saying they do not want to use Hong Kong arbitration clauses any longer.

— Many airlines have eliminated flights to Hong Kong and — near as I can tell — all have greatly reduced their fares on their remaining Hong Kong flights. I have heard countless stories of near-empty flights to Hong Kong and of how incredibly easy it is now to get bumped up to Business Class.

— A number of Hong Kong law firms have told me that their business is way down, “for obvious reasons.”

— Foreigners with kids are leaving or looking to leave in droves.

Whither Hong Kong. . . .

What are you seeing out there? What do you see happening out there? Anyone have real evidence that we are wrong on this? Oh, and just for the record, I love Hong Kong and I take zero joy from its unraveling.

 

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.