US companies are ‘concerned’ about Hong Kong but they’re not planning to exit just yet

American companies are nervous about a contentious national security law planned for Hong Kong and feel pessimistic about the city’s medium term future, according to a new survey. But few are considering uprooting their operations in the Asian financial hub just yet.

More than 80% of firms that responded to a survey conducted by the American Chamber of Commerce in Hong Kong said they were either “very” or “moderately” concerned about the law, which is due to ban sedition, secession and subversion against Beijing. The organization said 180 of its members responded to the survey conducted Monday and Tuesday. That’s about 15% of its membership, which is mostly made up of American companies.

Pedestrians wearing protective masks cross a road during the morning rush hour in the Kwun Tong district of Hong Kong, China, on Wednesday, May 6, 2020.

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There is still considerable uncertainty over the law, with even Hong Kong officials admitting they don’t know exactly what it will cover. They have claimed that it will only affect a tiny number of people, but critics point to the way similarly broad national security legislation is used to crack down upon a wide swath of political activity in mainland China, where numerous prominent activists have been jailed on “subversion” charges.

AmChamsaid many respondents said they understood the need for the law, which comes in the wake of six months of often violent anti-government unrest last year. But some expressed fears that it could lead to “potential harassment and privacy concerns,” or that more restrictive measures could be on the way.

“I am also worried the tax structure and changes to the [Hong Kong] tax system may occur,” wrote one respondent.

More than half the firms surveyed also said they were concerned about the law’s ambiguity and the erosion of Hong Kong’s autonomy. The former British colony became a semi-autonomous region of China more than 20 years ago, and has largely been left to manage its own affairs since then.

The potential that the law could lead to a loss of talent in the city or jeopardize its status as an international business center were also cited as top concerns.American companies also fear that an escalation in US-China relations could hamper cross-border deals.

Even so, 70% of respondents said they had no plans to move their business out of Hong Kong. Most also said they would personally not consider leaving.

“Not yet, but certainly putting ‘insurance’ plans in place and alternative jurisdictions,” wrote one respondent.

Business and investor confidence in Hong Kong was shaken late last month after news of the forthcoming law broke. The benchmark Hang Seng Index (HSI) sank more than 5% on May 22, its worst one-day percentage drop since July 2015.

Since then, though, sentiment has stabilized — and the Hang Seng has even been ticking up as investors shrug off Washington’s limited response to Beijing’s new law so far. The index is up nearly 6% this week.

Pedestrians wearing protective masks walk past a screen playing a news report on Chinese Premier Li Keqiang speaking at the National People's Congress in Hong Kong, China, on Friday, May 22, 2020.

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US President Donald Trump last week blasted the national security law and said the country intends to end its special economic and trading relationship with Hong Kong.

But experts have pointed out that Trump stopped short of taking immediate action. And they suspect ending the special status won’t have a big impact immediately because the territory does not export a lot of goods to the United States.

More than 70% of the respondents to AmCham’s survey said they are taking a “wait and see” approach to Trump’s reaction.

“It is far too early to make strategic decisions on the revocation of special trade status,” wrote one respondent, who added that it would take many months to implement. Others said that they would consider setting up entities in other parts of the region, including in Singapore.

Some 15% of survey respondents said that they were still optimistic about business prospects in Hong Kong, with one calling it an “unparalleled location in Asia Pacific.” But nearly half of the respondents said they were pessimistic about business prospects in Hong Kong in the medium-to-long term.

One respondent wrote that they were “fearful that the luster will be lost forever.”

“Being a major city in the second biggest economy is not a minor role but far less than a leading global city,” the respondent wrote.