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TOKYO: Tokyo is on a delightful offensive, hoping to lure businesses in Hong Kong scared off by protests and a controversial Chinese-imposed security law. But the city is proving difficult to sell.
“I want to make Tokyo the number one financial city in Asia,” Governor Yuriko Koike said in October, when the Japanese capital opened an information center in Hong Kong for international companies considering moving.
The Tokyo courtship comes with some concrete promises, including a temporary office space in the city for foreign financial firms wanting to get a taste of life in Japan.
A number of more theoretical incentives are also being launched, including tax breaks, simplified bureaucracy, and even a special economic zone like Shenzhen, China’s Silicon Valley.
In some ways, Japan may seem like an obvious alternative for companies looking to get out of Hong Kong: it is the world’s third-largest economy, home to the Tokyo Stock Exchange, and already houses offices for numerous international financial institutions and companies.
But there are some hurdles and competitors that experts say mean Tokyo’s hopes for regional financial dominance may be little more than a pipe dream.
For starters, Japan’s income taxes are through the roof, comparatively, topping 45 percent versus Singapore’s 22 percent and Hong Kong’s 17 percent.
LEE: Japan eases COVID-19 travel restrictions for China and eight others
Low levels of fluency in English are also a chronic disability, as is the comparatively slow adoption of digital technology in the country.
Trading in the Tokyo stock markets was halted for a full day last month due to a “hardware failure,” a failure seen as unlikely to boost confidence and attract new traders.
FIERCE COMPETITION
Michael Mroczek, chairman of the European Business Council in Japan, said there were high hopes for the digitization and deregulation push from new Prime Minister Yoshihide Suga.
But “there is also a lot of skepticism because there have not been many changes” over the years in which similar initiatives have been proposed, he added.
Japan’s particularly strict approach to border control during the pandemic – for months foreign residents were not allowed to return as Japanese nationals were – has been viewed by some as “discrimination” and could also be unpleasant for tentative transplants. added Mroczek.
Tokyo is also not the only Asian city looking to take advantage of a possible exodus from Hong Kong.
Australia has announced new visa opportunities for Hong Kong students and entrepreneurs, and officials have said they will be “very proactive” in encouraging companies to relocate.
READ: Australian Prime Minister suspends extradition treaty and extends visas for Hong Kong citizens
And while the Singapore government officially says only that it seeks a “stable, calm and prosperous” Hong Kong, it is probably the most obvious alternative for businesses, said Rajiv Biswas, chief economist for Asia-Pacific at consultancy IHS Markit.
“It is possible that most international financial services companies already have a large presence in Singapore and therefore prefer to expand their existing operations in Singapore rather than look for another new location,” he told AFP.
“WAIT AND SEE”
However, there are still questions as to whether an exodus from Hong Kong is really in play, whichever regional city wins.
“I would not expect the big firms to announce that they are pulling out of Hong Kong completely,” Mark Williams, chief Asia economist at Capital Economics, told AFP.
“Companies are more likely to gradually reduce their workforce in Hong Kong and increase it elsewhere.”
And despite the jitters over free speech, Hong Kong “remains the main gateway to mainland China” for investors and financial services companies, said Stephen Innes, AxiCorp’s chief global markets strategist.
Since 2014, the Hong Kong Stock Exchange has been directly connected to the Shanghai Stock Exchange, allowing Hong Kong-based companies to invest in publicly traded Chinese companies more easily.
And Hong Kong’s proximity to Shenzhen is another major advantage for some companies.
READ: Hong Kong financial firms step up compliance contracting amid US sanctions.
“Wait and see is the general attitude,” an expatriate employee of a major western bank in Hong Kong, who asked to remain anonymous, told AFP that he personally was not yet thinking of relocating.
Innes said regional centers like Singapore may also fear China’s wrath if they seek to divert business.
Nobody “in the region wants to bite the hand that feeds,” he said.
“It is too early to rule out Hong Kong.”
