Tokyo is on a charm offensive, hoping to lure Hong Kong firms spooked by protests and a controversial National Security Law imposed by China. However, the city is proving a tough sell.
“I want to make Tokyo Asia’s No. 1 financial city,” Tokyo Governor Yuriko Koike said last month, as the Japanese capital opened an information center in Hong Kong for international businesses considering a move.
Tokyo’s courtship comes with some concrete promises, including temporary offices for firms that want to try out life in Japan.
There are also a number of more theoretical incentives being floated, including tax breaks, streamlined bureaucracy and even a special economic zone like Shenzhen, China’s “Silicon Valley.”
In some ways, Japan might seem an obvious alternative for businesses looking to leave Hong Kong: It is the world’s third-largest economy, home to the Tokyo Stock Exchange, and already houses outposts of numerous financial institutions and international firms.
However, there are some serious stumbling blocks and competitors that experts say mean Tokyo’s hopes for regional financial dominance might be little more than a pipe dream.
For a start, Japan’s income taxes are sky high, comparatively, topping out at 45 percent against Singapore’s 22 percent and Hong Kong’s 17 percent.
Low English fluency levels are also a chronic handicap, as is the country’s comparatively sluggish adoption of digital technology.
Trade on Tokyo’s stock markets was halted for an entire day last month because of a “hardware failure” — a glitch seen as unlikely to boost confidence and bring new traders flocking.
European Business Council in Japan president Michael Mroczek said that there were high hopes for Japanese Prime Minister Yoshihide Suga’s digitization and deregulation push.
However, “there’s also a lot of skepticism because there haven’t been a lot of changes” over the past few years when similar initiatives have been proposed, he added.
Japan’s particularly strict approach to border controls during the COVID-19 pandemic — when foreign residents were for months not allowed to return even as Japanese citizens did — has been seen by some as discrimination and could also be off-putting for tentative transplants, Mroczek said.
Tokyo is not the only city in the Asia-Pacific region that seeks to take advantage of a potential Hong Kong exodus.
Australia has announced new visa opportunities for Hong Kong students and entrepreneurs, and officials have said that they would be “very proactive” in encouraging businesses to relocate.
While the Singaporean government officially only says that it seeks a “stable, calm and prosperous” Hong Kong, it is probably the most obvious alternative for firms, IHS Markit chief economist for Asia-Pacific Rajiv Biswas said.
“Most international financial services firms may already have a large presence in Singapore, and therefore may prefer to expand their existing operations in Singapore rather than finding another new location,” Biswas said.
However, there are still questions about whether an exodus from Hong Kong is really on the cards, whichever regional city stands to gain.
“I wouldn’t expect big firms to announce that they are pulling out of Hong Kong completely,” Capital Economics Ltd chief Asia economist Mark Williams said. “It’s more likely that firms will just gradually reduce their headcount in Hong Kong and increase it elsewhere.”
Since 2014, the Hong Kong stock exchange has been directly connected to Shanghai’s, allowing companies based in the territory to invest in companies listed in mainland China more easily. Hong Kong’s proximity to Shenzhen is another important plus for some businesses.
“Wait and see is the general attitude,” one foreign employee at a major Western bank in Hong Kong said on condition of anonymity, adding that he personally was not yet thinking about relocating.
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