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Business will go on in Hong Kong but the city will not be the same

City's youth to feel impact of political discord more than foreign investors

| Hong Kong, Macao

These have been emotional times in Hong Kong. And emotional times lead to emotional questions.

Many have queried whether the furious dispute over a bill allowing criminal extraditions to mainland China, huge demonstrations against it and clashes between the police and protesters will damage Hong Kong's attractiveness as a place to do business.

As a former chief of InvestHK, the government investment promotion agency which I helped set up and then run for over eight years, I expect any effects on business in Hong Kong to be limited and short-lived.

That is not to say the dramatic events of recent days will have no impact on the city and its seven million residents. Quite the opposite. But it won't be foreign businesses that will be in the spotlight.

It will be local people. My biggest worry as a Hong Kong citizen is the effect this episode will have on our youth.

On June 16, as many as two million marched to demand that after suspending the controversial extradition bill the day before, the authorities throw it out for good.

The marchers also protested against forceful tactics used in an earlier demonstration against the bill on June 12 when police deployed tear gas and rubber bullets against young people besieging the legislature. Those scenes, broadcast live on television, shocked the local community, long accustomed to a peaceful, low crime environment.

The flower of our youth has now been presented with a very jaundiced view of government. Based on her public comments, Chief Executive Carrie Lam apparently postponed the bill not in response to an earlier mass demonstration of one million on June 9 but as a reaction to the efforts of the much smaller group which became involved in the rowdy confrontation with police. That is hardly a productive lesson in the value of civic participation.

These young people will be at the core of the community's future, yet they now feel estranged from the authorities. It will take a very long time and require much effort to bridge the gulf that has opened.

But existing and potential foreign investors have a very different mindset. There is only one reason why any company invests abroad and that is to add to its bottom line. A presence in Hong Kong can make that happen either by turning into a profit center in its own right or by enabling a company to do more effectively or efficiently things previously done elsewhere.

Hong Kong offers an unbeatable vantage point for foreign companies wanting to do business in China, the world's second-largest economy, and Chinese companies wanting a platform to do business overseas. It is China's only truly international financial center, with its own fully convertible currency, no restrictions on the movement of capital, a completely free flow of information and a legal system based on British common law that protects private property and is administered by an independent judiciary. Moreover, the government's sole role in banking is as regulator rather than shareholder.

How do foreign investors choose among potential destination markets? Their checklists usually include physical infrastructure like plentiful airline connections and a reliable electricity supply as well as soft infrastructure such as a reliable legal system, efficient banks, business-friendly regulators and low taxes.

Political stability does comes into the picture, but from a business perspective rather than a civic one. Decision makers in overseas companies would consider whether social unrest could materially affect any of the critical attributes of a location. If the operation is already up and running, this would be reason to review its continuation.

In the case of Hong Kong, there is no need to consider the possibility of a coup, the nationalization of private assets or an inexperienced crew of populists taking power. The city is now and forever more a part of the People's Republic of China and is governed by experienced ministers. Its fundamental economic structure is defined in the Basic Law, the city's constitution, and need not vary even after 2047 when certain of Beijing's guarantees are scheduled to expire.

Hong Kong supports international business as a market in its own right of 7.5 million residents with relatively high average income plus some 60 million visitors a year, as a hub to coordinate operations in China and around Asia and as a springboard for Chinese companies entering international markets.

Of course, Hong Kong has its competitors but it is hard to imagine a scenario where the events of recent days might result in a mass corporate exodus.

But Hong Kong's young people are a different matter.

While the government is now setting aside the extradition bill, the next steps are still unclear.

Depending on how quickly the authorities move to mend bridges, some young people may try to move to Taiwan or emigrate to the West in an echo of the outflow seen in the run up to Britain's exit from Hong Kong in 1997 when many families left for Canada, Australia and other nations. Hundreds of thousands of Hong Kongers who acquired passports from Canada or elsewhere and then moved back to the city could readily leave again.

But most will probably adopt a wait-and-see attitude. After all, the death of Hong Kong has been predicted many times before. In the short term, life will go on, there will be spouses to woo, children to support. Career and business opportunities will open up -- many of them, paradoxically, in the mainland.

Serious damage will arise only if the government fails to learn its lesson and persists with hard line anti-democratic policies. That could spark a brain drain which would adversely impact the business environment for both local and foreign companies.

Efforts must be made now to restore the city's social equilibrium. Hong Kong may never have seen two million agitated residents take to the streets all at once, but it has pulled through more harrowing episodes. It can do so once again.

Mike Rowse is the former director-general of Hong Kong government investment promotion agency InvestHK.

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