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Asia-Pacific / / Hong Kong

Hong Kong’s uncertain tech future

Previously an entrepôt for western technology firms, the city-state is being bound ever closer to the economy of mainland China.

Every morning the planes from Hong Kong touch down at London Heathrow, quickly disgorging their complement of passengers into the arrivals hall before refuelling their spent engines. Clutching British National (Overseas) passports, the line of travellers that begins to snake from border control is a testament to a new and sudden migration from this former colony to former coloniser. For almost all of these people, an uncertain future in the UK is preferable to the growing sense of political repression in Hong Kong.

Almost 65,000 Hong Kongers have applied to settle in the UK this year, out of an eligible 5.4 million people. As a result, the city’s labour pool is beginning to dry up. “Go to schools and they’re saying they’re losing students because of immigration,” says Charles Mok, a former legislator for Hong Kong’s IT sector and now director of the think tank Tech for Good Asia. Recent figures suggest the city’s population has dropped by 1.2% in just one year. “That exodus of talent is huge, and it’s difficult for companies. Many of them are losing their employees in many sectors, including IT, including banking.”

These Hong Kongers are not refugees in the conventional sense. Many belong to the city’s middle class and have the means to afford rental accommodation in the UK. Those with IT qualifications are likely to have an even easier time settling in the country. “This is one of the sectors where you go to another country and it’s actually relatively easy for you to get a job,” says Mok.

This migration can be attributed in part to last year’s passage of the National Security Law, which effectively outlawed any form of public protest. For many residents, the law signalled the end of democracy in Hong Kong guaranteed since the end of British colonial rule in 1997. Now, those wishing to live under anything resembling the previous system are now taking advantage of their status as British overseas nationals and fleeing to the UK, or to Australia and Canada under similar immigration schemes.

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The impact on Hong Kong’s tech sector has been predictably negative, with many companies now struggling to hire new staff in the city. The ongoing crackdown on civil dissent has also prompted many tech firms to reconsider their futures in Hong Kong. For some, staying means complying with the National Security Law and, perhaps, angering customers. Leaving, meanwhile, means trading a presence in what remains a vibrant internet and technology hub in East Asia for a more uncertain future in Taiwan, Singapore or Kuala Lumpur.

Meanwhile, two factors outside of the immediate control of the Hong Kong authorities – the deepening geopolitical rivalry between the US and China, and the latter’s crackdown on its own technology sector – are binding the city-state ever closer to the mainland economy. For Mok, a former internet entrepreneur, this will inevitably see Hong Kong sacrificing its international outlook for an altogether more diminished economic relationship with its patrons in Beijing.

“Companies may still need to have a presence in Hong Kong because of other business,” he says. “But if [we’re] not better connected to the outside world, very soon other countries will catch up with Hong Kong, and we’ll lose that edge of being an internet hub.”

A demonstrator shows a British National (Overseas) passport at a protest in Hong Kong in May 2020. A BNO-centred settlement scheme has since seen thousands of Hong Kongers flee political repression in the city and settle in the UK. (Photo by Lam Yik/Bloomberg via Getty Images)

Asia’s tech gateway

Bunched close and tight against the verdant hills of Kowloon, the gleaming towers of Hong Kong appear from the sea as watchful sentinels to the Pearl River delta and the riches of the mainland beyond. This idea of the city as a bridge to the Chinese market has persisted since the handover – not least for international tech giants.

“Hong Kong is critical for the tech sector operating in Asia,” says Raman Jit Singh Chima, Asia policy director and senior international counsel at Access Now. This is because Hong Kong has always offered international tech firms what mainland cities could not: a predictable rules-based framework for corporate conduct underpinned by a democratic mode of government. “Under ‘One country, two systems,’ Hong Kong was able to… allow people to safely service the Chinese market while still having better protections on rights and other matters than the mainland.”

Consequently, some of the largest US tech firms set up sizeable operations in Hong Kong. And while its status as a bridge to the mainland has waned in recent years, as the Chinese government has grown ever more protectionist, this city on the Pearl River Delta has remained a beacon for innovation in the region.

“Hong Kong’s tech development community, as well as [its] media space, is one of the most vibrant, talented and entrepreneurial you’ll see in Asia,” says Chima. “What Hong Kong has done in tech has shaped what happens in Taipei, Bangkok, Singapore and Malaysia, and even as far as India.”

What Hong Kong has done in tech has shaped what happens in Taipei, Bangkok, Singapore and Malaysia, and even as far as India.
Raman Jit Singh Chima, Access Now

As a city of some seven and a half million people, says Mok, Hong Kong is also an attractive market in its own right. Recent events, however, have contributed to a feeling among foreign tech firms that the city “is becoming…more and more like China.”

During the last two years’ cycle of protests and repression, foreign tech firms largely confined themselves to speaking out on issues of censorship and disinformation directly related to their platforms. This began to change last July, when the Hong Kong government proposed new web controls that would bring the city in line with censorship standards on the mainland. Aghast at the possibility of being forced to hand over information to aid in political persecution, Facebook, Google, LinkedIn, Twitter, and Zoom all made public declarations that they would not cooperate with any requests for user data made under the new regulations. TikTok – a Chinese-owned company with a heavy US presence – decided to go even further and withdrew completely from the Hong Kong market.

Other firms have since left or begun to downsize their operations, unwilling to be seen as doing business in an increasingly authoritarian society. For many others, the image of the city as an island of good governance in East Asia has been shattered. “A lot of people I know in the tech sector don’t regard Hong Kong as stable and safe anymore,” says Chima. “The Hong Kong Executive Council and Hong Kong authorities are targeting and talking to tech companies, pressuring them on matters that they would never have brought up earlier.”

Hong Kong: a tech hub diminished

In some cases, this pressure appears to be working. Earlier this month, it emerged that Google processed three data requests for the Hong Kong government last year, reversing its previous position that it would process none at all (the company would later clarify that no user data was handed over in any of these cases.) For Mok, the episode is proof that international tech firms are acclimatising to the new normal in Hong Kong. But for the moment, however, the government has been careful not to spook the horses.

“Even today, they have not really forced their hand on these companies,” says Mok, for fear of further diminishing Hong Kong’s attractiveness to foreign investors. Besides, he explains, “they have found other ways to get what they want” from ordinary citizens, usually by hacking into confiscated phones.

Even if the government is reluctant to enforce the law, however, it can still pose long-term risks to companies operating in Hong Kong. Punishment for violations of the new data regulation, after all, include not only fines but also the imprisonment of individual members of the company concerned. The law also grants Hong Kong’s government global jurisdiction – a principle that remains untested, but in reserve. “This is new territory,” says Mok, who questions whether the usual geofencing measures that Big Tech firms use to comply with censorship laws will continue to be useful. “Nobody knows what’s going to happen.”

Then there are the systemic risks to Hong Kong’s tech future that lie outside the control of the local government. Since 1997, the city has served as an ideal landing point for trans-Pacific submarine cables. Like mushrooms around a tree trunk, numerous data centres and telecoms companies have grown around these landing points, catering to Hong Kong’s ever-increasing need for bandwidth. The reluctance of the US government to approve operating licenses for new cables running from China to North America in recent years, though, has put paid to any hopes of further expansion.

All in all, these restrictions have contributed to the overall perception that Hong Kong is being treated by Washington as just another mainland Chinese city. “I think the US government would like to fight that view, to the extent that it can continue to try to put pressure on the Chinese side to maintain Hong Kong’s unique status,” says Adam Segal, director of the Digital and Cyberspace Policy program at the Council on Foreign Relations. Practically speaking, however, “all the kinds of controls that the US is putting on Chinese tech will negatively affect Hong Kong as well.”

If submarine cables can’t be connected to Hong Kong, says Mok, they will inevitably terminate in Taiwan. Hong Kong’s telecommunications sector, meanwhile, is likely to lose international business to competitors all over the region. Singapore, however, remains the most obvious alternative.

“They’re already a huge internet hub,” says Mok, and serve as a logical outpost from which the big tech giants can service the increasingly lucrative internet markets of Malaysia, Indonesia and the Philippines. On this particular trend, Mok is sanguine. “I guess that’s probably always been their plan anyway,” he says.

A storm passes over Hong Kong, China. Shoots of growth for the city's homegrown tech sector look to be swept away by US-Chinese rivalry, political repression, a brain drain, and a tech crackdown on the mainland. (Photo by Chris McGrath/Getty Images)

Mainland opportunities

For others, Hong Kong’s tech future will not rest on its international connections. “Certainly the Chinese government has been pretty clear over the last decade that they see Hong Kong’s tech future as being in the Greater Bay Region,” says Segal. Only by knitting the city’s technology sector closer to those of Dongguan, Shenzhen and Guangzhou, the government argues, will it realise its full potential. This is evident in Beijing’s encouragement of Chinese tech conglomerates to list on the Hang Seng instead of the NASDAQ or New York Stock Exchange, although its ongoing crackdown has led to significant volatility on the Hong Kong-based index.

Even so, Mok has doubts that the arrival of new companies from the mainland will necessarily strengthen the city’s tech sector. “Hong Kong’s success was not from being ‘just another city in China,’” he says. “We were an international city. If we lose that edge, and we say that we’re going to get all that business back by just integrating with China and dispensing in many ways with the rest of the world, I just don’t see that as to our advantage.”

Ultimately, says Mok, recent actions by the Chinese government in Hong Kong have endangered what was already a fragile environment for the local technology companies. “Our tech industry, by and large, is still a service-based industry,” he argues, and one that hasn’t seen its own version of Huawei or Alibaba take China by storm. Despite that, Hong Kong was “beginning to have some small successes in the last few years. My worry is that these small successes will not continue”.

Mok nevertheless agrees that the central tenets of Hong Kong’s attractiveness to foreign companies – a widespread knowledge of English and a clear, rules-based system for corporate players to abide by – will still draw smaller tech companies to set up operations there. These firms continue to “look at Hong Kong as being a conduit” for the Chinese market, he says.

In the meantime, the political environment in Hong Kong has reached a new and nervous equilibrium. Now that the National Security Law has been passed, protests against Beijing’s rule are few and far between. “Since last year, there’s been a huge amount of self-censorship,” says Mok, with citizens deleting social media accounts en-masse or unfriending people considered troublemakers by the authorities. “People are being worried about being surveilled in different ways. Nobody feels safe.”

It is for this reason that Mok predicts the flights will continue. As they do, the tech sector’s labour pool will continue to shrink. “I always like to say that people are your greatest asset,” he says. “I guess Hong Kong is losing that asset.”

This article originally appeared on Tech Monitor.

Greg Noone is a feature writer for Tech Monitor.