Hong Kong Calling

Hong Kong Calling

An autonomous province located on the Pearl River Delta, the sovereign state of Hong Kong is Asia’s gateway to China. This specially administered territory of China was formerly a colony of the British empire and was returned to China in 1997 on the expiry of a 99 lease. Being a special administrative region (SAR), Hong Kong’s system of government is separate from that in mainland China. Alright, enough with the geography lesson already, let’s get down to brass tacks. A recent survey conducted by ultra-high and high net worth individuals’ intelligence and market research company, Wealth-X, concluded that Hong Kong City is the top destination in the world where the ultra-rich prefer to reside. According to the report, Hong Kong has the highest population of people worth at least $ 30 million or more (Rs 216 crores taking Rs 72/$ as exchange rate) in 2017, dethroning New York, which had held the top spot ever since Wealth-X first started ranking cities in 2011. So, what exactly attracts the world’s ultra-high net worth individuals to the Pearl of the Orient like a moth to a flame is well worth a discussion.

The city offers an abundant selection of lifestyle and entertainment choices for its citizens and large expat population, from elite bars and restaurants to its multiple locations to indulge in shopping (it is often referred as shopper’s paradise). Facilities for outdoor activities such as hiking, trekking and water sports are available and the hills make for a stunning view. With world-class private and international institutions, the education system, which was initially set up by the British, is of extremely high calibre and affiliated with renowned international bodies. Healthcare facilities are also of the highest standards. Its central location makes prominent tourist destinations such as Bangkok, Singapore, Kuala Lumpur, Manila etc. easily accessible. In addition, neighbouring countries like China, Macau and Taiwan are a stone’s throw away. An excellent public transport system coupled with a large number of friendly foreigners and a vast array of options to choose from the housing market (albeit very pricey) give it an edge over other metropolitan cities, especially in Asia.

Hong Kong, due to its proximity from mainland China, has benefitted from trade and investment links with the world’s second-largest economy and can be seen as a reflection of China’s improving fortunes, where the amount of wealth has grown multifold over the last few years. The booming stock market in the previous year has done a great deal in contributing to the wealth of the ultra-rich in Hong Kong. The number of ultra-rich worldwide rose 13% last year totalling approximately 2,56,000 individuals with a combined total wealth of a whopping $ 31.5 trillion. At the same time, Asia’s ultra-high net worth population grew little over 25% and that of Hong Kong grew a staggering 31%.

The French capital, Paris, overtook London to claim 5th spot on the rankings. This was primarily because British nationals saw their wealth plunge on concerns of Brexit and France has been smartly attracting any spillover business from the fallout of Britain from the European Union. The middle east posted a weak growth due to relative struggles of commodity markets such as crude oil. However, a rather surprising development was that no mainland Chinese city propped up on this list in spite of an impressive growth in the economy and the fact that its per capita income has more than quadrupled in the previous decade. This is because wealth in China is not concentrated in one area, but distributed around the country. However, things could get tougher for China in 2018. It faces headwinds from its trade war with the US and a huge level of debt in its financial system. Chinese stocks entered a bear market this year, while its currency plunged against the dollar. The overall theme seems to suggest that in spite of the North American region (USA and Canada) staking claim to maximum number of ultra-wealthy individuals in the world, a seismic shift in wealth can be seen gravitating towards its Asian peers which has been helped by increasing consumer spending, more investment in infrastructure and economic reforms, among other factors.

If one looks beyond scratching the surface, however, we can find the real reason why the ultra-wealthy are attracted to Hong Kong. It lies in the underbelly of the city. Hong Kong is one of the biggest and fastest growing financial hubs in the world for money laundering. The city is the second largest manager of offshore wealth in the world, managing US $1.1 trillion in wealth, only behind the Alpine nation of Switzerland, which manages roughly US $2.3 trillion of offshore funds, according to a recent study by Boston Consulting Group. However, the increasing prominence of Hong Kong can be attributed to the fact that it has the largest compound annual growth rate (CAGR) of influx of offshore funds from 2012 to 2017 at 11%, which is more than triple that of Switzerland whose CAGR clocked in a measly 3%. The top sources of offshore wealth for Hong Kong are largely from regional peers, with mainland China securing the top spot, followed by Taiwan and Japan. Over the years, unsavoury stories have surfaced of large wads of cash being flown in from mainland China to Hong Kong and deposited into banking channels without any questions being asked. A separate report by Tax Justice Network states that Hong Kong is ranked as the fourth most secretive financial centre in the world. It shares this unflattering podium with the likes of Panama, Cayman Island, Switzerland among others. Reports have also recognized Hong Kong as a major conduit for international criminals, global drug trafficking cartels, human trafficking gangs and online racketeers who channel illegal proceeds. Perhaps in a bid to negate its maligned reputation as a tax haven, Hong Kong has signed tax transparency agreements that for the first time last year required all banks to report their account holders’ information to tax officials, in preparation for giving that information to 75 jurisdictions, including mainland China.

Even though the premier Asian financial hub of Hong Kong maybe attracting the ultra-rich for a host of reasons, including dubious ones, the tectonic shift of wealth from the west to its eastern counterparts cannot be ignored. With the number of ultra-wealthy in Asia-Pacific expected to rise at a compound rate of 8.3% a year, through a loud echo of sentiments, the message is clear, make way western world, we’re here to take over.

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