Market Analysis

Hong Kong: Will Pro-Democracy Protests Hurt Tech Investment?

It was never supposed to drag on this long. As the Hong Kong government finally cracks down on a pro-democracy movement that began nearly two months ago, it’s starting to sink in that this defiant act of civil disobedience could really hit the SAR where it hurts – in its wallet. Hong Kong’s leaders have for over a decade been trying to promote the former British colony as a technology hub for Asia. So where exactly does the current state of social unrest leave those plans?   

I’ve been chatting to startups, analysts and the government itself to get a clearer picture of exactly what impact the protests might have on tech investments.


Not going anywhere

Thanks to a court order, the police have cleared one of the protest sites, in Mong Kok, at the time of writing. However, violent skirmishes between protestors and law enforcement agencies have continued there, with pepper spray reportedly used indiscriminately by the cops. There are still two other sites on the Hong Kong Island side of the harbour which remain fully occupied with massed ranks of tents. The government remains close to intractable on negotiating with the protesters.

One thing in its favour, however, is public opinion, which finally seems to be swinging against the protestors as the novelty of the movement begins to wear a little thin and circumventing the blocked streets of an already congested city becomes a chore for many. That said, every report of police brutality serves only to reinvigorate the movement. Seven police officers were arrested last week after video footage appeared to show them dragging a protester to a dark corner near the Admiralty site, before beating the social worker.

In short, there’s little sign of a resolution anytime soon and protest leaders are even hinting that they may soon switch their focus onto occupying government buildings.


To invest or not to invest?

With this backdrop, it’s not surprising that some analysts are claiming the situation could eventually impact technology investment in Hong Kong.

“Although the impact appears to be primarily on commuters, tourism and retailers, the negative effect on the overall Hong Kong economy is starting to appear,” Gartner analyst Terick Chiu told me last month. He argued that foreign investment in the SAR will “definitely slow down if the campaign continues in 2015”.

Unsurprisingly, however, InvestHK – the government agency tasked with bringing foreign money to the SAR – has come out fighting.

“We are not aware of any immediate withdrawals or delays on the part of our client companies. Invest Hong Kong is on track to achieve its target of assisting 350 companies to set up or expand in Hong Kong in 2014,” it told me by email. “We believe that Hong Kong’s enduring advantages and new business opportunities will continue to attract overseas investors.” 

Lest we forget these “enduring advantages”, InvestHK was on hand to remind me. They include the role Hong Kong can play as a “gateway” to China – a place which foreign investors can use as a launch-pad into the huge market of the mainland. It works the other way too, with mainland Chinese firms using Hong Kong as a stepping stone to international markets.

Another factor given by InvestHK comes with a just a soupcon of irony:

“Many tech companies are based in Hong Kong to take advantage of our simple business operating environment, the rule of law and low tax regime while managing their operations and production in the nearby Pearl River Delta manufacturing base.” 

It is, of course, Hong Kong’s much-famed rule of law and independent judiciary – a hangover from British colonial times and a stipulation of the constitutional Basic Law – which has effectively allowed the pro-democracy activists to carry on their protests largely unmolested by the authorities. Could the same rule of law, or its unintended consequences, now be discouraging investment?


Start me up

Well, it’s certainly not all doom and gloom. On the face of it there’s a growing startup technology scene backed by an entrepreneur-friendly government.

InvestHK had this:

“The number of co-work spaces and incubators here has grown from three in 2010 to over 30 in 2014. Our latest in-house survey of these spaces found that there are 1,115 founders now managing 1,065 startups based in these spaces. About 40% of these founders are from overseas, others are Hong Kong locals or returnees.”

One startup I spoke to, one of the winners of this year’s government-backed StartmeupHK awards, claimed not to have felt any impact from the civil unrest.

“Hong Kong is going through some interesting internal debates, but we feel optimistic about its future,” said Zvi Schreiber, founder of logistical networking firm Freightos. “Hong Kong is a fantastic location for accessing China and other Asian markets. There is a Western-oriented legal and financial system.”

Another entrepreneur, Scoutbots founder Cesar Harada, claimed that the protests were actually good for his ocean robotics business because “it shows the world Hong Kong is a place that is different from mainland China.”

“Hong Kong is this exceptional place that has the power of the East and the freedom of the West, a strong cultural and political identity of his own. Eventually I think it makes Hong Kong more attractive,” he added.

However, there were reservations.

“On the other hand, startups are not that known in Hong Kong, which can make recruitment tricky, but that's starting to change,” Freightos’s Schreiber told me.

These concerns are mirrored and amplified elsewhere. A Regus study last July claimed that the top three deterrents to would-be startups in Hong Kong are securing credit (78%), market domination by large corporates (68%) and red tape (61%). The majority (57%) of local respondents also claimed that lack of government support was a major deterrent.

Add to this the pollution, congestion and the baffling decision by the government to remove a subsidy scheme for schools teaching in the English language, and it’s not surprising many small business leaders are eschewing Hong Kong for Singapore and other Asian tech hubs. Anecdotally I’ve also heard that work visas for those who need them are getting increasingly difficult for foreigners – even Ivy League-educated ones – hoping to set up base in Hong Kong.

It seems that even without the pro-democracy unrest, the Hong Kong government has its work cut out promoting the SAR as a truly viable technology capital for Asia.

Related stories:

Hong Kongers Tech to the Streets in Protest

Hong Kong: Silicon Harbour or Silicon Failure


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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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