Bank of America estimates outflows could reach $36 billion this year as anxious Hong Kong residents reassess their options
It was the freezing of bank accounts that changed Dan’s mind.
The Hongkonger, a finance worker in his early 50s, watched China tighten its grip on the city over the past few years with growing nervousness. Yet as a self-described apolitical person — he hadn’t attended any of the protests that hit the city in 2019, for example — he wasn’t really worried about being personally affected.
Then last month, banks including British lender HSBC Holdings Plc froze the account of former lawmaker Ted Hui after he went into exile in the U.K. with his family. A church that helped protesters also had its account suspended.
“It’s a game changer,” Dan, who asked that only his first name be used because he is fearful of repercussions of speaking publicly, said.
He’s now in the process of moving about $100,000 — most of his savings — to an account in Canada, leaving only a small amount in Hong Kong to cover daily expenses.
The Hong Kong police cited money laundering as the reason for requesting the accounts be frozen, putting into sharp focus just how vast the powers wielded by police could be in the wake of the sweeping national security law imposed on the city last year.
“The security law allows freezing of assets for matters endangering national security, which are not specified,” said Philip Dykes, former Chairman of the Hong Kong Bar Association, adding that Hong Kong is “unusual in the breadth of potential offences that ‘endanger national security.’”
Imposed on the city without debate in the local legislature, the full text of the national security law was revealed for the first time at midnight on June 30 — the same moment it took effect. The law has been justified as a necessary antidote to restore stability following months of protests. It also claims global jurisdiction to bar secession, terrorism, subversion and collusion with foreign forces.
It wasn’t the first time that accounts linked to the protest movement were frozen. In 2019, HSBC shut down the bank account of Spark Alliance — a group that raised funds to provide legal assistance to protesters — after it spotted activity differing from the company account’s stated purpose.
But what further shocked Hongkongers in the Ted Hui case was the fact that the accounts of his family members had also been frozen, prompting worries that people could be held responsible for the actions of their relations.
A HSBC spokesperson said in December it has to abide by the laws of the jurisdiction in which it operates. Hui stepped up his criticism of HSBC last week, after Chief Executive Officer Noel Quinn explained in a personal email to Hui that the bank had no choice in blocking his account after a demand from the police.
In a Facebook post, Hui said the bank “failed to provide the legal basis” for freezing his accounts and those of his family members and didn’t explain why his family was also “collectively punished.”
In addition to fears that such powers could be used arbitrarily, Dan is worried that if he doesn’t act soon, it could be too late — for example, if residents in Hong Kong start facing restrictions on moving money overseas.
Hong Kong has a freely convertible currency, whereas people in mainland China are subject to a cap of $50,000 on foreign exchange purchases per year.
More Hong Kongers are converting their savings into other currencies, even if they haven't taken the plunge of actually moving money
Source: Hong Kong Monetary Authority
Since the security law was passed, the political situation has “deteriorated very fast,” Dan said. The Hong Kong government just needs to tighten rules around moving funds offshore “a little bit and then you are getting into a lot of trouble if you want to move money out,” he said.
The anxiety is palpable from, for example, the proliferation of discussions on social networks offering advice on creating offshore accounts, moving money into other assets, or opening accounts at U.S. banks, which are perceived to be less pliable to the demands of Chinese authorities.
“As the vice tightens, Hong Kong is going to look less and less safe as a place for people to park their money,” said Andrew Collier managing director of Orient Capital Research. “We haven’t reached the tipping point but none of this bodes well for the future of the Hong Kong financial system.”
Data from the Hong Kong Monetary Authority, which show that total bank deposits rose more than 7% in the first three quarters of 2020, do not tell the full story. Money has continued to flow into Hong Kong due to high demand for initial public offerings, as well as a strong currency. As such, the movement of personal savings don’t necessarily make a dent in the official numbers.
There are signs elsewhere that the pace of money leaving the city is picking up. According to figures from the Mandatory Provident Fund, Hong Kong’s pension fund, the total amount of withdrawals from individuals leaving the city permanently jumped nearly 20% to HK$5.1 billion ($660 million) for the year ended June 2020, compared to the same period in the previous year, the highest level in at least five years.
Departing Hong Kongers are taking their pension pots with them
Source: Mandatory Provident Fund, Bloomberg
Note: Data summed for 12-months to June
Meanwhile, soaring interest in U.K. property from Hongkongers looking for a foothold in the country is another sign. That’s a trend that is likely to continue based on strong demand in Hong Kong for British National Overseas passports, which offer a pathway to British citizenship.
Analysts at Bank of America Corp. estimated in a research note that emigration-related outflow of money to just the U.K. could reach HK$280 billion ($36 billion) this year, and HK$588 billion over the next five years. The total amount of money leaving the city could be higher, said the analysts, as countries such as Australia and Canada have also relaxed immigration policies for Hongkongers.
In the U.K., financial advisors say they are starting to see the numbers of people inquiring about asset transfers picking up.
“It was a trickle to start with and we’re expecting it soon to be a flood,” said David Denton, who specializes in international financial planning at wealth manager Quilter International. He cautions clients though to be aware that moving from a low tax destination like Hong Kong to a higher tax place like Britain is something that needs careful planning.
The number of Hong Kongers holding British National Overseas passports has jumped markedly
Source: U.K. Home Office
Note: Total number of BNO passport holders End 2020 figure is U.K. Home Office' estimate
“If you are leaving Hong Kong because you are politically afraid, you might want to liberate and take everything you’ve got out of Hong Kong,” Denton said. “Psychologically, it might be a good thing, tax-wise it could be exactly the wrong thing.”
That’s a point echoed by Colin Monton of wealth manager Rathbones. He tells clients to give themselves around 18 months, or at least a full tax year, to prepare and not to make knee-jerk moves like just sending money over without thinking through the implications. Products that might make sense as an expat — like offshore bonds for example — are efficient while overseas, but can be punitively taxed in the U.K. if not managed the right way, he said.
For the basics, like getting a U.K. bank account, he suggests starting by seeing if your current Hong Kong bank, particularly if it is a major international operation, can help facilitate with their overseas arm — though you should be ready for paperwork.
“The anti-money-laundering requirements are sometimes stricter if you are unknown or you are an expat from a higher risk jurisdiction,” Monton said. “You often get asked for additional identification — so be prepared for that.”
In Hong Kong, Simon Parfitt, director at Pyrmont Wealth Management Ltd., says “people are definitely putting out feelers” and asking more “focused questions” rather than just vague queries.
“Hong Kong is home for many and its not like they are definitely leaving and never coming back,” Parfitt added. “But they’re assessing where they want their children to grow up.”