Pressures on strategically important companies in Hong Kong have grown of late, in response to a rising market scepticism and a desire to fortify the economy in mainland China.

This trend is weakening the traditions not only of “enlightened non-interference” in Hong Kong, but also of Deng Xiaoping’s reform and opening up policies in mainland China – notwithstanding claims to the contrary at the Third Plenum of the Chinese Communist Party’s Central Committee, in mid-July 2024.

Both policies underpinned a massive increase in wealth in the two places. Their loss suggests that those years of heady growth will not return any time soon.

China Light and Power

China Light & Power (“CLP”), a Hong Kong-listed power utility, is one entity that has come under pressure. 

In particular, CLP faced criticism for power outages, such as that in Hong Kong’s Wong Tai Sin on 20 June 2024, which left 2,250 households without power for four hours.  

That incident, the sixth so far in 2024, led the Hong Kong Secretary for Environment and Ecology to ask whether CLP’s service was on the decline, and saw the Hong Kong government Electrical and Mechanical Services Department announce plans to establish a task force, which will focus on safety.

These developments were of particular note as they came amidst rumours of the mainland China and Hong Kong authorities favouring CLP’s partnering with a suitable mainland Chinese state-owned enterprise (“SOE”). 

After all, the supply of power in Hong Kong is clearly a strategic concern. Some were thus asking whether Beijing was “softening up” CLP for a possible takeover by an SOE.   

Cathay Pacific

The airline Cathay Pacific has faced its own challenges.    

On 1 June 2024 Jeffrey Lam Kin-fung, a member of the Legislative and Executive Councils in Hong Kong, demanded that Cathay Pacific offer direct flights to eight destinations in mainland China, such as Taiyuan and Harbin – locations selected as part of Beijing’s efforts to encourage travel to Hong Kong. 

Cathay Pacific’s CEO Ronald Lam then announced that the airline would provide more flights to Belt and Road destinations, on 2 June 2024.  Possible airports included those in Riyadh, highlighting how Middle Eastern prospects are slowly replacing western business in Hong Kong. 

Most notably, these shifts are in line with mainland policy goals, and followed a chorus of criticism of Cathay. 

A change in the weather

Of themselves, these developments do not amount to much. 

Taken together, though, they highlight how the Hong Kong business environment is shifting for big companies – or at least for those with strategic standing.  These major companies are having to act increasingly in support of mainland Chinese policy goals. 

That shift is especially noteworthy in that these companies are not only part of Hong Kong’s colonial legacy, but their autonomy is also an outlier in an increasingly constrained mainland Chinese business climate; Beijing has already tamed China’s biggest private companies, such as Ant Financial. 

Fortification of the economy

The reason for this shift is clear.

These moves come amidst Beijing’s efforts to “fortify” the Chinese economy in the face of growing international frictions – and, especially, against possible US sanctions on a major financial institution. Beijing is taking steps to protect itself, perhaps guided by Russia’s actions after its invasion of Ukraine. 

Key steps thus far have included: gold purchases by PRC-linked entities; efforts to the expand the CIPS payment system, so as to forestall risks arising from any possible ejection from the Society for Worldwide Interbank Communication (“SWIFT”); and much more rigorous implementation of capital controls.

This “stockade mentality” is further discernible in trade policy, where tensions over electric vehicles are rising with the US and EU.  Indeed, Beijing is advancing its production of strategically valuable goods, such as semiconductors, batteries, steel, and key chemicals.

Now, Hong Kong’s big companies must do their bit.

Looking forward

This trend is liable to continue in the coming months, with major long term implications for Hong Kong.

After all, such an approach amounts to a marked departure from former Secretary of Finance John Cowperthwaite’s doctrine of “enlightened non-interference”, which underwrote Hong Kong’s rapid growth in the 1960s, 1970s and 1980s.

And for China, these developments make clear how far Xi Jinping’s government has now moved away from the Open Door policies of Deng Xiaoping.   

Their loss may prove to be much regretted. These policies underwrote a massive rise in prosperity in both places, but, now, that period of expansion may be over.