By Stephen S Roach, Faculty Member, Yale University, and former Chairman, Morgan Stanley Asia
The sign at Hong Kong International Airport still says, “Welcome to Asia’s World City.” Normally worth nothing more than a sideways glance, this time the sign gave me pause for thought as I disembarked from the plane on a recent visit.
On the surface, Hong Kong seems to have bounced back in the year and a half since I wrote my controversial article in the Financial Times, titled “It pains me to say Hong Kong is over.” Never mind that the property market hasn’t recovered. The all-important financial sector is booming again; a high-flying Hang Seng Index and a return to the top spot in the global IPO rankings recall the days of yore.
But while Hong Kong’s vastly oversold market has benefitted from the strong performance of frothy global equity markets, the true test of the city’s resilience will come with the inevitable correction. Such a pullback may be close at hand, especially if widespread fears of an AI bubble are realised—though, as always, market timing is a guessing game.
Of course, the point I was making in my February 2024 FT article was that outward appearances are often deceiving. I argued that the Hong Kong of old had been replaced by a new version that more closely resembled a China-centric administrative region, with Deng Xiaoping’s model of “one country, two systems” morphing into “one country, one system”.
I cited three reasons for believing this: First, Hong Kong’s economy, tightly correlated with the Chinese economy, remains weighed down by China’s protracted sluggishness. Second, the Chinese government’s post-2019 crackdown continues to weaken the rule of law, free speech, and press freedom in Hong Kong. Third, Hong Kong is caught in the crossfire of the worsening Sino-American conflict, driving a wedge between the city, whose growth depends heavily on economic openness, and some of its trading partners.
My views do not sit well with many old friends in Hong Kong. When I point to the shrinking expat talent pool—a key attribute of a world city—they counter that this trend is offset by an influx of Chinese workers from the mainland.
They are not wholly wrong. Walking the streets or frequenting the shops, one is just as likely to hear Mandarin as Cantonese, Hong Kong’s dominant dialect. But that doesn’t change the fact that many of the city’s traditional foreign workers, especially Brits and Americans, are increasingly voting with their feet.
The same can be said for China’s stifling influence on Hong Kong’s governance. Three major newspapers—Apple Daily, Stand News, and Citizen News—have closed since 2019, and other outlets such as Citizens’ Radio, FactWire, InMedia, Hong Kong Free Press, and Mad Dog Daily have either ceased operations or significantly scaled back. Moreover, John Lee, Hong Kong’s Chief Executive and a former police officer, has urged the media to tell “the good stories of Hong Kong”, parroting Chinese President Xi Jinping’s emphasis on “the good stories of China”.
More broadly, Hong Kong’s long-cherished rule of law is being steadily eroded. Since 2019, the number of foreign judges on Hong Kong’s Court of Final Appeal—the city’s highest judicial authority—has fallen from 15 to six, some having resigned in protest. (Foreign judges were installed after the British handover in 1997 to provide expertise and continuity to a long-established common-law system.) The most prominent resignation was that of Jonathan Sumption, a former British Supreme Court Justice, who warned that Hong Kong’s rule of law was being jeopardised by the oppressive political environment created by China and continual calls for “judicial patriotism”.
Equally telling are the tight linkages between the growth fluctuations in the Chinese and Hong Kong economies, leaving the latter in a vise. From 2012 to 2024, China’s GDP growth averaged 6.1%, a four-percentage-point deceleration from the 10.1% trend over the previous 32 years (1980 to 2011). In that period, Hong Kong GDP growth averaged just 1.5%, a 3.6-percentage-point deceleration from the 5.1% trend over the prior 32 years.
According to the International Monetary Fund’s latest forecast, Chinese GDP growth is expected to slow further, to 3.4% by 2030. With the two economies effectively joined at the hip, that puts the risk to Hong Kong economic growth on the downside, very much at odds with the IMF’s forecast of a mild reacceleration in the city’s GDP growth to 2.3% in 2030.
I was in Hong Kong last week to speak at a major conference on US-China relations. There was a bull’s-eye on my back when I addressed a roundtable entitled “Beyond the Middleman: Hong Kong’s Influence in Superpower Rivalry.” The question under discussion was whether Hong Kong’s unique features allow it to play an independent role in tempering geopolitical rifts, such as the one between China and the US. Drawing on the arguments above, I politely argued that, since 2019, Hong Kong’s capacity to serve as an honest broker in the Sino-American conflict has been compromised by China’s heavy hand.
No one in the room agreed with me. According to them, I was ignoring Hong Kong’s greatest strength: its singular legacy of resilience and reinvention. Locals chafe at the suggestion that Hong Kong has become just another big Chinese city. I was reminded of that when I left the airport and looked up at that familiar sign. Steeped in denial, “Asia’s World City” is clinging to its old identity and reputation.
Copyright: Project Syndicate, 2025.
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