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Doubts over “One Country Two Systems” to spark an emigration surge?

2019/9/13 — 18:13

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As discussed in earlier analysis (see How low will Carrie Lam's popularity fall? And HK's freedom ranking with it?, and its follow-up Carrie Lam - a most dramatic turn from 'Dream of reconciliation' to 'Nightmare of oppression'), the steady erosion of the public’s perception of freedom in Hong Kong may have reached a dangerous level as to impact their confidence to remain in the city for the long term. This alarming development will be analysed in the rest of this article in the context of trends in emigration figures and how this is impacted by the latest political developments.

One of the potential side effects of the extradition bill affair may be the United States revoking the US-HK Policy Act as a response to the perceived impingement of Hong Kong’s promised autonomy. The Act, passed in 1992, allows the US to treat Hong Kong separately from Mainland China on matters of trade and economics, provided Hong Kong is “sufficiently autonomous” to justify special treatment. If Hong Kong loses its privilege of being an “independent customs zone”, dire economic consequences could await the city – an aspect to be explored in a subsequent article.

Protests stoking emigration intent to record highs

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Hong Kong may be about to witness over the next few years the biggest emigration rush since 1984. One of the best ways to quantify interest in emigration is tracking Google Trends through search frequency for the term “emigration” (in Chinese: “移民”):

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In the wake of the government’s tabling the extradition bill in May, search frequency doubled compared to end of 2018, and continued to rise in June as mass demonstrations persisted, then doubling again from May levels when street conflicts broke out in July.

From the chart above, there seems to be a notable correlation between the various political events in Hong Kong and people’s interest in emigration:

a)  After the government shelved the article 23 legislation which triggered the biggest demonstrations since handover, search frequency began a steady increase despite a strong rebound in property prices and the local economy. By the time CY Leung took office in July 2012 the reading was up 40% (see blue channel in Chart 1);

b) The umbrella movement triggered a second wave of interest in emigration, seeing search interest double by end-2018, indicating a further rattling of confidence in Hongkongers’ outlook for their own future (see green channel in Chart 1);

c) The anti-extradition bill saga has not yet ended, but interest in emigration exploded higher already, doubling from end-18 levels, and entering a much steeper new trajectory (see the red channel in Chart 1)!

Of course, search engine frequencies must not be conflated with the actual permanent outflow of residents. Perhaps not surprisingly, there seems to be a correlation between Public Sentiment Index (PSI) readings, a measure of government approval, to real emigration numbers from Hong Kong: in other words, low government approval ratings leads to higher emigration growth rates in subsequent years:

It seems entirely possible that the recent collapse in the public’s confidence in the government could drive a quantum leap in the coming years in increased emigration numbers (similar to the jump from A to B after the Sino-British Joint Declaration, in Chart 2 above), and this time we might see a surge above an otherwise modest increase to D up to the 1984 peak levels – if not even higher – at E in the chart. 

Emigration numbers following the Sino-British Joint Declaration doubled from 20,000 levels in 1984 to 40,000 in 1988, and then up another fold to a record high of 65,000 by 1992 (Chart 3). Today’s political events may lead even more people to flee from the erosion of the “One Country, Two Systems” arrangement in Hong Kong. A repeat of the 1980s emigration wave could easily see numbers rapidly rise from a few thousands of the past few years to tens of thousands witnessed during the prior peaks:

Where do emigrating Hongkongers head for?

Chart 4 shows some of the most popular destinations of Hong Kong emigrants. The common characteristics of these locations include language spoken being English or Chinese, and a high degree of personal freedoms – all top 20 placed on personal freedom index rankings according to The Fraser Institute (except the USA).

Taiwan’s freedom rankings have seen major advances, jumping from outside the top-40 to 15th place in merely eight years, edging ahead of even the UK in the past two years (green line in Chart 4). As Taiwan’s personal freedom index ranking rose, its share of HK emigrants rose too, going from 6% in 2008 to 17% in 2017. If the relationship between a migration destination’s freedom and its popularity continues to hold, Taiwan will soon be amongst the top five destinations of Hong Kong emigration:

Hong Kong's ‘arch-opponent’ for the title of Asia's premier financial centre, Singapore, should not be written off as a magnet for HK emigrants either. Although the Lion City still trails Hong Kong in the freedom rankings as of now, the dynamics have changed significantly over the past five years which saw Hong Kong fall 10 places, as Singapore rise by a massive 18 places in the rankings (blue line vs orange line in Chart 5). If current trends persist, Singapore could overtake HK in a very short period of time indeed:

Our earlier article discussed the real possibility of Hong Kong's personal freedom ranking falling outside top-40 in 2019. But this is not the only indicator of a destination's desirability, another useful barometer may be how popular a destination is with the wealthy global elite, whose movements provide the most honest vote of their intentions:

Source:Global Wealth Migration Review 2018 from AfrAsia Bank and New World Wealth
*Net HNWI inflows / HNWIs in receiving country
**Net HNWI outflows / HNWIs in sending country

The Global Wealth Migration Review 2018 (GWMR 2018) describes that when considering a destination, the global wealthy primarily consider factors such as safety, economic stability, freedom, and political stability. Table 1 suggests that countries with a net loss of wealthy individuals such as Turkey, Russia and China are those which lack these desired attributes. One anomaly in the table is the UK, whose rare net outflow of high net worth individuals may be explained by Brexit uncertainties and recent draconian tax laws that hit the wealthy particularly hard.

After the current anti-extradition turmoils, Hong Kong will no doubt lose some of its wealthy residents. The GWMR estimates Hong Kong’s wealthy to number some 235,700 in 2018, amounting to 3% of the total population. If migration rates do swell to peak levels seen in the 1980s, reducing the territory’s highly skilled individuals by 60,000 a year, Hong Kong will stand to lose the most productive and the brightest talent to foreign countries, much to the detriment of its long term prosperity.

 

The author would like to thank Shaun Cheung of The University of Hong Kong for assisting in data collection, analysis, and drafting this article.

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