Do banks need so many expats in Hong Kong?

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TALK of an exodus of expatriates from Hong Kong is fuelling worries that the territory’s zero-Covid strategy is threatening its status as a global financial centre.

But does Hong Kong really need a large class of foreign professionals to thrive?

Compulsory hospital admission for testing positive, the requirement that close contacts be sequestered in government facilities and long hotel quarantines for international arrivals have prompted many expats to ask themselves whether they want to continue living in Hong Kong as the pandemic wears on.

For some, the fear of becoming ensnared in the government’s strict Covid protocols adds to the sense that the city is moving closer into Beijing’s orbit and deepening its isolation from the rest of the world.

While official data don’t show how many expats have left, it’s clear that fewer are arriving. Approvals for a commonly used employment visa fell 31% in the first nine months of last year compared with 2020, and declined more than 40% for applicants from the UK and Australia.

In Singapore, which also imposed strict Covid policies, employment passes fell only 6% in the first six months of 2021.

Businesses are understandably worried. Almost 40% of companies plan to increase hiring in the next 12 months, according to a recent survey by the American Chamber of Commerce, and about a quarter cite difficulty retaining foreign talent.

The survey was conducted before the Hong Kong government said on Saturday it would consider easing some of its quarantine requirements as the spread of Omicron threatens to overwhelm the medical system.

For Hong Kong, though, the existential question might not be whether it can survive without these employees but whether that pipeline really needs to come from overseas.

The key determinant will be how global banks, contributors to one of the city’s most economically important sectors, address their concerns about a brain drain. Once upon a time, big US, British and European financial firms sent ambassadors of their corporate philosophy to far-flung places to keep business humming.

Hong Kong was one of the most important destinations, and Western banks were critical liaisons between Chinese companies and global investors. But that calculus has changed in recent years.

While global businesses still want to have a foothold in Hong Kong because of its proximity to China, the desire to fill key roles with expats is diminishing. More important than having scuffed your first pair of Gucci loafers on Wall Street is fluency in Mandarin, plus deep cultural knowledge.

Banks and wealth managers are rushing to hire candidates who fit this profile, as servicing mainland clients through a growing list of cross-border investment opportunities has become a chance to earn hefty fees. Banks say the Hong Kong talent pool is extremely capable and in high demand.

Citigroup Inc, for example, has hired several hundred people over the past 12 months, largely for its wealth management hub in the city. Many of them are locals. A population of only 7.39 million, however, comes with constraints.

The territory is home to more than 273,000 financial-services jobs and bidding wars have pushed banker salaries higher.

The Chamber of Commerce survey found that difficulty hiring and retaining local talent was a bigger concern than recruiting and hanging on to expat employees.

A more realistic source of future hiring could be mainland China, which has more than one million college and graduate students abroad, according to Unesco, including hundreds of thousands in the US.

Many Chinese graduating from top-tier universities get internships at multinational companies and work abroad for a few years.

The fight for skilled workers means that employers will need to ramp up mainland recruiting efforts with higher salaries and perks.

“Banks will pay when they need to,” says Mark Enticott, founding partner at Bowen Partners, an executive search firm with offices in Hong Kong, Singapore and Australia.

Companies that want to lure highly skilled professionals to Hong Kong also will have to address the perception that life there can be alienating for some mainland Chinese.

A study last year warned about a flight of mainland talent, citing concerns about discrimination.

To many, a far more appealing prospect would be working closer to home, in Beijing, Shanghai or the tech hub of Shenzhen just across the border from Hong Kong.

Meanwhile, banks that are ramping up their wealth services might prefer to keep their hires in mainland China.

There will always be strong arguments for the diversity of opinions and experiences foreigners offer, as well as their connectivity to international markets: Global cities need global talent. Still, it isn’t difficult to envision a future Hong Kong prospering with far less of it. — Bloomberg

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.