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Coronavirus

Hong Kong's Strict COVID Rules  Are Sparking An Exodus Of Foreigners

Enduring COVID restrictions are the final straw for many expats in Hong Kong. They're leaving by the thousands, threatening the city's reputation as a financial hub.

Photo of people wearing masks in a Hong Kong mall

People in Hong Kong shopping in a mall with face masks

Liang Yue and Yuan Huiyan.

HONG KONG — “It's not the policy itself, but the lack of any rationale behind it that's made me choose to leave...” Steven (not his real name), an American senior executive of a strategic consulting firm who had been working in Hong Kong for seven years until April of this year.

More than two years on since the COVID-19 outbreak, the Hong Kong administration has been closely following mainland China's “Dynamic Clearing Policy”. The particularly strict social restrictions, vaccination policy and business operation limits, as well as the two to three weeks of quarantine imposed on arrival in the city, have pushed both local and international business circles to request the Hong Kong government to review the intangible and tangible economic costs behind the COVID-zero strategy.

In the meantime, many financial institutions have lowered their forecasts for Hong Kong's economic growth this year.

Tara Joseph, the former president of the American Chamber of Commerce (AmCham) in Hong Kong, decided to resign last November because of the enduring COVID-zero policy. “In the past, for Westerners, Hong Kong was Asia-lite — light and easy. People could come and go freely, start a business and invest simply. Not anymore.”

Umbrella movement prelude

From the Umbrella Movement in 2014 and the Anti-Extradition Law Amendment Bill Movement in 2019, to the implementation of the national security law in 2020, Steven has sensed Hong Kong’s dramatic changes over the past few years. Yet, social movements and politics are not what pushed him to leave. “The national security law won’t affect me much,” he reckoned.

It was mainly due to the tight COVID-zero measures that Steven has returned to the United States. Because of respiratory problems, it’s not suitable for him to wear a mask over long period. In addition, the quarantine has prevented him from traveling to the US, as he wished, more than once a year because “each time I re-entered Hong Kong, the quarantine in a designated hotel is lengthy and costs me an arm and a leg.”

Besides, the policies have been changing from day to day, making cross-border movement for businesses, especially the activities of multinationals, a nightmare. In recent months, several foreign newspapers have reported that numerous foreign companies, especially in the financial sector, plan to transfer some of their staff to Singapore, including Bank of America, Citibank, Société Générale, and JPMorgan Chase.

“The outflow of foreign companies and talent is obviously an immediate impact brought about by the COVID-zero policy,” said Gary Ng, an economist for Asia-Pacific region at Natixis, a French investment bank.

According to an online survey conducted by the AmCham of its 262 Hong Kong members last October, 44% of respondents believe that international travel restrictions are hindering their offices outside Hong Kong, while 76% of them are convinced that travel restrictions and the quarantine are making Hong Kong lose its competitiveness.

The loyalty factor

Meanwhile, it’s worth mentioning that the survey also revealed that 80% of respondents believe that the Hong Kong national security law has an impact on business operations, and among them 47% believed that employee morale was affected.

At the same time, according to the similar survey conducted by the European Chamber of Commerce (EuroCham) last February, 65% of the respondents believe that Hong Kong’s measures have affected business strategies and plans locally. The study pointed out that the former British colony may face the largest wave of departure of foreigners, probably one of the largest in Asia’s modern history.

In the early days of the COVID-19 outbreak, Steven didn’t mind the rigorous measures. Just as Gary Ng commented, economically and socially speaking, the pros of COVID- zero strategy were bigger than the cons. “Nobody knew how things would evolve and Hong Kong was relatively better off due to being capable of containing the virus."

The problem is that the Hong Kong government’s attitude hasn’t evolved with time. While other countries have all moved forward in their policies towards the coronavirus, such as loosening up the mask wearing or the border control, “Hong Kong seems to be stuck,” said Tara Joseph.

What bothers Steven most is the fact that Hong’s Kong’s COVID-zero policy isn’t so much about containing the pandemic, but about “showing loyalty to China and satisfying any request China might have – the only criteria of the Hong Kong government officials, as they have demonstrated in the pandemic.”

Photo of a man getting his temperature checked before entering the cinema as businesses are reopening in Hong Kong

A man has his temperature checked before entering the cinema in Mong Kok, China as business are reopening

Miguel Candela/SOPA/Zuma

Turning into a Banana Republic

According to Hong Kong Census and Statistics Department data, as of 2020, the total employment of overseas companies in Hong Kong has indeed fallen for the first time, after increasing for six consecutive years, to 473,000.

“People feel like they are locked up in a prison and they can no longer bear this”

As a vibrant port of business, population mobility is a norm. The question is whether or not talents can be replaced. “No foreigners are willing to come now,” said Xiangyin Chen (pseudonym), the head of a German raw material manufacturer for Asia-Pacific region. He told the Initium that two of the ten foreign staff in his office have left Hong Kong. “It may not seem like a big number, but these people are expatriated from other countries for specific missions and positions. When these talents are gone, the loss is considerable.”

Because of the travel restrictions, his sales team has more or less suspended all international visits to customers or attendance of international meetings and exhibitions, added Xiangyin Chen. “We are thinking about moving out some of our staff here. If conditions do not improve, we’ll consider moving the Asia-Pacific office to another place all together.”

“People feel like they are locked up in a prison and they can no longer bear this,” said Steven. As a senior strategic consultant, he has noticed that many of his clients are re-mapping their business plan or even reducing their investments in Hong Kong. “They feel that Hong Kong has turned into a Banana Republic.”

Leaving  for good

While the data from AmCham shows that the nuisances caused by COVID will prompt 25% of the American companies in Hong Kong to leave, EuroCham also makes clear that 49 % of European firms are considering leaving Hong Kong in the next 12 months, of which 25% said they would consider quitting completely.

Data from the Hong Kong Census and Statistics Department confirmed that in 2021, the number of regional headquarters of US, Japanese and German companies in Hong Kong have all dropped to a new low since 2018.

However, Tara Joseph reckons that COVID-zero isn’t the only reason why foreign firms are leaving Hong Kong. “I’d say the COVID-zero is the icing on the cake. Now that Hong Kong is not much different from China and that these multinationals have offices in both Hong Kong and the mainland, they definitely have to reconsider the allocation of their offices.”

Photo of people waiting for the train in Hong Kong wearing face masks

People wear face mask and wait for train to arrive in Hong Kong

Keith Tsuji/ZUMA

Financial center status 

In the face of the loss of talents and foreign capital, the Hong Kong administration says that it’s only a temporary phenomenon. Besides, the government has eased its COVID containment policies since April, so it expects that once the pandemic is over, everything will go back to where it was.

Steven is convinced of the contrary. He believes that Hong Kong’s attraction before was its reliable legal system and stable policy environment. “But as one can conclude from this pandemic, the government has become so insane, erratic and unpredictable”

Leaving Hong Kong is “a simple, yet not easy decision. Certain people’s confidence in Hong Kong, like me, has gone. Meanwhile, others have found new jobs, lovers and lives elsewhere. They will not come back.”

However, in Tara Joseph’s opinion, “if the goal of a businesses is just money, they may ignore the changes in Hong Kong. This is already the case for many multinationals in China.”

In addition, she also expects companies from China to fill Hong Kong’s vacancies. “Hong Kong has changed and is still changing. But it has not lost its status as an international financial center. I would not say that Hong Kong will disappear. It's just that it will become a different place. You either take it or leave it.”

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Geopolitics

Inside Putin's Deal For Iranian Drones

Outgunned by Ukraine's Turkish-made Bayraktar drones, Russia has reportedly started importing armed drones from Iran, which may have explained Vladimir Putin's recent visit to Tehran, which is looking to flex its muscles internationally. But it could prove to be a dangerous turning point in the war.

At an underground drone base, in an unknown location in Iran

Christine Kensche

The satellite images show a hangar. The rough outlines of two geometric shapes are visible — a triangle and an elongated object with wide wings. According to intelligence information from the United States, this is the Kashan airfield south of Tehran, where Iran is training its regional militias.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

The geometric objects are drones: the Shahed-191 and the Shahed-129, both considered capable of carrying weapons. Their name translates to martyr. According to U.S. information, the picture also shows a transport vehicle for visitors from Russia. If what the White House recently said is true, the "martyr" drones could soon be circling Ukraine, controlled remotely by Russian soldiers.

Tehran's drone army

According to national security adviser Jake Sullivan, Iran wants to deliver "several hundred" drones to Russia and train Russian soldiers on the devices. Training may have already begun, Sullivan said. In June, Russian delegations traveled to the Iranian airfield twice. Russian President Vladimir Putin was in Tehran in person on Tuesday.

It's a turning point for Iran as an international arms dealer.

"This is a significant turning point for Iran as an international arms dealer," says Israeli drone expert Seth Frantzman, who has published a book on the subject (Drone Wars). So far, outside the circle of its allies in the region, Tehran has only sold its technology to Venezuela and built a drone factory in Tajikistan. "The deal with the world power Russia finally makes Iran an international player in the drone business, with its influence reaching as far as Europe."

In terms of technology and trade, the world's drone powers are the U.S., Israel, China and, by some margin, Turkey. Indeed, the Turkish-designed Bayraktar drones are deployed by Ukraine against Russia, which initially gave Kyiv important strategic successes.

There are two key reasons why Russia is now apparently buying from Iran: its own drones cannot keep up. And Iran's drones are technically less sophisticated than those of Western competitors. But they do the job – and are quicker and cheaper to make. Even Iran's nemesis Israel recognizes the powerful potential of Tehran's drone army.

"Iran has massively upgraded its drone program in recent years," says Frantzman. The Shiite regime introduces new types of drones almost every week. According to information from the Israeli army, Iran has a complete production chain, from missiles to navigation systems. The parts are often copied — for example, from U.S. drones that Iran shot down in the past. It now has a variety of different series and types — from unarmed reconnaissance devices to combat drones and those called kamikaze drones (small unmanned aerial vehicles with explosive charges that ram their target). The damage Iranian technology can do has been demonstrated by the regime's devastating attacks in recent years.

Iranian Supreme Leader Ayatollah Ali Khamenei receiving Russian President Vladimir Putin in the presence of his Iranian counterpart Ebrahim Raisi (right) in Tehran

Iranian Supreme Leader's Office/ZUMA

Attacks by Iranian drones

Iran's arsenal of remotely piloted aircraft stretches from Lebanon, Syria and Iraq to the Gulf and Yemen. The technology is used by Iranian allies — by Hezbollah and Hamas against Israel, by Yemen's Huthis against Saudi Arabia, by Shiite militias against the U.S. Army. Or, indeed, by Iran itself.

The "Pearl Harbor" of the drone war happened three years ago: Iran used drones and rockets to attack the Abqaiq refinery of the world's largest oil company Aramco in Saudi Arabia. The Saudi air defenses were powerless. The attack shut down Saudi Arabia's oil exports for several months. Global oil production collapsed by six percent.

Iranian drones were used in the last Gaza war.

Since then, Iran has systematically relied on weapons. Drones are said to be responsible for at least five attacks on U.S. bases in Syria and Iraq in May and June last year. Iranian drone technology also played a role in the last Gaza war. Hamas not only fired 4,000 rockets at Israel last May. It also deployed a new explosive-laden drone.

Last year, Iranian drone attacks claimed human lives for the first time: Kamikaze drones attacked the Mercer Street oil tanker in the Strait of Hormuz, one of the world's most strategically important choke points between the Persian Gulf and the Gulf of Oman. Two crew members died, including the captain. Then, in the spring, drones attacked tankers and Abu Dhabi airport. Three people lost their lives. The Houthi rebels in Yemen, who are supplied with weapons and technology by Iran, said they were responsible for the attack on the U.A.E.

A military unmanned aerial vehicle (UAV or drone) launched from an Iranian navy vessel in the Indian ocean

Iranian Army Office/ZUMA

No war is won by drones alone

There is no precise information on exactly which drones Russia could acquire. The types shown by the U.S. on the satellite images are among Iran's most important reconnaissance and combat drones. The Shahed-129 is the country's oldest combat drone. It can stay in the air for up to 24 hours and can be armed with eight guided missiles. Also known as the Saegheh (Thunderbolt), the Shahed-191 is a combat drone whose specialty is great mobility. It can be mounted on the back of a truck and launched while the vehicle is in motion.

Kamikaze drones are easier and cheaper to produce.

This combat drone, which can be equipped with two remote-controlled anti-tank missiles, is therefore extremely flexible. However, it is doubtful that Iran can actually deliver hundreds of these types in a hurry. A deal with Russia is therefore likely to include kamikaze drones, which are easier and cheaper to produce.

If Russia were to use Iranian drones in the near future, it would not be a turning point in the Ukraine war, says expert Frantzman: "You don't win a war with drones." However, Russia could use them to damage Ukraine's strategic infrastructure comparatively cheaply, without having to put expensive war equipment at risk.

And another target could become the focus of Iranian drones — Western war equipment, such as the HIMARS multiple rocket launchers, which the U.S. supplied to Ukraine and which play a central role in defense against Russia.

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