Nomura/Hong Kong: beyond our Ken

When the going gets tough, the anxious head for the exit. Nomura is reviewing the scale of its operations in Hong Kong, according to chief executive Kentaro Okuda. The territory is losing its commercial relevance as a result of authoritarian interventions by Beijing and the protests these are provoking.

China is intent on imposing security laws to crush dissent. This might come, at the margins, in the form of a broker’s “sell” note on Chinese equities, although free speech on politics is the main target. In retaliation, the US has threatened to revoke Hong Kong’s special commercial status.

Hong Kong is starting to look like the worst of all worlds for footloose foreign banks, brokers and fund managers. Relocate to Shanghai and you know where you stand: in the Communist party’s backyard. Singapore, the main alternative, offers offshore stability a long way from the real action.

Nomura regards Hong Kong as a key outpost for its investment bank, for all that critics regard the unit as an also-ran. The Japanese group has roughly 1,000 personnel there — about 4 per cent of the total. Outside Japan, only Asia consistently makes pre-tax profits for Nomura. The Americas and Europe divisions have lost money most years since 2015.

China offers better growth potential than elderly Japan, albeit with local hostility to overcome. Nomura already had plans to expand in Shanghai, more than doubling staff numbers there to 500 in the next three years.

More than one foreign boss shares Mr Okuda’s concerns. Over half the members of Hong Kong’s American Chamber of Commerce see China’s move as bad for business, even if few have plans to relocate soon. The real spur to leave would be changes to Hong Kong’s independent judiciary — based on English Common Law — and the colony’s low income taxes of 15 per cent.

Big businesses will start quietly moving people out before then. The national security law has signalled that political dominance matters more to China than the commercial vigour of its small satellite. Companies will act accordingly.

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