Chinese Firms Are Dominating Key Parts of Hong Kong’s Economy

(Bloomberg) — Half way to the point when Hong Kong will officially be enveloped by China, Beijing is not just calling the shots politically, but in vast swathes of the city’s $344 billion economy.

Most Read from Bloomberg

From the stock exchange to brokerages, construction projects to the retail sector, Chinese state-controlled firms are increasingly dominating, taking market share away from the local tycoons and British trading houses that thrived under the final decades of UK rule.

Those behind the growing Chinese influence view Hong Kong’s economy as stagnant, slow to embrace the technology-driven, new economy industries that have been catalysts for growth on the mainland. Chinese enterprises have been handed more political power in the city, including a recent revamp of the electoral system that reduced the influence of local businesspeople and added greater representation for state-backed companies.

“Hong Kong has come to a crucial crossroads,” said Simon Lee, a Hong Kong lawmaker and Greater Bay Area chief strategist for China Resources Group, a state-owned conglomerate. “With all these challenges, we need to make sure different voices are included in our policy making and mainland Chinese enterprises need to take greater responsibility in our society, economy and politics.”

While the mainland economy now faces its own host of challenges, and substantial political resistance to Beijing’s overpowering influence remains — especially among local youth who don’t identify as Chinese — the mainland-ization of Hong Kong’s business life increasingly looks irreversible.

We take a look at how it’s playing out, sector by sector:

Story continues

Finance

Back in 1997, local brokers such as Peregrine and Somerley Capital, along with foreign banks including Morgan Stanley ruled the city’s finance industry. Fast forward to this year, and China International Capital Corp., China Merchants Bank Co. and Citic Securities Co. dominate listings. Almost 100 local brokers have closed over the past four years, battered by competition.

But more worrying for Hong Kong’s status as a gateway to China is that Chinese firms are choosing to raise capital at home, rather than in the city. Shanghai and Shenzhen have seen $37 billion in initial public offerings this year, compared with just $2.4 billion in Hong Kong.

In 1993, Tsingtao Brewery Co. became the first Chinese company to list in Hong Kong, and by 1999 that number had grown to 44, according to the Hong Kong Exchanges & Clearing Ltd. Now the city’s exchange hosts 1,370 mainland firms, accounting for almost 80% of the market’s value.

Chinese firms are catching up to foreign firms in terms of placing their regional headquarters in Hong Kong, more than doubling since 1997. Foreign businesses have also been clamoring for the city to relax its strict quarantine rules imposed over the past three years. In March, a survey by the European Chamber of Commerce showed a quarter of European companies in Hong Kong plan to fully relocate operations out of the city.

Telecommunications

China Mobile Ltd., the mainland’s largest mobile operator, has become a dominant force in Hong Kong since it entered the…