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A couple walk along a street in Hong Kong's Central business district on Sept. 8, 2021. Hong Kong has been fending off skeptics of its future as a regional commercial and financial hub amid great uncertainty in the city over the past three years.Kin Cheung/The Associated Press

The number of foreign companies operating in Hong Kong has fallen for the past two years, new government figures show, but officials are still touting the presence of a larger-than-ever contingent of firms with headquarters based outside the city.

Since 2019, when anti-government protests rocked the city, Hong Kong has been fending off skeptics of its future as a regional commercial and financial hub. The following year, authorities in Beijing imposed a draconian national security law, which led to warnings from foreign governments and cast new doubt over what was once one of the most stable legal environments in Asia.

The coronavirus pandemic has also taken a toll. While the city has avoided mass infection, its “zero COVID” strategy and strict quarantines have led to widespread complaints from the business community here.

Despite these factors, a news release from the city’s government, published late Thursday, hailed a “record high” number of firms “with parent companies located outside Hong Kong.”

Edward Yau, the city’s secretary for commerce and economic development, was quoted as saying that, in the past two years, “Hong Kong remained resilient and maintained our unique advantages and attractiveness to the international and mainland business community.”

But a closer examination of the figures shows that any growth since 2019 has been driven almost exclusively by businesses from mainland China, who might be expected to have a different risk assessment of the security law than foreign companies, and more tolerance for a COVID-19 policy that mirrors that of their home territory.

The total number of companies operating in Hong Kong but headquartered elsewhere is currently 9,049, compared with 9,025 last year and 9,040 in 2019. However, the proportion of mainland firms has risen to 23 per cent today from 19 per cent in 2019.

Government figures show a 6.1-per-cent drop in the number of foreign firms operating in the city between 2019 and 2021, from 7,421 to 6,969. While a full dataset for 2021 has yet to be released, the government announcement showed that, in the past year, the city has lost 16 companies from the United States, 10 from Japan and four from Singapore, as well as 42 others from other unspecified territories.

Up-to-date figures for the number of Canadian firms operating in Hong Kong are currently unavailable, but from 2019 to 2020 there was a drop of seven companies, to a total of 112.

David Webb, a prominent Hong Kong investor and analyst, said the government survey should be taken with caution, “as there is really no way to comprehensively know the ultimate parentage of each HK-incorporated company.”

He pointed out that the data also say “nothing about how many people are employed by those businesses and whether they have been reducing local headcount in favour of other offices, or simply losing staff to emigration.”

The past three years have seen great uncertainty in Hong Kong. Many residents have chosen to emigrate, taking advantage of generous pathways to citizenship offered by countries such as Britain, Australia and Canada in response to the security law.

In July, Washington issued an advisory warning U.S. companies of new risks posed by the law. In a background briefing following the announcement, a State Department official said “heightened uncertainty” and the undermining of Hong Kong’s autonomy “inevitably affects the business environment.”

While the business community here largely shrugged off those warnings, with observers saying that anyone still operating in Hong Kong had likely taken the security law into account, the continuing coronavirus restrictions have been a constant source of complaints.

Hong Kong has one of the world’s strictest quarantine mandates. Visitors from many destinations are required to spend 21 days in hotels and undergo multiple tests, regardless of whether they are vaccinated. The business community has been lobbying the government to relax its policies, warning that failure to open up travel could result in firms relocating elsewhere in the region. Many travellers from mainland China are exempt from the requirements.

The current policy “could lead many in the international community to question if they want to remain indefinitely trapped in Hong Kong when the rest of the world is moving on,” Frederik Gollob, chair of the European Chamber of Commerce, wrote to Hong Kong Chief Executive Carrie Lam in August. “This concern amongst the international business community could pose, undoubtedly, a growing threat to Hong Kong’s status as an international business centre.”

At a press conference last week, Ms. Lam dismissed concerns about the difficulty of international travel to and from Hong Kong, saying “it is more important for Hong Kongers to be able to travel to the mainland, whether it’s for the economy or for their livelihoods.”

“Of course international travel and international business are important for us, but comparing the two, the mainland is more important,” she added.

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