Once a top choice for bankers worldwide, Hong Kong’s financial sector is suffering from a brain drain and lack of interest from foreign talent due to stringent Covid restrictions and worsening U.S.-China relations.

Top business and financial leaders are increasingly sounding the alarms with regards to the threat of Hong Kong losing its appeal as a hub for international talent, especially due to its strict Covid rules which include a 21-day quarantine for all travelers, vaccinated or not. 

«Hong Kong has always faced a problem of talent shortage in the financial industry, but the pandemic has worsened the situation,» said Mary Huen Wai-yi, chairwoman of the Hong Kong Association of Banks which represents all of the city’s 163 licensed banks.

Starting to Feel the Pinch

«It is hard to recruit new talent to come, while international banks have also found it difficult to relocate their existing staff from other areas to Hong Kong,» said Huen who is also Standard Chartered's Hong Kong chief executive.

Global banks are already starting to feel the pinch with J.P. Morgan having lost around 20 executives at the managing director level, according to an «SCMP» report citing unnamed sources, representing about 10 percent of its staff of 200 in the city.

Elsewhere, at least a dozen of Hong Kong-based managing directors at banks like Goldman Sachs and UBS have been stranded in Singapore – a rival hub that has opted to largely coexist with the virus – due to the travel restrictions, according to a «Bloomberg» report citing unnamed sources. The stranded executives included division heads of investment banking, wealth management, asset management and other functions.

Drop of U.S. Firms

American businesses were most notably worried about Hong Kong's outlook, evidenced by a drop of U.S. firms from 282 in June 2020 to 254 in June 2021, according to data from the Census and Statistics Department, marking an 18-year low. 

Separately, a recent survey from the American Chamber of Commerce in Hong Kong said that the city’s health restrictions have caused 53 percent of its members to consider leaving on personal grounds. Only 10 percent said they were unlikely to quit the city with another 36 percent claiming to be neutral.

Operations were affected with one-third of respondents forced to delay new investments and 30 percent struggling to fill senior executive roles. Politics were also a relevant factor with 86 percent and 80 percent of respondents saying that they were affected by worsening U.S.-China relations and Hong Kong's national security law, respectively.  

Overall Pool Shrinking

And the impact is not limited to senior talent alone with indications that the broader pool of talent is also shrinking. The total number of visa applicants from all countries for «general employment» plunged one-third last year to 10,073, according to data from Hong Kong’s immigration department, with a 23 percent drop for the financial sector.  

Even the general population in Hong Kong has contracted 1.2 percent between mid-2020 and mid-2021, representing an exit of more than 75,000 people in one year.

Hiring Costs

In the short term, banks such as Standard Chartered are resorting to temporary solutions to close the talent gap such as up-skilling staff in areas like fintech, green finance and new energy. But in addition to potentially compromising talent quality, banks also face the prospect of lower margins due to expectations of the significantly increased cost of hiring expats if the shortage persists, according to a recent report by Oxford Metrica. 

«Given the additional impact of the pandemic, financial firms indicated that talent availability is a challenge that needs to be urgently addressed for Hong Kong to continue to enjoy its position as a world-class international financial center,» said the report which is commissioned by the Financial Services Development Council – a body established by the Hong Kong government to promote the city as a financial hub.

Big Challenge

«The challenge will be to find ways to ensure that Hong Kong continues to be a popular posting for expatriates while at the same time attracting the best and brightest young graduates locally to join the financial services.»