Exodus of Hong Kong bankers accelerates in chase for China deals

The strict quarantine rules in Hong Kong and on the mainland are now accelerating a shift out of the financial hub. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Global lenders are speeding up a relocation of bankers from Hong Kong to China to expand dealmaking in the world's second-largest economy, partly spurred on further by tight quarantine restrictions.

UBS Group has recently shifted two senior bankers and is in discussions to move another six to eight to China, according to a person familiar with the move who asked not to be named discussing an internal matter. Credit Suisse Group has moved a handful in recent months and JPMorgan Chase & Co plans to move more dealmakers to grow offices in Shanghai and Beijing, people familiar said.

While global banks have been beefing up as China opened its US$54 trillion (S$S$73.5 trillion) market further last year, the strict quarantine rules in Hong Kong and on the mainland are now accelerating a shift out of the financial hub.

With Hong Kong following China's zero Covid-19 push, and with Beijing reluctant to ease travel between the city and the mainland, hope is scant that the situation will change any time soon.

Hong Kong's and China's quarantine rules require a minimum of two weeks in isolation. They mean that a banker based in Hong Kong must set aside two to three months on a single trip to the mainland. They must also limit themselves to three China trips a year to avoid breaching a 183-day stay rule that would make them a resident and get hit by a higher tax rate than what they pay in Hong Kong.

Among recent departures from UBS in Hong Kong are Mr Solomon Li, who moved in July, and Mr Guo Xinyu, who relocated in August. Mr Li moved to lead global banking in Shanghai, while Mr Guo shifted to Beijing where he continues to head up China fintech services.

All in all, Credit Suisse has moved about a dozen bankers after shifting two managing directors to Beijing in 2020 to head its securities venture and advisory business. In a push for deals, JPMorgan is in discussions with several bankers, according to a person familiar. Its China investment-banking head Huston Huang left Hong Kong for Shanghai in February to become CEO of the US bank's securities venture.

Spokesmen at the banks declined to comment.

The relocations have been made easier due to the fact that most bankers are now mainland Chinese to begin with. Over the past years, they have been taking over an increasing number of key roles from both local Hong Kongers and expatriates because of their language skills, cultural knowledge and connections as China opens its markets.

With billions of dollars of profits on the line in China, investment banks and wealth managers are building up their operations even as a crackdown by China on broad swathes of the private sector has increased risks.

Investors such as Mr George Soros has warned against investing in China, but earlier this month, a who's who of Wall Street took part in a virtual conference with top Chinese officials to soothe frayed nerves.

Goldman Sachs is seeking to double its workforce on the mainland while Credit Suisse has plans to triple its staff, meaning the competition for talent is fierce.

The tax residency rules has international banks concerned they could breach mainland regulations, which is seen as potential threat to their licenses, one of the people said. China recently signalled it would start taxing its citizens living abroad, though questions remain how the authorities will apply the rules in Hong Kong. China's tax rate is as high as 45 per cent, while Hong Kong's is about 15 per cent.

Client coverage

But several China-focused dealmakers have relocated voluntarily, betting better client coverage on the ground will earn them bigger bonuses that will more than offset the higher tax rate, the people said. As much as 80 per cent of the investment-banking fees generated in Asia, excluding Japan, come from deals with Chinese companies this year, according to data compiled by Bloomberg.

Bankers are also seeking workarounds, with some choosing to quarantine in neighbouring Macau for 14 days to reduce the time they spend on the mainland. China removed quarantine requirement for people travelling from Macau last year, which officials in Hong Kong have also long sought.

Expatriate bankers from Europe and the United States are also losing faith in Hong Kong, becoming less and less tolerant of the city's Covid-19 strategy that has effectively prevented them from visiting their families overseas for two years, the people said.

A top adviser to the city's leader said this week that the city is stuck between China's zero-tolerance approach to the coronavirus and the West's reopening.

"Before Covid-19, we were a financial hub," said Mr Bernard Chan, a financier who is also the convenor of Hong Kong leader Carrie Lam's advisory Executive Council. "And the definition of a hub is the ease of getting in and out. So we went from one of the easiest places to go in and out of, to now one of the most difficult places to get in and out because of all the Covid-19 restrictions."

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