November 30, 2022

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The Russians fled to Hong Kong. America’s suspicions

A characteristic that captured international investors was that the island was a gateway to China, with advantages to the West. Now it seems to have become the destination of companies excluded from international financial capital, starting with Russian companies

With Russian property confiscated across Europe, a $500 million luxury yacht is docked in Hong Kong waters. The boat will be in the name of the billionaire Alexey Mordashovthe largest shareholder of the steelmaker Severstal PJSC and the third richest man in Russia, is on the sanctions list because of his proximity to the Kremlin.

But not only luxury yachts sail to the island, which until recently became famous for enjoying the benefits of the West and the advantages of China. Many Russian companies excluded from Western financial capitals also believe that Hong Kong is a new destiny, fueling the hypothesis that it will become the Asian hub for companies sanctioned by the Russian war in Ukraine.

Sherman Yanmanaging partner of ONC Lawyers in Hong Kong, told the agency Bloomberg That many Russian companies, including state-owned companies, are looking to rely on law firms in Hong Kong to enter a “friendly jurisdiction” than New York and London.

At least two other law firms in China were contacted by Russian firms that inquired about raising capital in the city. The idea is to move the recordings to Hong Kong but it continues to operate commercially in Russia.

United Rusal International Co. PJSC , the Russian aluminum company that was under sanctions until early 2019, operates on the Hong Kong Stock Exchange. Polymetal International Plc, a gold prospector with operations in Russia and Kazakhstan and registered in Jersey, said in September it was considering re-melting. And think of Hong Kong after the President’s Law Russian President Vladimir Putin It banned companies in so-called “enemy countries” from selling assets, affecting Polymetal’s business plan.

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according to BloombergHong Kong banks had a combined exposure of HK$800 million to Russia at the end of June, down from HK$2.6 billion at the end of February.

“Hong Kong can provide a window into foreign capital for Russian companies as the Chinese government maintains friendly relations with Moscow,” he added. Bloomberg – No sanctions were imposed with the escalation of the invasion.

A US State Department spokesperson said that “the potential use of Hong Kong as a safe haven by persons evading sanctions in various jurisdictions raises doubts about the transparency of the business environment.” Reputation of the city added a government representative Joe Biden“It depends on compliance with international laws and standards and American companies are increasingly suspicious of Hong Kong’s business environment,” due to the erosion of the city’s former autonomy and freedoms.

Jun Lee Ka ChiuHong Kong’s chief executive said it would only apply United Nations sanctions after the United States warned that the city’s position as a global financial center could be in jeopardy if it continued to protect volatile Russian assets. “The UN sanctions will be applied, this is our system, this is our rule of law,” he told the press.

It remains to be seen whether Hong Kong banks and auditors are willing to engage with Russian companies, given the threat of secondary sanctions. For example, Chinese banks in Hong Kong have not accepted deals with local officials who were sanctioned by the United States for their role in suppressing freedoms in the wake of pro-democracy protests in 2019.

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One of the characteristics of Hong Kong that has captured international investors is that it is a gateway to China. Since 1997, its sovereignty has come under the control of Beijing, with the premise of “one country, two systems”, allowing independent management in some areas such as customs control and monetary policy.

After the first wave of immigration to the United Kingdom and Canada, due to fears of further repression, such as the one in Tiananmen Square in 1989, the ensuing twenty years have been very promising successes. Hong Kong is becoming a major offshore financial centre, real estate is becoming some of the most expensive internationally, and companies are beginning to attract talent from all over the world.

However, even before the Covid-19 pandemic, the city began to suffer a decline. In 2018, there were the first signs of a slowdown in GDP, in the wake of the US President’s trade war Donald Trump against China.

Protests by pro-democracy movements exacerbated the situation. During the second half of 2019, the local economy contracted by 1.7%. The final blow came with Covid-19: GDP for 2020 fell 6.5%.

Now Hong Kong is no longer the number one financial city in Asia. According to the Global Financial Centers Index, it is Singapore that has managed the pandemic and eased restrictions imposed on the health crisis to get past it.