the real alternatives, which are quite visible—and quite appalling-in neighboring societies.
BRAIN DRAIN
Beijing thus has a powerful interest in making its Hong Kong system work, and it has established a system which could work well. But any system can be mismanaged. Beijing, will have great influence, and lacks Britain's centuries of experience with light-handed colonial management. Chinese residents of Hong Kong fear that there might be circumstances under which Beijing could invoke national security concerns to deprive them of rights to which they are accustomed. Companies fear that there might be circumstances under which, for instance, disputes with Chinese companies might end up rising to the level of the National People's Congress and being settled under Chinese law. Banks fear that Bank of China will assert itself in damaging ways. And everyone fears China's epidemic corruption.
Such fears have not, so far, seriously damaged the economy, but they have induced widespread efforts to escape Chinese legal jurisdiction. Most major companies have relocated their legal domicile to more trustworthy jurisdictions, most notably Bermuda. And a major proportion of the educated population has said it is interested in the possibility of emigration.
To what extent has this endangered the future of Hong Kong as a prosperous, stable, free enclave? The shift of legal domiciles by Hong Kong companies has no economic or political consequences. They do not shift their businesses along with their nameplates.
But there are some real business shifts. Many companies have diversified their businesses geographically beyond what would seem to be justified by purely business calculations. This is difficult to quantify, since there is a natural logic to many of Hong Kong's extraordinarily successful companies diversifying by taking over Western counterparts: Dickson Concepts buying S.T. Dupont and a host of other luxury brand names, Regal Hotels buying Aircoa, New World Hotels buying Ramada, Semitech buying Singer, the major Hong Kong watch companies buying their stodgier Swiss counterparts, and so forth. Nonetheless, particularly among the major British companies, there is clearly some deliberate diversification. Hong Kong Land is not investing aggressively in Hong Kong, and Hong Kong and Shanghai Bank seems headed toward merger with Midland Bank. Likewise, there is a tendency for Hong Kong companies to borrow heavily for their Hong Kong investments and then put considerable investments
overseas.
Corporate flight is
inconsequential.