Weekly Digest: This World-Renowned City Faces a Reckoning

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week…can one of the world’s great cities save itself? 

Hong Kong is one of my favorite places on the planet. It is a bizarre, colorful, vibrant city, where vestiges of British colonial rule sit alongside Chinese cultural traditions. Think red double-decker buses passing by Chinese temples and blazing neon signs. Place names like Admiralty and Aberdeen, but filled with dumpling stalls and noodle restaurants. 

For decades, this duality made it Asia’s World City…a beacon of cultural diversity and economic prosperity. And as China modernized, it became the financial gateway to the world’s most important emerging market. 

But in recent years, things have taken a dark turn in Hong Kong… 

After the British handed Hong Kong back to China in 1997, both sides agreed that the city would enjoy freedoms above and beyond those seen in China, including a separate political system and an independent judiciary. This arrangement was known as “one country, two systems.” 

But despite signing the deal, China’s communist rulers never intended to abide by it. They have always told their own people that democracy and Western-style capitalism cannot work in China. This point is disapproved by Hong Kong and Taiwan, both staunchly capitalist societies that are richer per capita than China. And so China’s leaders desire, above all else, to bring Taiwan and Hong Kong back under their control. 

Slowly then, China’s communist rulers began to chip away at the city’s independence. This eventually led to the Umbrella Movement political protests, so named for the protestors use of umbrellas to protect themselves against tear gas and pepper spray.  

This movement paralyzed the city for months, but it ultimately failed. China managed to crush the protests and impose its will. Today, Hong Kong is becoming much like any other Chinese city. Its democracy is a sham, the free press has been silenced, protestors are imprisoned, and judges and politicians take their cue from Beijing. 

All of this raises the question of what happens to Hong Kong’s world-class financial services industry, which is so central to the city’s economy?  

Will the world’s great banks remain so heavily invested in Hong Kong if it is essentially no different than Shanghai? 

This has remained an open question for some time because, over the past two and a half years, the city enforced some of the world’s strictest COVID entry requirements…following the same “zero COVID” policy adopted in the rest of China. Basically, it locked itself off from the world. 

However, just this week, Hong Kong lifted those restrictions. And at the start of next month, many of the world’s leading bankers, including the CEOs of Goldman Sachs, Morgan Stanley, Standard Chartered, and HSBC, will be jetting into the city for a banking summit. 

Can Hong Kong sell these corporate leaders on the city, and show that Hong Kong has truly reopened for business?  

Or will this prove a desperate, last-grasp effort to convince the banks to stay? 

After all, the severe COVID restrictions have already led to a mass-exodus of top talent to rival financial center, Singapore.  

There is much to play for at this summit. 

I have a feeling that the future now lies in Singapore, but I’ll be following developments closely to see how this plays out. 

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Next up…mortgage rates soar in the U.S. 

This week, mortgage rates hit 6.7%…their highest level in 15 years. The last time rates were this high was July 2007. 

The new figure also means that rates have more than doubled in a year. The rates were just 3.1% at this time in 2021. 

The rate surge is due to the Federal Reserve pushing up interest rates at a torrid pace in an effort to tame inflation. 

The rapid rise in mortgage rates is making homes unaffordable to new buyers. It’s also discouraging existing homeowners from refinancing. Applications to refinance are down almost 85% from last year. 

This is having a predictably devastating effect on the mortgage industry. Mortgage originations are expected to drop almost 50% this year, leading many mortgage companies to cut staff or shut down altogether. 

Dark days lie ahead for the U.S. housing market… 

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Finally this week, Walmart in the metaverse. 

The U.S. retail giant revealed this week that it’s launching two online experiences in Roblox, a metaverse that has proved massively popular with young kids. 

The first is called Walmart Land and will feature a Netflix trivia game as well as a music festival. 

The second is Walmart’s Universe of Play and will include immersive games based on popular toy brands, such as Paw Patrol. 

This might all sound a bit silly, but consider this: Roblox went public last year with a valuation of $45 billion. Walmart is embracing the platform because it knows that this is the best way to connect with the next generation of consumers. 

The metaverse is coming…and it’s big business. 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.