Hong Kong’s pivot towards Southeast Asia aims to strengthen economic ties and secure the city’s role as a global financial hub amidst rising US-China tensions and shifting geopolitical dynamics.
Key takeaways:
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The escalating geopolitical tension between the US and China, coupled with Hong Kong’s political crackdown, has strained the city’s traditional role as a bridge between East and West, prompting a shift towards Southeast Asia for economic partnerships.
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Hong Kong is deepening its ties with ASEAN to maintain economic relevance, positioning itself as a gateway for Southeast Asian businesses to access Mainland China.
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While Hong Kong’s growing relationships with Southeast Asia offer new opportunities, it remains uncertain whether this pivot can fully compensate for the decline in Western investment and business as US allies in the region hold sway over key trade decisions like Hong Kong’s RCEP bid.
Since his appointment as Hong Kong’s chief executive in July 2022, John Lee Ka-chui has made significant strides in reshaping the city’s international economic and political relations, signaling Hong Kong’s strategic pivot towards the East amid domestic political upheaval and escalating tensions between China and the West.
One of Lee’s key strategic objectives since taking office has been strengthening Hong Kong’s relationship with the Association of Southeast Asian Nations (ASEAN), a crucial move for both economic and political reasons. Lee has met ASEAN Secretary-General Kao Kim Hourn three times—twice in 2023 and once in 2024—to discuss Hong Kong’s bid to join the Regional Comprehensive Economic Partnership (RCEP) and secure tariff preferences under the ASEAN-Hong Kong Free Trade Agreement established in 2018. He has also visited six Southeast Asian countries: Singapore, Malaysia, and Indonesia in 2023, and Laos, Cambodia, and Vietnam this year. His engagement with these countries reflects Hong Kong’s strategic goal to strengthen economic cooperation and enhance its position as a springboard for accessing Mainland China. Lee has been particularly vocal in promoting Hong Kong’s unique position as a gateway to the Chinese market, making it an attractive partner for Southeast Asian economies.
Lee’s visits to Southeast Asia have produced concrete results, including 12 agreements with Laos and 13 with Cambodia, covering sectors such as logistics, investment, trade, finance, education, and aviation. Vietnam, with its proximity to the Greater Bay Area and strong trade ties with China, is especially important in the strategy. During his visit to Hanoi, Lee was one of the first foreign leaders to meet Vietnam’s newly appointed top leader, To Lam, earlier this year.
Strengthening political ties amid economic shifts
Beyond trade and investment, John Lee has engaged in high-level political dialogues with Southeast Asian leaders. Earlier this year, he hosted Thailand’s then-Prime Minister Srettha Thavisin and Malaysia’s Deputy Prime Minister Ahmad Zahid Hamidi in Hong Kong, where he stressed the importance of attracting skilled workers, talent, and tourists. The Hong Kong government has also pledged to increase investments in Vietnam as it rises as a regional economic powerhouse.
ASEAN is currently Hong Kong’s second-largest trading partner, with trade spanning both goods and services. This relationship is vital for Hong Kong as it seeks to maintain its status as a leading financial and commercial hub. The city is also leveraging its participation in the Belt and Road Initiative (BRI) to attract Southeast Asian businesses aiming to access the Mainland Chinese market.
Hong Kong’s economy experienced moderate growth in 2024, with GDP rising by 3.3% in the second quarter, up from 2.8% in the first quarter. Robust exports and increased government spending have fueled this growth, although private consumption has been constrained by rising living costs and shifting consumer behavior. Elevated global interest rates and the strength of the Hong Kong dollar have created additional challenges, dampening consumer spending and business investment. While a strong currency has its advantages, it has made Hong Kong’s exports less competitive and further driven up the cost of living. Meanwhile, demographic challenges, including an aging population and talent shortages worsened by emigration, continue to pose long-term risks. The city’s reliance on labor from Mainland China may not be sufficient to fully address these issues.
Adding to these economic challenges are the ongoing tensions between the US and China, which significantly impact Hong Kong, especially in trade and financial services. Historically, Hong Kong has acted as a key intermediary between East and West, but any disruption to this role could have serious long-term consequences for its economic stability.
With its dynamic business environment, youthful population, and growing consumer demand, Southeast Asia presents substantial opportunities for Hong Kong businesses. By deepening its relationship with ASEAN, Hong Kong seeks to tap into these markets and solidify its position as a gateway for Southeast Asian companies looking to access Mainland China. This two-way platform allows Hong Kong to remain globally relevant despite the geopolitical headwinds it faces.
For ASEAN countries, partnerships with Hong Kong bring increased investment and infrastructure development. These collaborations also offer access to advanced technology, financial expertise, and innovation ecosystems—key resources for Southeast Asian economies to undergo a transformation. Moreover, Hong Kong’s leadership in areas such as fintech and environmental sustainability provides valuable models for ASEAN nations seeking to modernize and diversify their economies.
Hong Kong presents distinct competitive advantages that differentiate it from other financial hubs in the region, particularly Singapore. Its deep integration with mainland China, facilitated by initiatives like the Greater Bay Area (GBA), positions Hong Kong as an ideal gateway for ASEAN countries eager to access Chinese markets and establish partnerships with Chinese technology firms and startups.
Additionally, Hong Kong’s status as a free port offers benefits beyond financing capabilities. Although Hong Kong-based banks are well-equipped to finance ASEAN projects independently, partnerships with the Hong Kong government enhance the value of these financial connections through streamlined regulatory processes, preferential tax treatments, and reduced trade barriers. These factors simplify logistics, provide duty-free access, and could ultimately position Hong Kong as a cost-effective hub for businesses within ASEAN.
Navigating political and economic challenges
Hong Kong’s pivot towards Southeast Asia is deeply intertwined with the broader geopolitical rivalry between China and the United States. Beijing’s efforts to integrate Hong Kong more fully into the Mainland under the “one country, two systems” framework have faced significant resistance, notably during the mass protests of 2014 and 2019, known as the “Umbrella Revolution” and the “Anti-Extradition Bill Movement”. In response, Beijing imposed the National Security Law (NSL) in 2020, criminalizing actions deemed subversive, which led to the closure of major pro-democracy outlets like Apple Daily and prompted many journalists to flee abroad. Enhanced repressions have contributed to the massive emigration of about 500,000 residents from the city since 2021, according to estimates.
This political crackdown has further strained US-China relations, with Lee personally under US sanctions for his role in enforcing the NSL. The Biden administration’s warnings to American businesses about the regulatory risks of operating in Hong Kong have contributed to the city’s diminishing role as a gateway between China and the West. It highlighted the long-arm jurisdiction of Chinese laws and regulations in Hong Kong. The European Union is also critical of Hong Kong’s NSL, saying the draconian laws “significantly affect” its office, citizens, and investment in the city. “This also raises questions about Hong Kong’s long-term attractiveness as an international business hub,” the bloc said in a statement in March. In its 2023 report, the EU emphasized the erosion of democratic principles and Hong Kong’s diminishing autonomy under China’s “one country, two systems” policy, reaffirming its commitment to human rights and democracy amid these developments. However, despite political tensions, the EU remains one of Hong Kong’s key trading partners.
As Hong Kong’s economy matures and the population ages, the city faces challenges like labor shortages, prompting interest in Southeast Asia as a source of potential labor solutions. With around 600,000 Southeast Asian residents already in Hong Kong, the city has a history of issues around mistreatment and racism toward this community. Many Southeast Asian immigrants face discrimination in the workplace, limited access to health services due to language and cultural barriers, and experience casual racism in daily interactions. This track record of social challenges may affect Hong Kong’s ability to leverage its Southeast Asian ties effectively and presents a hurdle to fostering trust and deeper economic connections with ASEAN countries.
Beijing has encouraged Hong Kong to strengthen its economic ties with Southeast Asia, a key region in China’s Belt and Road Initiative. The city’s traditional business model, which thrived on being a bridge between East and West, has been significantly disrupted as Western firms increasingly seek alternatives within Southeast Asia, compounding on Hong Kong’s domestic challenges. This shift to the same region by Hong Kong offers it a potential lifeline to maintain its role as a global financial center, albeit increasingly under China’s sphere of influence.
However, the success of this pivot is not guaranteed, as Hong Kong’s bid to join the RCEP requires approval from American allies such as Japan, South Korea, Australia, and the Philippines. As the US-China rivalry intensifies, Hong Kong’s ability to sustain its traditional role in the global economy faces substantial challenges.
Moreover, Hong Kong’s economic policies are often viewed with skepticism due to Beijing’s centralized control, particularly since the NSL reduced the city’s autonomy. This influence raises doubts about Hong Kong’s ability to engage independently with global partners, as its policy shifts may be seen as extensions of China’s strategic interests rather than independent initiatives. This may also affect the city’s credibility in fostering balanced and mutually beneficial international agreements with ASEAN countries.
While Hong Kong’s expanding ties with Southeast Asia offer promising opportunities, it’s uncertain if this pivot can fully compensate for the declining Western role. The city’s future as a global financial hub will depend on balancing efforts to tap into Southeast Asia’s dynamism and follow China’s interests.
