Alibaba National Security La Bytedance Hong Kong

Alibaba, ByteDance Expand HK Footprint for Political Reasons, Suggests Analyst

Rebbeca Ren

posted on June 22, 2020 0:16 pm

As Hong Kong as a Special Administrative Region faces existential crisis brought by the Chinese government's rushed National Security Law, multinational companies, especially banks, are scaling back, while ByteDance, the parent company of TikTok, as well as Alibaba Group, China's e-commerce and cloud computing giant, are expanding their footprint in the harbor city by leasing more office spaces for longer periods, Bloomberg reported.

According to the report, ByteDance signed a three-year lease on approximately 3,000 sq feet space at Times Square in Causeway Bay. The news of the lease came as the company, valuing more than 100 billion US dollars, was rumored in recent years to file for initial public offerings in Hong Kong, instead of the US.

Alibaba, which currently leases three floors and a dozen more units in the aforementioned building, also signed up for one more floor spanning approximately 17,000 square feet.

Analysts suggest that the new leases show that the two Chinese internet giants are optimistic about the long-term development of Hong Kong, and that increasing commitment to the city at this volatile moment may be seen by Beijing as an action of fealty.

"They believe that under the new order established by Beijing, the city can still play an irreplaceable role in connecting the world, which work in their favor," said one analyst at a top US investment bank's Hong Kong branch, who wished to remain anonymous.

The National People's Congress, China's top legislature body, recently approved the highly controversial national security law, or the Article 23 of the Hong Kong Basic Law, adding more fuel to the fire of democratic protests that have raged across Hong Kong for more than a year. 

At a conference in Shanghai earlier this month, China's Vice Premier Liu He doubled down on keeping Hong Kong a preferred place for investors earlier this month, saying that Beijing will adhere to the "One Country, Two Systems" policy.

However, the approved article further erodes the SAR's already diminishing free port status, legal autonomy, and pseudo-democratic system, etc., and is widely recognized by many in the democratic camp as a betrayal of China's own promise to keep Hong Kong under the OCTS policy for 50 years, beginning 1997.

The analyst told PingWest that it's a strategy for companies, Chinese or foreign, to pledge loyalty to Beijing in tough times in exchange for political interests, or umbrella, in extreme cases.

That claim could be justified with the case of both Alibaba and ByteDance. The former completed its secondary listing on HKSE in November last year, amid a local political turmoil. 

In a letter to potential investors before the listing, DAniel Zhang, Chairman of Alibaba, said that "Hong Kong is one of the world's most important financial centers...during this time of ongoing change, we continue to believe that the future of Hong Kong remains bright." 

Max Bonduri, founder of SGMC Capital, told BBC that Alibaba's listing in Hong Kong was also motivated by political, rather than purely financial, concerns.

ByteDance is also rumored to go public in Hong Kong as TikTok, the company's flagship product for the overseas market, is under investigation in the US, whose Senate has recently passed a bill requiring more IPO scrutiny on Chinese companies. 

Bloomberg reported that several financial institutions are reassessing their physical presence in Hong Kong as it experiences the worst recession on record, as well as the Covid-19 pandemic, which caused many of their employees to work from home. Property agency Jones Lang LaSalle reported that average vacancy rate across the city's business areas hit 7.2% in April, the highest since October, 2009, while rents dropped 3% compared to March.

Money are also flowing out of Hong Kong, according to economists. Singaporean regulators estimated that foreign currency deposits at both domestic and international banks operating in Singapore had nearly doubled since July last year, totaling $15 billion. The data does not say where the money is coming from, but economists point to the pessimism over Hong Kong.