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A U.S. company, its Chinese owners and Hong Kong
Will Hong Kong continue to be a vital global business hub?
November 16, 2023
Cirrus Aircraft was launched in 1984 by two brothers in their parents’ Wisconsin barn. It is credited with several innovations. Its headquarters are in Duluth, Minnesota, where it is the largest manufacturing company. The firm opened a $20 million research and development center this fall. In May it started a $13 million expansion at its Texas sales, training and service center. The firm specializes in small single-engine planes. Last year it sold 539 propellor planes and 90 small jets. It had about $900 million in revenue. To further fund its growth, it plans to go public – on the Hong Kong Stock Exchange.
Cirrus has been owned since 2011 by a Chinese state company, the Aviation Industry Corporation of China. AVIC is a giant firm. In 2021, U.S. Pres. Biden issued an executive order banning U.S. investment in a number of Chinese firms, including several AVIC divisions. Cirrus wasn’t included in that list, nor was Continental Aerospace Technologies, an Alabama firm that makes aircraft engines. That nearly 120 year old company was purchased by AVIC in 2011. That division has long been listed on the Hong Kong Stock Exchange.
The two firms were acquired after the Great Recession had hammered the U.S. and global economy. They have flourished in the years since. The companies are not defense contractors. They employ thousands of Americans and sell most of their products in the U.S. Some wonder if Cirrus’s decision to list now will draw scrutiny from the administration and China’s many critics in Congress.
But the planned Cirrus IPO reminds us of Hong Kong’s role as a global financial hub. Proximity to China's giant economy has been a big pull for businesses. The stock exchange there is the seventh largest in the world, with a market capitalization of $4.2 trillion. (The U.S., with the New York and NASDAQ markets is much larger at $47 trillion.) Singapore, Hong Kong’s regional rival, is smaller. Still, some argue that changes in laws and policies in Hong Kong make it less attractive to international businesses.
Hong Kong still scores well in various business-relevant comparisons. In 2022, Transparency International’s corruption perceptions index placed Hong Kong as twelfth of 180 economies. That put it behind fifth-ranked Singapore, but ahead of the U.S. which ranked 24th. China ranked 65th. The World Intellectual Property Organization’s 2023 global innovation index put Hong Kong 17th. Again, Singapore scored higher, ranking fifth.The U.S. ranked third and China ranked twelfth.
In 2020, U.S. multinationals employed over 131,400 people in Hong Kong, a decline from the over 144,300 employed there in 2017. U.S. multinational sales, however, were a record $167 billion in 2020. But U.S. multinationals employed over 212,700 people in Singapore in 2020, a record. Sales from Singapore were down in 2020 at $425 billion, almost three times the Hong Kong figure.
The slowdown in China’s economy has a big impact on Hong Kong. Even so, about half of the members of the American Chamber of Commerce in Hong Kong reported making more money in 2022 than before and about the same share expressed optimism about 2023. In early 2022, European businesspeople were quite critical of Hong Kong’s covid-19 policies. Half of those surveyed said their companies planned a full or partial relocation of their firms. The Hong Kong course shift pleased many European businesspeople. Their chamber’s policy address last spring celebrated efforts to ensure market integrity and sustainability policies. Still that address highlighted the continuing exodus of local and foreign talent from Hong Kong and argued the Hong Kong government needed to do more to make the city more attractive to young people.
Hong Kong's population already skews old (the median age is 44) , but so does Singapore's (43). Youth unemployment is lower than in China (6% versus 22%), but housing is incredibly expensive. After twenty years of large scale protests, many people and especially the young are discouraged about their future. At the end of 2022, only 30% of those surveyed felt that public opinion could influence government policies. This is a significant drop from 2017 when half said that popular views could influence policies. The year before 58% of those between 15 and 30 told university researchers they hoped to leave Hong Kong. A consultancy recently found that over half of Hong Kong's professionals were considering leaving. Of course, many urban centers are feeling challenged of late. Hong Kong has many geographical advantages, but its real strength has always been its people. Rebuilding their confidence won't be easy or quick.
Photos: Daniam Chou took the picture of the Hong Kong skyline in 2020 (unsplash) and the Cirrus Aircraft photo is from the company's careers page.
Resources
To learn more about Hong Kong, check out USCI's "Looking at Hong Kong" page. Learn more about Hong Kong's shrinking autonomy here.
Pres. Biden and prominent cabinet officials met with their Chinese counterparts in San Francisco yesterday. Earlier USCI newsletters covering Janet Yellen's summer visit to China and Blinken's recent meeting with Xi for a deeper insight into the dynamics of the US-China relationship. Last week's newsletter examined ties between California and China.
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