Earlier in the year (April 2016) has been a rough one for the Hong Kong business scene. The global crackdown on banks for allowing people to hide their money from their own government has been popping up in the Panama Papers, as well as stories of conmen using Hong Kong companies to launder money they cheated out of multinational corporations.
And already, we have been feeling the effects here.
Banks have responded by really closing their doors to new accounts. They are not welcoming “digital nomads” or other business owners who don’t have a true physical presence in Hong Kong. We are working hard to assist our clients in this troublesome time, but even existing account holders are getting letters that their account is going to be closed soon.
What is the future for international business? What is the future for Hong Kong business? Today, let’s brainstorm what’s happening in the industry and the rest of the world.
A Letter From a Reader, and Client
Here’s a rough letter I received from a client who I am assisting with the Hong Kong company bookkeeping:
It’s been awhile since our last contact, due to some events I wasn’t able to get back to you any sooner.
For my startup I’ve had some legal help to sort out the required licenses I need for my business. It turns out at this point in time I couldn’t go online with the project unless I have a physical walk-in office in Hong Kong (required by the tourism industry in Hong Kong). As this a bit of a roadblock combined with the difficulties to get decent banking / online payment for a Hong Kong startup I’ve made the drastic decision to reincorporate in the US and liquidate the company in Hong Kong.
As a result of the above I’ve stopped our monthly support subscription in PayPal. Not because I am unhappy with your service (on the contrary, I’ve really liked your input so far!) but because I will be looking for an US based accountant to help me out with all US tax filings.
I would really like to thank you for the input you have given me so far, I will definitely keep following your posts on globalfromasia.
I hid his personal details on his request, but this is one of many examples of what is happening now. Getting more and more people closing their Hong Kong businesses due to not being able to get their bank account open, or their banking getting closed up.
Hong Kong Has Been Known For Convenient, Global Banking
The differentiator for me was that Hong Kong allowed digital nomads and traveling business owners to headquarter here. That was the awesome part about it. That is what had me start this blog and podcast from the get go.
Yet it seems that the Hong Kong government cannot “force” banks to continue to be reasonable with new account opening. The banks are private companies, and their job is to keep their risk low and profits high. They report to their shareholders and board of directors, not to any government. Sure, there is a close relationship of banks and governments, but they are not one in the same.
So this puts the whole benefit of global business from Hong Kong at risk.
Many say it is a temporary tightening and like other issues with banking and regulations, the news and media will cool off and things will “go back to normal”. But entrepreneurs and business owners these days cannot sit back and wait for that to happen. Business must go on, and people must find solutions and ways to keep their operations going and their own business risk down. I have talked to many stressed out business people who have no bank account, yet they have customers, investors, and suppliers they need to exchange money with. Without a bank account, really, what can you use a company for?
Lower Shopping Revenue From Mainland Chinese
Hong Kong has made it stricter for Mainland Chinese to come to Hong Kong – which has lowered the amount of income for these high end retail shops. More and more news is coming out of shops, such as Abercrombie and Fitch closing their Hong Kong locations and instead opening more direct inside Mainland China.
The other issue is the currency. The Hong Kong dollar is pinned to the US dollar at about 7.78 HKD for 1 USD. Anyone watching the currency lately as seen the Chinese Yuan (CNY or RMB) dropping to the US dollar like crazy. Right now it is at 6.8 RMB to 1 USD – when earlier this year it was at 6.3! This means it is more expensive for Chinese to buy goods in US dollars – thus making Hong Kong a more expensive place to go.
Seems this will continue to squeeze the economy of Hong Kong.
Are Other Countries Going Through The Same Thing?
Seems that other countries and banking regions are going through similar tough times. Yet seems like Hong Kong was one of the hardest hit.
You may wonder why? Well, Hong Kong banks were named quite a few times in the Panama Papers as well as other negative press lately. Banks don’t like this attention, heck, they don’t like any attention – I have been trying to get a banker on this podcast for years! So when this kind of negative publicity comes out, they freak out.
People love Hong Kong banks, which justifies my whole website’s reason for being. English banking, low fees relative to other places, multi-currency banking with no issues on international transfers to most places in the world.
Yet, these convenient reasons also attract the “bad guys” to come here as well. Sigh.
The US Must Be Getting More Incorporations Now
As the letter I shared earlier, he is moving his business setup to America. Many have been doing this over the months. Sure, I have many readers and friends explain to me how convenient US banking is, and low bank fees on merchant accounts.
Seems the US regulators make it difficult for “offshore” banks to open bank accounts for clients, but easier and easier for “on-shore” bank accounts to open up. Offshore is such a strange word really, it is all relative to what your perspective is.
I am curious to hear how it is going for non-US citizens to open an American bank account. That is something I have heard has been a challenge – is that loosening up as the offshore bank accounts get clamped down? Is that the long term goal, to get everyone in the world to open US companies and US bank accounts?
Let’s take a step back and look at the big picture. To me, that seems like what is happening. Yet there are so many variables at play. I guess the US regulators like to see all the banking activity to go through the US financial system, as they have more control and can see the data and the people behind it. Is this the reason for the recent updates?
Example – Stripe Atlas
We were excited to see Stripe Atlas launch just a couple months ago. This is to allow people around the world to fill out one form, pay one fee, and open up a US company, bank account, and merchant account at one go.
I am curious if anyone has gone through this process yet? Americans have no need to do Stripe Atlas, it is more meant for non-US citizens. The big variable to me is how hard is it for these people to get a US bank account open. Still too early to tell – but if you’ve been through the process or know someone who has, I’d love to hear it in the comments below – or /contact/ contact me!
So while Hong Kong business has turned off the switch to “virtual companies” at the moment, US government is open arms for people from around the world to set up shop there – without having to come in. Just seems like polar opposite situations, both happening within a couple months from each other.
E-Estonia Program – Another Option?
We had Tak Lo on the podcast talking about “Borderless economies”. He is an advisor of the e-estonia residency program, and got me to try it out. I am now an e-citizen of Estonia too (though I need to fly up to Shanghai to pick it up!).
So many people ask me, what is the purpose of that?
The “big idea” is a similar one to Stripe Atlas. It is an “API” to build your virtual identity and virtual business. As people can do business anywhere in the world, governments need to compete to attract entrepreneurs to their jurisdiction.
As we continue to do business via the internet, via VOIP phone calls, via email, Slack, Whatsapp, Wechat, does where we live and where our office base really matter?
Hong Kong – Please Welcome Virtual Businesses Again
Smart governments should get the hint and get ahead of the curve.
Yes, we shouldn’t let bad people use bank accounts for money laundering, drug deals, and terrorism. But there should be a technology solution for this, not just simply closing the doors to those who aren’t physically in Hong Kong.
I really want to fix this – many say Bitcoin is the answer. Others say why not open a new bank in Hong Kong. Well, there hasn’t been a new one since the 1970s, and from the research seems that the current Hong Kong banks need to vote and allow you to enter the market.
So why would current banks vote in a new competitor, especially an online competitor who will disrupt the industry?
Well, this is the amazing thing about an open market – a global market. Those countries and businesses who embrace change in the market will win. Those who keep their doors closed and block new competitors and innovation will lose. Sure it may take decades, but the writing is on the wall.
The future is digital based businesses, virtual headquarters. It is destiny. Those who embrace is and build systems to support this change in times will win.