Stephen Kitts started his Eversheds Sutherland career in 1987 as a newly-qualified corporate associate in Nottingham. For the last decade, he's been based in Hong Kong as the firm's Managing Partner for Asia and was recently appointed Chair of the region. We caught up with Stephen to hear what the commercial outlook holds for Hong Kong and its status as an international hub for trade, finance and culture.
What’s life been like in Hong Kong, especially in the recent past?
It’s not been easy! Hong Kong has been at the epicentre of many issues that has led to change. The pessimists might argue that it’s no longer the place it was, others will disagree recognising its resilience and readiness for the bounce back. The last four years have been especially challenging: the civil unrest of summer 2019 was especially disruptive which led to an acceleration of political change. And just when a sense of normalcy was starting to return, COVID-19 hit the region. We endured some of the world’s most draconian travel restrictions until early 2023. Hong Kong became something akin to a ‘hermit kingdom’ – no tourists, no business travellers and locals feeling trapped by hotel quarantine, PCR tests on entry, travel bans and a decimated international flight schedule.
Here’s a startling stat for you: in 2019, there were 56 million international visitors to Hong Kong, in 2021 that number dropped to 91,400.
Yes, and despite that, Hong Kong continues to be one of the world’s leading financial centres. There hasn’t been any mass exodus of international businesses, though we are seeing some talent move to other regional centres, such as Singapore, and expats returning home to places like the UK, US and Australia.
What about the imposition of the National Security Law (NSL) in July 2020?
This was very controversial. Hong Kong was always meant to have a security law, but could never pass one because it was so unpopular. The protests led to China stepping in to ensure the city has a legal framework to deal with what it sees as serious challenges to its authority. There has been a concern that the law was drafted in a vague and general form that gave wide-ranging opportunities to shape life in Hong Kong as never before. There’s been a lot of ‘wait and see’ to understand its implications. The negative commentary outside Hong Kong about the NSL and how society will change is not surprising. That said, commercial life carries on, business continues to get done and international institutions still regard Hong Kong as the super connector in the region.
We often hear that Hong Kong is a ‘unique’ place to do business. Do you agree?
When we think of uniqueness, we’re attracted to the idea that something is exceptional. In the context of Hong Kong, however, we actually think in terms of stability and predictability in relation to its legal system. It’s also manifested by a ‘soft’ business infrastructure which the People's Republic of China (PRC) has not and seemingly is not be able to replicate. That infrastructure is based on trust which allows Hong Kong to function as a financial centre with a robust and transparent regulatory framework; as a centre for cross-border dispute resolution; a hub for trade and commerce; and a gateway to business with the Mainland. This trust is founded on the rule of law that inspires confidence. Some say Hong Kong will become ‘just another Chinese city’. Its uniqueness means its status as a world-class centre of business, culture, and trade will prevail to ensure a prosperous future.
We hear a lot about ‘One country, two systems’. What exactly is this?
This is a constitutional principle describing the governance of Hong Kong which, because it operates as a common law jurisdiction, has special status in the PRC. According to the Hong Kong International Arbitration Centre, Hong Kong law and English law were among the most commonly selected governing law in contracts over the past five years. Eighty per cent of all commercial cases filed in Hong Kong courts are heard in English; the same proportion of all arbitrations are also in English. And Hong Kong is the third most preferred seat for arbitration in the world, while arbitral awards rendered here are enforceable in 170 jurisdictions around the globe (via the New York Convention).
Should we be concerned this arrangement will change?
There has been very clear pronouncements made by high-ranking PRC officials, including President Xi, about the importance of maintaining ‘One country, two systems’ to the viability of Hong Kong and the confidence it gives to the international community. If there’s any meddling with this doctrine, confidence will quickly erode, as will Hong Kong’s status as an International Finance Centre.
Is the complexion of its society beginning to change?
It has always been a transient place with a strong flow of individuals both in and out of the city. Change is inevitable although we’ve seen that accelerate in recent times, especially in the mix of individuals in the financial and professional services sectors. A lot of talent has moved away from Hong Kong: that’s a cause of concern as the economy starts to rebound. The PRC Government wants Hong Kong to be successful. We’re seeing an increase in the number of Mainland Chinese who live and work here. Chinese banks and other financial institutions are building a significant presence and many State Owned Enterprises have established headquarters for their overseas operations. These developments play to Hong Kong’s international credentials and present significant opportunities.
What is Eversheds Sutherland’s strategy for Hong Kong and the wider region?
While the outlook has not been ideal with corporate transactional activity down, our strategy is to play ‘long’ on Hong Kong and China. Hong Kong will continue to be the preeminent financial centre in Asia: the gateway to China, the place where regional deals get done with deep bench strength in financial and professional services, an innovative centre for FinTech and a legal system that continues to inspire trust and confidence. We cannot be complacent and need to carefully monitor developments although the indicators are positive. There’s significant economic growth and burgeoning consumer consumption in APAC. Most multinationals have an Asia growth strategy and our Asia Pacific Alliance means we probably have the best coverage of any global law firm in the region. So wherever our clients do business, we can support by bringing the best of Eversheds Sutherland to them. There’s also a positive outbound story where Asia-headquartered companies are looking globally to invest. As someone once said to me ‘they need an Eversheds Sutherland’ to look after them on that international journey!
Any final thoughts?
The firm has provided me with extraordinary career opportunities to test myself and to learn and grow. It’s been a privilege to work with an outstanding group of individuals to build out our business in Asia. The region is a heady cocktail of opportunities – it’s fascinating, complex and certainly not straightforward. And while it’s faced many headwinds over the years, it’s always emerged vibrant and resilient. Lots more on the agenda as we plan for the future!