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In the 1990s, financiers mocked "the FILTH": British bankers or businessmen who "fail in London try Hong Kong". If you couldn't make it anywhere else, you could still make it on the shores of the fragrant harbor, whose ever-rising tide floated all the boats. Hong Kong was Manhattan, Las Vegas, and Los Angeles in Asia, all rolled into one – money, nightclubs, fast cars, world-class restaurants, stock market booms, beaches, yachts, and seedy go-go bars. It was a boom town because it was the gateway to China. This was the base for the greatest gold rush of the 20th century: the reawakening of the Chinese dragon. Despite recent crackdowns on civil liberties, Hong Kong is far from turning into a financial backlog. As long as opportunities still exist, it will continue to attract foreign investors who feel more at home there than on the mainland.

Expats have long preferred Hong Kong to Shanghai or Beijing. There are better schools, hospitals and espresso bars in the city. Google is still working. Unlike on the mainland, the economy and society felt free. While the British had never granted Hong Kong real democracy, the rule of law was clear. Private equity firms had a level playing field, taxes were low, the press was free, and the judiciary was independent. This is why Britain fought so hard for the “one country, two systems” principle that had been enshrined in law for 50 years when Hong Kong returned to Chinese rule. China promised to give Hong Kong the democracy that Britain had denied its colony. Of course, the truth emerged a little differently.

All of a sudden, Hong Kong went out of style. Unrest, the Covid-19 pandemic and Chinese government repression have come together to deter the same expats who made it their home. Six weeks ago, China passed a comprehensive national security law on Hong Kong that forbids secession, subversion and collusion with foreign countries. It's already had a dramatic impact on the city's media and politics. The new law removes the civil rights that local residents have long enjoyed, and risks arresting foreign businessmen for vaguely defined crimes and bringing them to justice in China.

Beijing is far from liberalizing and countering dissent inside and outside its borders. The new security law explicitly applies beyond Hong Kong and applies to non-Hong Kong residents. This makes this once free-roaming city dangerous to anyone who Beijing considers unfavorable. Growing economic tensions between the US and China have also created tariff and non-tariff barriers.

Last week, more than 200 police officers raided the headquarters of Apple Daily, the city's most widely read pro-democracy newspaper. Several managers were arrested, including the newspaper's high profile millionaire Jimmy Lai. Lai faces a number of charges under the new law, in particular collusion with overseas. He is on good terms with the Trump administration and has testified before Congress in the past.

At the same time, China is trying to reassure the world that it should keep doing business with Hong Kong. For the foreseeable future, the city will continue to be the hub for inbound and outbound investment on the mainland. While Singapore has gained a foothold among private equity professionals with a transparent legal framework and an increasingly comprehensive tax treaty, Hong Kong counters with its own incentives. A new Limited Partnership Fund bill aims to establish Hong Kong as the main destination in Asia for private equity and venture capital funds. The legislation proposes Hong Kong as the seat of private equity, venture capital and real estate funds and will attract private funds and family offices to Hong Kong. Hong Kong headquarters would give these companies direct access to the region and Hong Kong's robust capital markets. It will be a catalyst for the growth of technology and financial services.

Officials have also announced plans to introduce a new interest tax system, expected to be one of the most liberal in the world, designed to make the city a viable alternative to the Cayman Islands, especially for Asia-focused funds. The Hong Kong government is also planning substantial tax breaks on the performance fees of private equity funds with "interest income". Singapore offers similar benefits, but Hong Kong strives to be even more generous to investors.

All of this will be attractive to investors as Hong Kong is still floating in prosperity. Tycoons have surpassed almost everyone else. With a population of just 7.5 million, the territory ranks seventh in the world with 96 billionaires and total assets of $ 280 billion. This comes from Wealth-X's 2020 Billionaire Census. Of all the world's cities, only New York has more billionaires.

Hong Kong is now clearly part of the People's Republic of China and at the suggestion of the government, mainland funds are flowing in.However, there is little evidence of foreign capital escaping. Foreign investors who want to participate in China's economic growth have no choice but to use Hong Kong's capital markets as their primary vehicle. The Hong Kong dollar has held its trading ties against the US dollar. The stock market has seen strong inflows from mainland institutions, and there are more and more red-chip companies based in mainland China, but listed on the Hong Kong Stock Exchange. The Hang Seng Index fell sharply in the first quarter but rebounded 14% from its March low. The index is still 9% below its high two years ago, but rumors of Hong Kong's decline may be exaggerated or just plain wrong.

Though China has harnessed a harness around the neck of its golden goose, Hong Kong's economy is too precious to kill. Vietnam and Singapore are certainly benefiting from the recent problems in Hong Kong as expats move in and fund managers pour more money into these markets. As long as Hong Kong's financial advantages persist, Western professionals and investors may find themselves back in the shiny office towers of Hong Kong Central sooner than expected.

Euan Rellie is co-founder and Senior Managing Director of BDA Partners, an Asia-focused investment bank.

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