 I'm Karina Lyons, Vice President and Director of Research at the East West Center and host of East West Center Insights. The center is a cutting-edge research and capacity building institution and we're based here in Hawaii and our mission is to forge a deeper and greater connection between the East and the West. So every two weeks here on this show, which is on Tuesdays at two o'clock at Hawaii time, I'll have a conversation with an East West Center expert or a guest from our global network about critical Asia-Pacific issues. So check us out at eastwestcenter.org backslash insights. So today, joining us in Hong Kong is David Lee. He's Deputy Program Director at Hong Kong University, where he teaches in the areas of fintech, law, corporate governance, and ethics. He's a former Costco fellow at the East West Center and I believe that you're in your office today. Is that right? We look like we're in the same place. Yes, I am in my office. Yeah. So David... I wish I was in Hawaii. Yeah. We wish you were here too. Nice shirt, by the way. Thank you. You can see you're channeling the vibe. That's right. Yeah. So I'll just say a little bit more about you, David. You're an expert and consultant and investment, law and management and you work in companies and entrepreneurs right throughout the business life cycle from start-up to mergers and acquisitions and public listing. So thanks for joining us in Hong Kong. What time is it there? It is eight o'clock in the morning. Okay. And you got the kids off the school? They're on summer break for another, I think, 10 days or so. Doesn't it feel like it's been like a five-month-long summer break? For them, I'm sure it's felt that way. For you? A year, two years. Yeah, for my wife and I, probably not so much, but yeah, it's been a good learning experience. Hasn't it? So let's start there, David, the topic of the day, COVID-19. Until recently, Hong Kong was seen as an example to other jurisdictions on how to handle COVID-19. And you've had fewer than 4,000 cases and fewer than 50 deaths, I believe, in a population of 7.5 million people, right? But now the number of cases is rising, unfortunately. So perhaps you could talk us through the effects of COVID-19 in Hong Kong and how you think the government is responding to the research into cases. Yeah, so thanks for that question. And again, great to reconnect virtually with you, Karina. With COVID, I think a lot of people in Hong Kong thought we were kind of safe, in a sense, probably June-ish. So even schools kind of went back to normal in June for like the last month or so. You know, people still had masks and, you know, there was a lot of awareness around it. But things started normalizing. And then right around the first week of July, you started seeing a rise of cases again. And normally, even in the peak, so people are, you know, saying this is like another resurgence, in the previous peak time, you know, you may see like 20 or 30 cases. And then starting in mid-July, there was a stream of a number of days. I want to say almost 10 days in a row where there are like 100-plus you know, going on. Now we've kind of dipped below 100 again, but we're still close to it. I think the last few days, we've had cases by 80-ish reported cases. And then a few more deaths, unfortunately. There hadn't been too many deaths, but there have been a few now. A lot of the initial deaths or the deaths in the current surge have been folks who were in a nursing home. And so people who are probably had a little bit more compromised kind of health situation. Overall, I think, you know, if we go back to Hong Kong's kind of history with kind of public health issues, you know, there has been a lot of awareness of these things from SARS till now, right? And because of that experience, I think the government had a bit of a playbook that they could use. Mass-quaring culture is not, you know, even during non-pandemic times, a lot of folks still wore masks just, you know, for hygiene or whatnot. So those things, I think, helped. And I think the experience of dealing with SARS and a few other types of similar types of diseases have, or viruses have helped just the government, again, develop a playbook to deal with it. We'll see. I think overall the trend is, I think the government is cautiously optimistic that the trend line of the cases is kind of in the direction that they want to be. And just most recently, there have been a team of, I guess, medical professionals and lab professionals who have come over from mainland China to assist with testing. And I think that's the big push that the government is trying to make now that they want to roll out more and more tests. And kind of sticking with this theme, I was interested to talk more about the broader impacts of this new normal, as everyone's calling it. And I'm interested in your assessment as a practitioner of the impact on business and the world of work. How do you think the way that we work is changing? And will these changes be permanent? That's a great question. And I think, so it's really interesting. A lot of the large kind of global multinational companies that are in Hong Kong and other places in Asia, even pre-COVID, even when I was working in some of these companies 10 years ago, we would always have these things called BCP, business continuity planning. And you would practice them, I don't know, once a quarter, once or twice a year. And what COVID has shown us is that this business continuity planning initially was like, oh, if our server gets disrupted or there's a kind of a short-term disruption, you may have to work from home for like a day or two. This has just become a long-term business continuity planning exercise. And it's very interesting because I think you're going to see this in a lot of places where office real estate is expensive. So a case in point is going to be New York, which there's a lot of discussion already where they realize that a lot of the things that are happening, people can do from home. And they can do it on a sustained basis. So do we need such a large footprint in an urban area? And that's such high real estate prices. And so, again, it'll be to be determined. But I think in Hong Kong, what you've seen, you certainly see a shift in certain things around rents, both in the office space, as well as retail space. There's been certainly a collapse of rent collection for a lot of retail entities, both on the street kind of retail, just shops, but also in shopping malls, which have been obviously large drivers of revenue for a lot of the large property developers and owners in Hong Kong. And so a lot of that revenue has gone away. And office rentals have certainly been impacted as well. What is interesting, and I guess if I expand on that about the new normal, is I was recently looking at some kind of survey research and other things that people had done. And they were looking at one of the interesting forms of analysis was, hey, who do you end up speaking with when you're at home? Like in terms of your work network. And what they find is at least one of these research reports that I read found that people end up speaking to their strong ties a lot more than their weak ties, which is normal. And what that refers to in network analysis, there's people who are strong ties, so people you have strong relationships and people who are your weak ties, but usually we get the most amount of intelligence or knowledge or things beyond our network through the weak ties, because there's no overlapping. That network is less overlapping. And so there's an argument there like because we will tend to communicate people that we feel comfortable with when we're away out of the office, then our ability to access information, intelligence, et cetera could be diminished. And so I think there's an argument both ways, but certainly I think there have been a lot of companies and we've seen a lot of technology companies who are going away from standard office practices. That's fascinating about the predilection to tend to work with people you have stronger relationships with and just thinking about it just for a second, it makes a lot of sense. It would seem like the virus has a disproportionate impact on introverts. That's also another one. That's also another finding that they have. Yeah, for sure. So sticking with this, in a way, we think a lot about travel and travel restrictions because of the high proportion of tourist dollars that come in. And so restriction on travel is changing the nature of many industries as well as trade patterns among countries. And I was interested in your thoughts of these kinds of macro impacts on the global economy. So in terms of travel restrictions? Yeah, just the changes and the major changes in trade. And I signal tourism and travel because it's sort of top of mind for us here in Hawaii. But I'm interested in your take on more global impacts, just generally speaking. But I'm assuming that travel is a big part of it. Yeah, what's been interesting I think in terms of trendline where obviously China was hit hardest and first. And then you already see signs of a recovery in places like China. So if you look at hotel numbers in China, they were destroyed when COVID took off. And I remember I think Marriott or their branches in China or greater China, they might have been down like 90, 80, 90% during that period. And what they said was this was even worse than global financial crisis, et cetera. But you're already starting to see those numbers picked back up. China has kind of, they went through it first and now they've gone out of it first. And a lot of those numbers are recovering. And what you see, I think in a lot of, what we'll see in a lot of countries when, if countries manage to process the recovery should be quicker. Part of that is unlike maybe like the global financial crisis, at least like what we see in the U.S. is actually people have a lot more money in their bank accounts than global financial crisis fallout. Part of that is because the government has basically force fed money into consumers through different stimulus packages. And that's happened globally. That's happened in the U.S. That's happened in Hong Kong and other places. The other thing related to that is I think certain, I think there was a slight behavioral shift at least a lot of places, including the U.S. post financial crisis about not being too levered. And that's not to say there's not a lot of outstanding debt in the United States there is, but I think the average person's awareness of that was probably a bit heightened because of their experience roughly 10 years ago. And so in the combination of that awareness of debt plus, the way banks are now mandated to have more liquidity and the government's willingness to inject capital directly to the average mom and pop who's going to go out and spend money. There's probably a little bit of a reservoir for when things kind of normalize that spending will probably pick up. And this is what a lot of people are predicting, at least in certain economies like the U.S. But a lot of that, of course, is contingent on the fact that things get under control. And this is where the issues. Right. I have to say that's the most optimistic assessment that I've heard. And I am just a complete ignoramus. I'm just in it. I work. I manage a whole bunch of people. I'm really focused on doing my best to ensure job security. So I mean, that's so it's interesting to hear that, you know, that compared to the lease to the global financial crisis, there's greater resilience. And look, I'm a big believer in hope. So I like to hear those sorts of assessments. It sounds realistic, but I'm just not nearly as pessimistic as I thought. And so going from the macro level to honing back in on Hong Kong, Hong Kong is not only facing 1919, COVID-19, but also a period of social and political unrest as the territory becomes more, more integrated with mainland China. And both of these trends have outsiders like me wondering if Hong Kong can remain open and the cosmopolitan city. So what is your view of Hong Kong's future? I mean, is Hong Kong's future as a global financial center in jeopardy? So I've been having people have asked that question a lot in the last year or so. And I completely understand the reason for that question. I think in a broader sense, at least through the medium term, I don't have any doubts that Hong Kong as a global financial center will still remain one of the top three global financial centers. And I have no doubts about that. If we just throw out some anecdotes, I think the first is if you go on to, if you look at the Hong Kong Stock Exchange, it has been very robust in terms of companies trying to list. Last, when I checked earlier this week, there were roughly 100 plus companies who are pending IPO at the moment. So they've already submitted their IPO application to the Hong Kong Stock Exchange. And they're just going through the vetting process. Over 100 companies waiting to come to market. And that's not including a lot of companies who are preparing to list. And so a perfect example of that is Ant Financial, which is the kind of fintech arm of Alibaba. Alibaba I think has roughly a one-third stake in this entity, but it's reported that Ant Financial is going to do a dual listing in the fall of this year, where they'll list both in Hong Kong and Shanghai. Now, their current valuation, what people estimate is over 200 billion US dollars. So what that means is if they list with a valuation north of 200 billion for the total company, that means their IPO perhaps will be even bigger than Saudi Aramco, which was historically the largest IPO up until now. So in terms of Hong Kong as a financial, I don't think that's going to change anytime soon. Now, a large part of that is because there is a lot of capital flow from mainland China. And that's the reason, that's one reason at least, that we probably won't see much change. Now in the long term, who knows, we all thought 30 years ago that Tokyo was the main financial hub, right? And that's changed. And though it still remains a major financial center, I think most of that attention and shine has shifted to Hong Kong. But beyond that, I don't know if there are any other markets outside of greater China, be it Singapore, be it Australia, be it Korea that have a robust enough institutional infrastructure to displace Hong Kong in the medium term, as a capital markets and financial center. Huh. Okay. But what about all of the pressure on the property market in Hong Kong that doesn't have much of an impact? So that's interesting. So if we, and I think if we take a step back and look at the, like if we look at the US economy, for example, where stock markets, like the US stock, like S&P 500 NASDAQ are doing incredibly well. Actually, if you look at S&P, it just, I think just this end of July, I think it emerged where now, if you were in S&P 500 on January 1st, and you stayed in, you didn't sell, you're actually plus right now. So you've actually erased all your losses. Now, clearly that has not been the case for the main street economy, right? So in a sense, there is a kind of a separation between the stock market and then the real economy. But that's always been the case because stock market is kind of a view on what people have of the future really. And so in Hong Kong, I think there's a part of that, right? The property market, certainly there have been some reductions in rental, both on the commercial side, residential side, both rental yield on purchase price and things like that. But Hong Kong faces a lot of the same challenges that you face like in Hawaii, for example, in terms of limited land at the moment that's available for development. And the structure by which real estate development occurs in Hong Kong is there is a kind of a mitigating, just the process itself, there's ways to dampen supply and demand shop. So you don't have to feel it immediately if you're a property developer. Certainly they've taken hits, don't get me wrong. But overall, structurally, is this going to fundamentally just depress property markets in Hong Kong? I'm not sure, to be honest. But what we've seen just in the last week or two, there's like a new apartment that was open where people were coming in to put bids on apartments and they sold out. So now they probably sold out at a cheaper price than they probably initially thought. But they were apparently, at least with the reports, is that they don't have any vacant units now. So it's interesting. I mean, it's robust. It has been robust so far. That is really interesting. I wish I knew more about the property market here in Hawaii to make a comparison. But the layman's sense is that there's a real standstill. So that's really interesting. And kind of a good segue to talk a little bit more about the more social and political aspects of anybody's calculation about whether to do business in Hong Kong. So I was wondering if you could speak a little bit about the... We've got 10 minutes just so you know. Thanks. Thanks, crew. I was wondering if you could speak a bit about the impact of the current political tension and arrest on Hong Kong's future. And yeah, I'll just leave it there and let you frame it. So I mean, if we kind of rewind to like 2014 and we think about there was this umbrella movement that was widely covered in media and then fast forward through protests last year to the national security law now. And then if we think about in the context of business, I'll put it like an objective hat on when we think about issues related to rule of law. And this is what people talk about a lot. But just in the context of business, if we're really very frank about it, the core part of rule of law that businesses care about is the protection of property rights and contract rights from a purely economic and business perspective. And rule of law kind of emerge around, if we look back at its core, its original historical genesis was around how do we protect property rights and effectively contractual rights. And then it kind of expands from there and then you have things around like judiciary and transparency and all of this stuff that we tend to think about in the criminal law context. But if we take the criminal law context out and just again, because we're talking about the kind of the business prospects of Hong Kong and have the protest or the political unrest have happened, have those jeopardize the economic side of rule of law when it comes to property rights and contractual rights. I don't think so. I mean, I kind of pose it like this when I teach this to students and these are business students or law students. And we tried to look at it from a purely objective standpoint. So I said, hey, if you could sign a contract in, let's say you started a business and you signed a contract under Hong Kong law enforced in Hong Kong with Hong Kong is the governing law versus, I don't want to put any country on the spot, but let's say some country where you probably don't want to live, right? Then which country would you want to sign that contract? And of course, everybody's in Hong Kong. And I think if you were to run that exercise against Hong Kong versus and that you list all the countries in Asia, right? You could go from Korea, Japan, Singapore, China, blah, blah, blah, just go down the list. I would imagine Hong Kong would not more often than it would lose out in that A versus B kind of scenario. Again, just looking at purely the idea of protection of property rights and contractual rights. And as long as that is the case, then it will, I believe remain robust, which is, you know, that ties into the financial center, ties into the capital markets that we were talking about earlier, ties into business. I think we have to be honest to, you know, there were some reports where like, oh, a lot of companies or, you know, people are potentially reconsidering moving their Asia headquarters from Hong Kong to other places. And I think we all see those reports. I think those reports have a fair bit of naivete attached to them to be completely honest. And the reason for that is almost overwhelmingly all of those businesses, the majority of their revenue comes from the greater China market. So if you move your Asia headquarters from Hong Kong to wherever else in Asia, and you do that because ostensibly of issues related to protests, et cetera, you are going to effectively put yourself in the crosshairs of your Chinese consumers, right? There will certainly be a level of backlash to that. You know, individual level or whatever level. And so I think, you know, we tend to oversell that. I think the other thing related to all of this is, there's a lot of things that have happened, obviously in Hong Kong over the last year or two, in particular, where we just don't know like what the long-term implications of that will be. Now, maybe this has been a long-winded answer, but maybe I'll finish with this. So, you know, I think, so if we go back to the kind of the first question that you asked about COVID and about how the government has handled things, to me that really is a question about trust, right? Do people in Hong Kong trust the government? Certainly, in part, if you look at that as a whole, you would, you may just respond, of course they don't, but that's where they're protesting. Now, certainly there's parts of the government entity, different government entities where there's obviously been a lot of conflict and tension. But if you take Hong Kong, if you take the government of Hong Kong as a whole and look at the different institutions, right, could be revenue tax, it could be, you know, judiciary, et cetera, there is a lot of institutions in Hong Kong that are quite strong, that institution that people still have a high degree of trust in. Now, of course, when we look at trust or government trust, oftentimes that kind of gets broken down on, you have trust in the leadership and you have trust in the institutions of government. I think we can have a real good debate about do people in Hong Kong trust the leadership in Hong Kong? Sure, I think that's where a lot of protests have been. But when we get to the idea of the institutions in Hong Kong, I think on broadly speaking, most of the institutions in Hong Kong are still pretty robust. And again, if you were to compare some of these institutions relative to other institutions in other parts of Asia, I think they would actually do fairly well in terms of efficiency, in terms of, you know, tax system, tax codes, judiciary, legal interpretation, all that stuff. So overall, like, it's a very conflicted picture. And I'm always hesitant to paint it as kind of a monolithic, like, oh, people hate to go around. I don't think that's the case. I think we have to think of it through the trust lens. Yeah, that's it. Thank you for that comprehensive answer, because it is really complex. And it's funny, it does sound like what I was, how I was describing government institutions in the US about three years ago. Hey, and look, we're kind of, and I just wanted to talk more about trust, but we've only got a few minutes to go. And we've just had an interesting question come in that I thought would be fitting to sort of close out. And it's a direct reference to your explanation about sort of what motivates people to invest or sign contracts, you know, in various locations. So I'm just going to read it out. So there's recently four students were arrested in Hong Kong because of their social media accounts. And so then won't people be afraid to move to Hong Kong because of these strict laws? Or I guess like, I guess they're not actually referring to the national security law, but sort of that whole sort of sense that the legislative matrix is becoming tighter, stricter, so to speak. So just, yeah, just maybe a two minute answer on that. Please, David. Yeah, I think the quickest way to respond to that is what it's kind of twofold. One is, I don't know, to be honest, again, I think whenever new laws are legislated and so the law we're talking about that's been in the press is the national security law, which is that's a mainland Chinese law. The expectation is in the next legislative cycle in Hong Kong, whatever that is, you know, that the Hong Kong government will pass the local version of that, which is Article 23. Now, I certainly understand as a lawyer, as someone who has done a variety of things like I certainly understand the hesitation when it comes to that and around issues of free speech. And I certainly don't want to discount those concerns that have been voiced. And you know, there are a lot of people have that talked about those issues much more articulately than I can or will be able to. But for my own personal reason, I just don't know, to be honest, what ultimately the ramifications of these new laws will be. But I think on the flip side, and this kind of relates to the I don't know part of it, which I don't want to be vague, but there's a lot of countries actually that have various forms of national security law. Right. And some of those are established democracies, including South Korea, for example. Now, where the rubber hits the road, which goes to back to the first part of I don't know is frequently when it comes to these national security laws, particularly as governments mature, you know, become more democratic, whatever you want to say. They tend to not extend the full weight of that national security law in the prosecution of citizens. So that that tends to be curtailed in a lot of situations for again, for governments that want to try to preserve you know, be a rule of law or various basic freedoms. Now, of course, if you if the government says hey, we don't really want to preserve those things. And of course, in the laws used as a way to inhibit those freedoms. But I think fundamentally that circles back to the issue of trust, right, like the trust in leaders versus trust in institutions. Leaders may want to act in a certain way. And the way that most countries or jurisdictions are set up is that institutions act as a bulwark against the abuse of power by leaders. And we see that ironically, even in the US now and other places in the world. So, yeah. Well, thanks very much. I would always have a lot of fun chatting to you. And that's all we have time for today. Thanks for joining me and David Lee, senior lecturer at the University of Hong Kong and a fellow at a visiting fellow at the East West Center. And Aloha. Thanks very much for your time, David. Thank you. Thank you.