Record Spike in Flight of Capital From Hong Kong to Canada After China Clampdown

Capital is flowing from Hong Kong to Canada at an unprecedented level following the increasing Chinese crackdown on the independently governed city.

The inflows to Canada, the most preferred destination for Hong Kong residents, touched record $34.8 billion (C$43.6 billion) through the electronic funds transfers (EFT) alone. Canada's FINTRAC, the agency that is responsible for anti-money laundering vigil, revealed the numbers after tracking all transfers above C$10,000.

China rolled out the controversial national security law in Hong Kong aiming to seal the city's "second return" to the motherland after Britain's 1997 handover. The dire move came after months of popular protests over the waning of democratic rights in the city.

Hong Kong protest
Twitter Screen Grab/Ezra Cheung

Suppression of Democracy

In the local elections held in the self-ruled city in 2019, pro-democracy candidates had registered a thumping win, underscoring the trouble that that lied ahead for the leadership in mainland China. In a landslide victory, the democrats won in 388 seats, whereas pro-Beijing candidates won in 58 seats. The city of 7.4 million people went to the polls under the shadow of violent protests but the polling itself was peaceful and no violent incident was reported.

Later in November 2020, four Hong Kong parliamentarians were disqualified in a Chinee move dubbed as "the death-knell of Hong Kong's democracy fight". The legislators were called "unpatriotic" by Beijing. China's highest legislative body ratified the disqualification.

Pro-democracy activists said it was another instance of Beijing's intent to destroy Hong Kong's freedoms and the culmination China's six-year-long effort to "extend their jurisdiction over Hong Kong completely". They said the move undercut the separation of powers and annulled the basic law. They said the move meant that that 'one country, two systems' in Hong had come to an end.

Huge Surge in Deposits

Meanwhile, Canada's Equitable Bank told Reuters that it has seen a surge in deposits from Hong Kong following the enactment of new national security law in June 2020.

Canadian dollar notes
Canadian dollar notes Reuters

In the face of the increasing rate of the capital flight, Hong Kong has insisted that it has not witnessed significant capital outflows following the anti-government protests.

However, according to data, the transfers were 46 higher compared to 2016 and 10 percent compared with 2019.

The increasing flow was recorded despite the city administration freezing the accounts of several people linked to pro-democracy protests.

The outflows to Canada constituted about 1.9 percent of Hong Kong's total bank deposits in 2020, the report says. But the actual inflows could have been much higher. The catch is that data with FINTRAC only reflects only a fraction of total legal inflows into the Canadian economy.

Transactions through cryptocurrencies, and amounts involving less than C$10,000 are not included, along with transfers between financial institutions.

Rise in Canada Visa Applications

Meanwhile, the report also says that Canadian visa applications from Hong Kong rose 10 percent to 8,121 in 2020. This excludes applications for visitors' visas. After Canada, countries next in the list are Britain and Australia.

According to a Canadian lawyer based in Hong Kong, there is at least a five-fold increase in clients seeking to move to Canada since mid-2020. Jean-Francois Harvey told Reuters that his clients transferred at least C$1 million each in the last 12 months. Usually the transfer is between C$5 million and C$10 million, he added.

"There's been an incredible increase in demand especially for Canada in Hong Kong, so much that in the middle of COVID-19, I had to double the team and the size of the office in Hong Kong... This is more than a spike. This is a wave," he said.