ECA’s recent location rankings update shows a threat to Hong Kong’s attractiveness By Lee Quane, Regional Director, ECA, Asia

The aim of ECA International’s research is to undertake an evaluation of locations based on an objective assessment of consistent factors, in order to assess the extent to which an employee will need to adjust their lifestyle and adapt to a new living environment if they are assigned overseas by their employer. Factors evaluated include climate; availability of health services; housing and utilities; isolation; access to a social network and leisure facilities; infrastructure; personal safety; political tensions and air quality.

The results of our assessment are then used to advise our clients if they should pay a location allowance if sending staff to a certain location and, if so, how much should be paid. Our most recent research of company practice shows that over three quarters of organisations with cross border employee mobility presently pay a location allowance to employees, so this is one of the most common elements of an assignment compensation package.

Our assessments are reviewed annually to ensure that recommended allowances are reflective of any changes that may affect living conditions in a particular location. Given that 2021 saw much of the world being impacted by the ongoing COVID-19 pandemic, it is unsurprising that we witnessed many locations move in our rankings.

Hong Kong

Hong Kong fell in our rankings last year, falling 19 places to the 77th position globally. The main reasons for this were a deterioration in media freedom in Hong Kong in 2021 as well as the impact of ongoing social distancing restrictions on residents in the city. The maintenance of relatively strict social distancing measures, alongside the COVID-19-related immigration restrictions in place throughout 2021, caused Hong Kong to fall by a wider mark relative to other locations which were able to relax social distancing and immigration restrictions in 2021 following on from lockdowns in place in 2020.

Despite this fall, Hong Kong remains within the top 100 of the locations we research and is also tied with Taipei as the location with the best living conditions in Greater China. The reason for this is due to the fact that it scores well in terms of factors that we attach more importance to in our assessment, including personal security.

Nonetheless, Hong Kong’s latest fall represents a continuation of a long-term trend over the course of the past 10 years in slipping down our rankings. The reasons behind this include environmental issues where Hong Kong’s air pollution levels remain stubbornly high, especially compared with more highly ranked locations such as Singapore, Sydney, and Tokyo. Similarly, unlike Singapore, which comes out at the top of our rankings, Hong Kong is impacted by typhoons on a regular basis which in turn bring disruption to businesses and personal lives. These causes for Hong Kong’s relatively low ranking are structural: there is little that can be done in the short to medium term to mitigate the impact of these on the city’s rankings. However, factors such as the relatively strict social distancing measures and immigration restrictions that Hong Kong presently has in place in comparison to other locations, are hopefully short-term in nature and if these are relaxed in the near future, Hong Kong may well climb in our rankings once again.

This is important as Hong Kong is struggling to attract and retain talent from mainland China and overseas on account of the restrictions in place. Data from Hong Kong’s Immigration Department showed a significant decline in the number of work permits granted in 2020 and 2021 in comparison to the pre-pandemic era. Furthermore, in recent weeks we have seen a significant increase in departures from Hong Kong. In the month of February 2022, Hong Kong experienced net emigration of approximately 70,000 people. In many cases, this may be temporary as foreigners and mainland Chinese compatriots working in Hong Kong or their families relocate elsewhere for work or personal reasons until Hong Kong overcomes the latest wave of COVID-19 cases. However, the longer Hong Kong remains in its relatively low position in our rankings, the more likely that it will become increasingly difficult for companies to entice staff to relocate to Hong Kong without providing greater financial incentives to encourage them to choose the city rather than more favourably ranked locations in the region, such as Singapore and Tokyo. This is important since it means that not only will Hong Kong struggle to attract talent from outside its borders, but costs may also increase owing to the need to pay people more.

Mainland China and beyond

Our research includes over 30 cities in mainland China. Like Hong Kong they all saw a fall in our latest rankings, with the principal reason being heightened immigration restrictions in response to the COVID-19 pandemic, making it more difficult for people to enter and exit mainland China. However, in some cases the falls were accentuated by other factors. For example, Zhengzhou fell the furthest in our rankings as the city was severely impacted by heavy rains and flooding in 2021. 

Shanghai remains the highest ranked location in mainland China, retaining its long-standing status as the location there with the best living conditions. Factors which differentiate Shanghai from other mainland Chinese cities are generally a wider availability of goods and services, a better developed infrastructure, a wider array of recreation options for employees and their families, and lower crime rates compared with other mainland Chinese cities.

Elsewhere, the locations in Greater China which saw the greatest fall in our rankings were Macau and Taipei. In the case of Macau, the fall has largely been due to the ongoing strict social distancing and immigration restrictions which, like Hong Kong, continued throughout much of 2021.

These results show that while Hong Kong and other locations in Greater China indisputably did well in mitigating the medical impact of the COVID-19 pandemic on residents in 2021, some of the measures that were put in place increased the degree to which these locations became isolated from elsewhere and, in turn, have impaired their ability to attract and retain talent from outside their borders. This phenomenon was not limited to Greater China. Other locations in Asia Pacific also saw falls in their rankings on account of COVID-19 related restrictions, including Singapore, New Zealand and Thailand. However, the risk to companies seeking to attract talent to come to locations such as Hong Kong in 2022 is that the longer these restrictions remain in place, the less attractive they will be compared to elsewhere. In the current global business environment where organisations are finding it harder to attract and retain talent, further falls in our rankings are likely to signify that it will become more difficult to draw talent and, for those companies that need to do so, the introduction of location allowances may be necessary in order to encourage talent to choose Hong Kong over more highly ranked locations in the region, most notably Singapore or Tokyo.