China’s recent Hong Kong security legislation could be the beginning of the end for Hong Kong as one of the world’s leading financial and trading centers.

Many of the 9,000 foreign firms—1,300 of them American—that have regional headquarters there are evaluating the threat from the new law and what many perceive to be a deteriorating commitment to human rights and the rule of law. 

Exits from Hong Kong are already beginning.

While some companies are taking a wait-and-see approach, a number of technology companies—particularly those that collect and manage data, making them especially vulnerable under the new legislation—have already begun exiting Hong Kong.

For example, Naver, which owns South Korea’s largest internet search engine, is relocating its data centers from Hong Kong to Singapore. Measurable AI, which generates data analytics by tracking transactional email receipts, is accelerating plans to relocate parts of its operations to Singapore and New York. And the software company Oursky is now planning to set up offices in the United Kingdom with plans to expand in Japan.  

International media outlets are assessing their need to leave Hong Kong due to the loss of broad media freedoms. The law curtails freedom of speech and opens the way for authorities to harass and punish journalists if their content is deemed at odds with the national interests of China. 

The New York Times has announced relocating part of its Hong Kong office to Seoul. The Wall Street Journal is also considering a change. Many of the world’s largest news organizations have regional offices in the city and likely will have similar concerns. 

After China’s imposition of the national security law on Hong Kong, a survey conducted by the American Chamber of Commerce in Hong Kong of 154 members indicates that about 36% have plans to move capital, assets, or operations out of the city.

Hong Kong’s regulated financial markets, transparency, and geographic location once made it an ideal location for foreign financial institutions to establish regional headquarters. Now, considering the new regulations, Hong Kong’s financial markets are clearly becoming less attractive to listing companies, investment banks, and institutional investors other than mainland Chinese companies as perceptions of risk have increased.

Stock exchanges and financial markets elsewhere in the region that offer robust regulatory oversight and transparency requirements will be the beneficiaries.

Singapore, which occupies the No. 1 position among 180 countries in The Heritage Foundation’s 2020 Index of Economic Freedom, is a top contender in the Asia-Pacific region for companies relocating their operations from Hong Kong.

In addition to economic freedom, Singapore offers an enviable operating environment, given its highly developed infrastructure, ease of doing business, and quality of life. Other regional contenders that have earned high ranks in the 2020 Index of Economic Freedom include New Zealand (ranked No. 3), Australia (No. 4), Taiwan (No. 11), South Korea (No. 25), and Japan (No. 30).

Some financial institutions are well-positioned to more easily transition their operations from Hong Kong. UBS and Citigroup established regional offices in New Zealand years ago. Citigroup, Bank of America, and BNP Paribas have a significant presence in Singapore, a location well-prepared to offer a stable environment.

So, what should the United States do?

The United States has already announced the revocation of special benefits previously provided to Hong Kong because of its status as a special administrative region. Officials deemed culpable of acquiescing too easily to new restrictions from Beijing are being personally sanctioned.

Beyond these moves already taken, there’s little for the United States to do. U.S. companies are best positioned to decide individually how to respond to the risk to the freedom, safety, and security of their employees in Hong Kong.

Many are likely to relocate people and capital to more hospitable and stable business environments in the region. Interference or intervention on the part of the U.S. government will not be necessary to bring about that outcome.

China might still have time to keep what has started as a trickle of departures from turning into a flood, but the administration of Chinese President Xi Jinping has shown no signs of backing down.

That’s a tragedy for the people of Hong Kong, and a sign that hopes for greater future harmonization of economic and political norms between China and the West have become increasingly dim.