China’s tech crackdown, a national security law, and an expat exodus have pummeled Hong Kong. Can this CEO save the city?

Fortune intervened. As he readied for relocation, a headhunter called with an unexpected offer: Would Aguzin consider leaving JPMorgan to take over as CEO of Hong Kong Exchanges and Clearing (HKEX), operator of the Hong Kong stock exchange?

Aguzin was intrigued—but also bewildered—by the proposal. The Hong Kong exchange was then the world’s fifth-largest stock market, and HKEX, the corporate entity that manages the exchange, the world’s most valuable bourse operator. But HKEX owed its success to close collaboration with Beijing and had never been led by someone who wasn’t ethnically Chinese.

Aguzin recalls his initial astonishment at the headhunter’s offer. “I said, ‘Look, I don’t speak Chinese.’ ” The recruiter was unfazed: “That’s not a requirement. We are looking for the best person for the role.”

The Hong Kong financial establishment was no less surprised when, in February 2021, HKEX named Aguzin—an Argentinean who holds a Croatian passport, speaks Spanish, English, and Portuguese but neither Mandarin nor Cantonese—as the exchange operator’s new CEO. Bankers, brokers, and investors cheered HKEX’s appointment of an outsider with strong ties to the international finance community as a sign of the exchange’s determination to remain a global and independent institution amid heightened concerns about Beijing’s tightening grip over Hong Kong.

HKEX has prospered by functioning as the bridge between global capitalism and what the Beijing government for decades has called “socialism with Chinese characteristics,” allowing companies from China’s mainland to sell shares in a Chinese city with a British-style commercial code to global investors in a currency that is fully convertible and pegged to the U.S. dollar. At Hong Kong’s Asia Society in July 2021, Aguzin spoke passionately about the exchange’s opportunity to widen that bridge to make way for what he called “the Big Bang of Finance”—the emergence of a Chinese capital market that he believes will expand fourfold to at least $100 trillion over the next decade. “This is the biggest movement of money humanity has ever seen,” he said. “And it won’t be repeated again.”

But 14 months into his tenure, Aguzin, 53, is finding that bridge building can be a tricky business, especially when the places you’re trying to connect seem hell-bent on putting up roadblocks and pulling away from each other. Beijing’s insistence that Hong Kong stick with one-week mandatory hotel quarantine for inbound travelers has transformed the city into a no-fly zone. The quarantine rules, plus the unexpectedly harsh implementation of the sweeping new National Security Law Beijing imposed on Hong Kong in 2020, have Hong Kongers and expatriates alike running for the exits. 

The larger threat to the Hong Kong exchange—and the city’s status as a global financial hub—is Beijing’s ongoing regulatory blitz. The assault focused on internet companies, many of which were launched with U.S. venture financing and scaled up for listing on exchanges in New York and Hong Kong, signals Chinese President Xi Jinping’s growing distaste for foreign capital. As overseas Chinese listings have dried up, HKEX has fallen out of the world’s top three exchanges by funds raised for the first time in at least ten years.

Aguzin says he’s confident Hong Kong’s best years are still to come, but he seems to acknowledge that he may be fighting a losing battle. “We are at a time where communication and connectivity is harder and harder to achieve,” he notes. “While it may be optimistic to say I am going to help improve that, hopefully, I help the deterioration to become a lot slower.”

Aguzin, known to friends and colleagues as “Gucho,” grew up in Argentina. After graduating from the Wharton School, he joined JPMorgan in Buenos Aires as a financial analyst. For 30 years, he rose swiftly through senior posts in Argentina, Brazil, and the U.S. before CEO Jamie Dimon dispatched him to Hong Kong in 2012. As Asia Pacific CEO, Aguzin led JPMorgan’s drive to expand the bank’s operations on China’s mainland, which now include a fully owned commercial bank, a majority-owned securities company, an asset management company, and a futures and options business. Colleagues describe him as a savvy manager, polished and unflappable. He’s also a successful tech investor who holds a major stake in MercadoLibre, the Latin American equivalent of Amazon and Alibaba. In recent years he has sold about half his stock in the company for more than $7 million. In introducing Aguzin at the Asia Society dinner, Ronnie Chan, a prominent business tycoon, warned the audience: “Don’t let his friendly demeanor cheat you. He’s a lot smarter than most of us.”

But even the smartest guy in the room would be confounded by the challenges facing Hong Kong: the quarantine rules, Beijing’s looming influence, investors’ wariness. “I think we all can agree that the last two or three years had elements that were significant headwinds,” he says. “Even one of them [would be enough to] throw off a city.”

But he also describes Hong Kong as a city with “grit,” one that has a long history of defying predictions of its doom.

Fortune was among the many news outlets to write the city off as Britain prepared to hand Hong Kong back over to Beijing. A 1995 cover story, “The Death of Hong Kong,” declared that “as Hong Kong becomes a captive colony of Beijing … it seems destined to become a global backwater.”

“I think we can all agree that the last two or three years had elements that were significant headwinds. Even one of them [would be enough] to throw off a city.”

Nicolas Aguzin, HKEX CEO

That obituary proved premature. The city shook off the Asian Financial Crisis in 1997, the SARS outbreak of 2003, and the Global Financial Crisis to cement its status, alongside New York and London, as one of the world’s three great financial centers, the glittering Eastern extremis of the global capitalist trinity Time international editor Michael Elliott dubbed “Nylonkong.” By 2019, before the pandemic and the national security crackdown, Hong Kong’s financial services sector had swollen to 20% of the city’s economy and employed nearly 300,000 people. The city’s China connection, far from hastening its demise, was the secret of its economic success.

No institution leveraged that connection more adroitly than Hong Kong Exchanges and Clearing, the entity created in 1999 by merging the Hong Kong stock exchange and the Hong Kong Futures Exchange. Aguzin’s predecessor, Beijing-born Charles Li, wooed mainland enterprises with vigor and pioneered a program known as Stock Connect, allowing limited equity trading between the Hong Kong stock exchange and counterparts in Shanghai and Shenzhen. By the end of Li’s 10-year tenure, mainland companies made up more than half of HKEX’s 2,500 listed companies, accounted for 80% of its market capitalization and drove 90% of share turnover. The Stock Connect program, which generated about 13% of HKEX revenue last year, has been expanded to include similar platforms for trading bonds and for wealth management products, and to engage in currency swaps. 

When Aguzin took over in May 2021, HKEX was firing on all cylinders. In that year, Hong Kong hosted 95 new listings, raising a total of $42.6 billion, trailing only Nasdaq and the New York Stock Exchange as the world’s top IPO market, and reported a record profit of $1.6 billion, up 9% from the previous year. The market cap of the companies listed on the exchange totaled $6.7 trillion.

But trouble loomed. The National Security Law didn’t directly threaten Hong Kong’s financial community, but it unnerved many that local authorities enforced the new measure so aggressively. The government curtailed assembly and free speech and used the law to purge pro-democracy politicians and arrest dozens of pro-democracy activists. In June 2021, hundreds of police stormed the offices of Apple Daily, Hong Kong’s most boisterous pro-democracy newspaper. They shut down the newspaper and jailed its publisher, Jimmy Lai, who has been convicted of one incitement charge and faces multiple other charges of sedition that could lead to him spending the rest of his life in prison. 

The rollout of highly effective COVID vaccines emboldened countries worldwide to ease their travel restrictions in 2021, but Hong Kong kept its 21-day hotel quarantine requirement for nearly all inbound travelers. This spring, Hong Kong reduced hotel quarantine to seven days, but arrivals to the airport remain just above all-time lows. Most passenger air traffic is outbound. After growing steadily for 60 years, the city’s population shrank by 0.4% and 0.9% in 2020 and 2021, respectively, according to Hong Kong’s census bureau. In the first three months of 2022, more than 140,000 people departed Hong Kong. 

Recruiters report an acute dearth of junior and senior talent in Hong Kong’s finance sector. It will be hard to stop the bleeding so long as hotel quarantine rules remain in place. Hong Kong’s new chief executive, John Lee, formerly the city’s top security secretary, has hinted at looser policies. But he, echoing Xi, rejects the “living with the virus” philosophy. 

Aguzin is looking beyond the quarantine rules. “We are seeing some light at the end of the tunnel,” he says. “But how long is the tunnel? That’s the big question.”

An even bigger question is whether Xi has fundamentally lost faith in the open, market-oriented development model that allowed Hong Kong to prosper as middleman. 

Beijing’s commitment to COVID zero forced weeks-long lockdowns in cities, disrupted global supply chains, depressed consumer spending, and rendered the government’s 5.5% economic growth target for 2022 a fantasy. A central government campaign to curb overindebtedness in the residential property market has also undermined demand. 

Adding to the pain: rolling regulatory crackdowns on the nation’s internet giants. Days after billionaire Alibaba Group founder Jack Ma gave a speech belittling the nation’s financial regulators for thinking like “pawnbrokers” and stifling innovation, Xi personally ordered a halt to a $38 billion Hong Kong listing planned for Ant Group, Alibaba’s mobile payments affiliate. The cancellation of that deal marked the beginning of a two-year regulatory blitzkrieg that has targeted companies in a host of sectors, including e-commerce, online gaming, online education, and ride-hailing. The government has faulted companies for collusive business practices, fomenting online addiction, and failure to protect consumer privacy and national security. 

That crackdown triggered a $2 trillion selloff in shares of Chinese companies—and prompted many large global investors to label China stocks “uninvestable.” Analysts think Xi, who has railed against “disorderly capital,” blames foreign investors for fueling the excesses of Chinese startups. The Chinese leader, some say, has embraced social and economic policies aimed at bolstering stability, control, and ideological rectitude, at the expense of innovation and growth. 

Beijing may see that as an easy trade-off since the government can replace overseas financing with its own capital to serve its own ends. Beijing has poured money into strategic sectors—semiconductors, biotechnology, quantum computing, renewable energy, and artificial intelligence—that the government considers necessary to protect China from U.S. sanctions. 

Aguzin touts China’s booming capital market as proof of Hong Kong’s enduring role as a gateway to the world’s second-largest economy. To Beijing, though, the very expansion of that capital pool may indicate that China is wealthy enough to go it alone. 

There was a burst of applause and camera flashes on June 24 as 36-year-old Hong Kong entrepreneur Steven Lam, a blue blazer pulled over his T-shirt, stepped nervously up to a golden gong—Hong Kong’s answer to the New York Stock Exchange’s opening bell—and, using a red mallet, gave it a firm whack. For the exchange, the occasion was a milestone: the first in-person listing ceremony on the exchange’s old trading floor in over two years, reflecting an easing of Hong Kong’s COVID restrictions. GogoX, the Hong Kong logistics startup Lam co-founded in 2013, raised $83 million in its debut, and while shares promptly sank below their listing price, the sale valued GogoX at $1.3 billion, certifying the venture as Hong Kong’s first bona fide tech unicorn. 

But the truly remarkable thing about GogoX’s listing is that it took place at all. Hong Kong is in the throes of an excruciating IPO bust. In the first half of 2022, HKEX brought only 27 new companies to market, raising $2.7 billion, a 91% decline from the same period the previous year—and the exchange’s lowest total since the global financial crisis, according to Dealogic. Listings have slumped on other exchanges too; funds raised from IPOs on Nasdaq and NYSE in the first half were down about 95%. But it’s unclear how quickly Hong Kong, dependent on listing mainland enterprises because it has so few homegrown startups, can bounce back.

By Aguzin’s count, 182 companies have submitted their applications to be listed on the exchange, of which 39 have been granted tentative approval. That may make for a better second half. “The pipeline is very good,” he says. In late July, Alibaba said it wanted to join that pipeline and will apply before the end of the year to upgrade its listing status on the Hong Kong exchange to primary from secondary. The move could pave the way for other Chinese tech giants with secondary status in Hong Kong—among them JD.com, Baidu, and NetEase—to do likewise. But winning permission to list and doing it are different things. As Aguzin acknowledges, the long queue partly reflects companies’ reluctance to sell into a bear market. In June, accounting firm PwC slashed its estimate for funds raised by new listings in Hong Kong this year to $23 billion, roughly half the firm’s January estimate and the exchange’s 2021 total.

“The fundamental dilemma of [HKEX] is that it isn’t in charge of its own future. So much turns on the politics in Beijing and Washington, and how the leaders of those two countries interact.”

Fraser Howie, independent financial analyst and author

As Hong Kong’s IPO machine sputters, sales of new shares on China’s mainland bourses are going gangbusters. Shanghai, Shenzhen, and the recently created Beijing Stock Exchange hosted 174 new listings in the first half of this year, raking in a record $46 billion, making China the world’s richest IPO market and accounting for about half of global new share sales. And applications for new listings on China’s exchanges spiked to a record high in June, with investors eyeing the prospect of several blockbuster deals, including the possible debut of Swiss agrochemicals group Syngenta, a division of ChemChina that is expected to list on Shanghai’s STAR market, raising an estimated $10 billion.

In April, state-owned China National Offshore Oil Corporation (CNOOC) staged one of China’s largest IPOs of 2022, raising $4.4 billion in Shanghai after being booted from the NYSE by a Trump-era investment ban. That CNOOC turned to Shanghai, not Hong Kong, for funding highlights both the promise and peril of the former British colony’s bridging role. CNOOC was already listed in Hong Kong, but shares in Shanghai have been trading at a premium to those in Hong Kong. Two other state-owned behemoths, China Telecom and China Mobile, chose Shanghai over Hong Kong after they were delisted by the NYSE. Combined, they raised about $15 billion. 

Washington has threatened to delist as many as 261 more Chinese firms from U.S. exchanges by 2024 unless they comply with U.S. auditing and disclosure requirements. The companies, which have a current market capitalization of $1.3 trillion, could create a bonanza for HKEX if the Hong Kong bourse can edge out mainland rivals for these so-called homecoming listings. Financial Secretary Paul Chan estimates Hong Kong could capture as much as 90% of the market capitalization of Chinese companies forced off Wall Street. But Hong Kong has yet to benefit from the tussle, and Jefferies securities analyst Shujin Chen warns that even if the largest firms choose Hong Kong over mainland exchanges, there is no guarantee their debuts will command the same valuations.

“You can’t just assume, ‘Oh, all these Chinese companies listed on Wall Street will come back to Hong Kong,’ ” says Chen. “It’s not so simple.”

Hong Kong could score Ant’s long-awaited IPO, but at least one key investor has lowered the fintech firm’s valuation to $68 billion, less than a third of what it was before the crackdown. Hong Kong might also win another prime homecoming candidate: ride-hailing giant Didi Global, which delisted from the NYSE this year to repair its relations with Chinese regulators. But what got Didi in trouble with those regulators in the first place was concerns that, in meeting disclosure rules of an overseas exchange, the company would divulge data compromising national security. Those fears may also bedevil a Didi attempt to list in Hong Kong. 

That leaves Aguzin pursuing a strategy that HKEX investors have long called for: reducing its dependence on mainland companies. 

The exchange hosts just 156 companies headquartered outside greater China—among them Prada and L’Occitane. Together those companies represent 5% of the bourse’s traded market cap. At the World Economic Forum in Davos in May, Aguzin announced that HKEX will establish offices in New York and in Europe to promote the Hong Kong exchange not only as a venue for global investors to invest in Chinese companies, but as a place where non-Chinese companies, too, can raise capital and their profile. 

But it’s hard to hype Hong Kong as an IPO destination when the city is still closed off. Aguzin was quarantined for seven days when he returned from Switzerland. Anyone putting on a Hong Kong roadshow would have to do the same. 

Aguzin is pushing to diversify the exchange’s business model in other ways as well. He’s heartened by Hong Kong’s success in attracting biotech firms; the exchange is second only to Nasdaq in raising money for such enterprises, and while, for now, those firms are all Chinese, he sees the potential for Hong Kong to attract non-Chinese biotech firms seeking to be “compared to their peers.” He talks of creating a similar industry cluster for the makers and suppliers of electric vehicles. But analysts say the gains from that flurry of focused initiatives are unlikely to keep the Hong Kong exchange competitive with rivals in New York and London.

$1.3 trillion

Market cap of U.S.-listed Chinese firms at risk of delisting

One item not on Aguzin’s diversification agenda is a major overseas acquisition. Li, for all his China successes, failed in his 2019 bid to purchase the London Stock Exchange. Many analysts speculate HKEX hired Aguzin to make a similar move. Aguzin downplays the possibility. He says he’s “open to opportunities that expand our breadth” and “help us achieve our core objectives,” but won’t buy another exchange “just to gain size or critical mass.”

“I am not going to just do a market in Europe to say, ‘Hey, I have Europe now,’ ” he says. “It has to make sense.”

LSE’s board vetoed the 2019 bid over concerns that it would give China too much influence over the U.K.’s financial system. The Hong Kong government owns a 6% share in the exchange, and Hong Kong’s financial secretary has the right to appoint six of HKEX’s 13-member board of directors. Europe’s suspicion of China has only increased since, which Aguzin seems to acknowledge. “I have done M&A for a long time. Especially in this environment, in the current geopolitics, it would make it even more difficult,” he says. 

Fraser Howie, an independent financial analyst and coauthor of Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise, agrees. “If you are a JPMorgan head, you come with a huge Rolodex of influential contacts, and you know how to do deals. This is a guy who could certainly do a deal. The problem is there is no obvious deal to be done.”

And therein lies Aguzin’s real challenge. For all the targeted initiatives he’s rolling out, HKEX remains largely at the mercy of the superpower shoving match, in which the exchange and Hong Kong have very little say. 

“The fundamental dilemma of the exchange is that it isn’t in charge of its own future,” Howie says. “So much turns on the politics in Beijing and Washington, and how the leaders of those two countries interact.”

One saving grace is that no other Asian city—not Singapore, Tokyo, or Shanghai—can match Hong Kong’s appeal as a global financial hub or gateway to China. “You can still transfer money in and out freely. You can access information on the internet from anywhere in the world,” Aguzin says. Another big enticement: Hong Kong’s top income tax rate is 17%, and the city exacts no tax on capital gains. 

Read more: Singapore, Tokyo, and Shanghai all dream of replacing Hong Kong as Asia’s top financial center. Here’s how they compare

Aguzin takes the long view. “I am not saying that nothing has changed over the past three years. But what I would say is that from a commercial point of view, from a financial point of view, this city continues to be a thriving financial center.” He says he has no doubt that in 10 years, Hong Kong will still be a vital global hub. And in the meantime? He shrugs. “Markets go up, markets go down.” Not even the CEO of one of the world’s most important stock exchanges can change that.

This article appears in the August/September 2022 issue of Fortune with the headline, “Can this man save Hong Kong?”