Ris­ing China risk tar­nishes Hong Kong busi­ness hub lus­ter

The Pak Banker - - MARKETS/SPORTS -

For decades, Hong Kong thrived as an Asian busi­ness hub thanks to its killer com­bi­na­tion of West­ern free­doms, in­de­pen­dent courts and close­ness to main­land China's boom­ing mar­ket. Now po­lit­i­cal and eco­nomic ills from the main­land are erod­ing that edge. Swedish-Chi­nese au­thor Gui Min­hai was count­ing on Hong Kong's free­doms when he chose the city as the base for the pub­lish­ing em­pire he has built up over the past decade, churn­ing out ex­poses on elite Chi­nese pol­i­tics that were snapped up by visi­tors from main­land China, where they are pro­hib­ited.

The re­cent tem­po­rary dis­ap­pear­ances of Gui and four col­leagues, in­clud­ing his Bri­tish chief edi­tor Lee Bo, ris­ing po­lit­i­cal volatil­ity and slow­ing growth in China are un­der­min­ing con­fi­dence in Bei­jing's prom­ises to leave the city's free­doms in­tact for a half-cen­tury af­ter tak­ing con­trol of Hong Kong in 1997.

Lo­cal frus­tra­tions will likely in­ten­sify as the city's pro-Bei­jing elite pre­pares to choose a new leader for the spe­cially ad­min­is­tered Chi­nese re­gion next year.

In un­usu­ally blunt com­ments, Fi­nan­cial Sec­re­tary John Tsang pre­dicted re­cently that Hong Kong's econ­omy would eke out its small­est ex­pan­sion in four years in 2016.

"Pol­i­tics and eco­nom­ics are closely in­ter­twined. Po­lit­i­cal volatil­ity will un­avoid­ably im­pact on our econ­omy," Tsang said in his bud­get speech last month. Ten­sion and tur­bu­lence have left many in Hong Kong feel­ing suf­fo­cated by an con­fronta­tional at­mos­phere, said Tsang, warn­ing of "even greater chaos" ahead if ten­sions aren't re­solved.

Hong Kong re­mains wealth­ier and freer than the main­land, but the city of 7.2 mil­lion is riven with in­equal­ity and faces grow­ing com­pe­ti­tion from other Chi­nese busi­ness hubs like nearby Shen­zhen and Shang­hai. Mean­while, Chi­nese Pres­i­dent Xi Jin­ping has sought to crush dis­sent in other re­gions like Xin­jiang and Ti­bet, show­ing lit­tle sym­pa­thy for the yearn­ing among many in Hong Kong for greater democ­racy.

In­vestors aren't rush­ing for the ex­its yet, but in the fi­nan­cial in­dus­try, back­bone of the econ­omy, the mood is dark­en­ing.

"If Hong Kong is grad­u­ally be­ing taken over by all these Chi­nese busi­ness prac­tices and also po­lit­i­cally there's more and more pres­sure and in­flu­ence com­ing from main­land China, this will def­i­nitely de­stroy Hong Kong in the end," said Ed­ward Chan, an in­vest­ment fund man­ager.

For­eign in­vestors might start to "think that if Hong Kong does not have rule of law or any­thing, why don't they just move their in­vest­ment di­rectly to Shang­hai or Bei­jing? What's the dif­fer­ence?" he said.

As Bei­jing in­creas­ingly opts more for the "one coun­try" part of the "one coun­try, two sys­tems" frame­work guar­an­tee­ing its sep­a­rate le­gal and fi­nan­cial sys­tems un­til 2047, Hong Kong is pay­ing a price.

Dim­ming Hong Kong's im­age as a global fi­nan­cial cen­ter, HSBC de­cided in Fe­bru­ary not to move its head­quar­ters from Lon­don back to Hong Kong de­spite a re­struc­tur­ing fo­cused on "piv­ot­ing" to­ward Asia. The Hongkong & Shang­hai Bank­ing Corp. was founded in the city in 1865 and shifted its head­quar­ters to Bri­tain in the early 1990s.

In ex­plain­ing its choice, HSBC did not re­fer to China, though lauded Bri­tain's "in­ter­na­tion­ally re­spected reg­u­la­tory frame­work and le­gal sys­tem." On Mar. 12, credit rat­ing agency Moody's In­vestors Ser­vice cuts Hong Kong's outlook to neg­a­tive from sta­ble, cit­ing ris­ing po­lit­i­cal risks and China's slow­ing growth. It had down­graded China's rat­ing two weeks be­fore.

"In­creas­ing po­lit­i­cal link­ages are likely to weigh on Hong Kong's in­sti­tu­tional strength," the agency said. "In ad­di­tion, the risks to China's eco­nomic and fi­nan­cial sta­bil­ity may also un­der­mine Hong Kong's own eco­nomic and fi­nan­cial outlook."

Hong Kong's free­doms were on global dis­play in late 2014, when hun­dreds of thou­sands of peo­ple took to the streets, block­ing busy thor­ough­fares for 79 days to protest Bei­jing's plan to re­strict elec­tions. The peace­ful protests high­lighted dis­con­tent with China's in­flu­ence among lo­cal youths, but also among older Hong Kong cit­i­zens, many of whose fam­i­lies fled past po­lit­i­cal tur­moil in the Chi­nese main­land.

More re­cently, the in­de­pen­dent film "Ten Years" was a sur­prise hit with its dystopian por­trayal of the erad­i­ca­tion of the city's Can­tonese-lan­guage iden­tity un­der Bei­jing's rule a decade from now.

Ac­tivists de­fend­ing lo­cal cul­ture from main­land Chi­nese in­flu­ence clashed with police last month when au­thor­i­ties or­dered fish­ball ven­dors, a tra­di­tional fix­ture dur­ing the lu­nar new year, off the streets of gritty Mong Kok.

Steve Vick­ers, chief ex­ec­u­tive of po­lit­i­cal and eco­nomic risk con­sul­tancy SVA, said re­quests for in­for­ma­tion and help with cri­sis pre­pared­ness spiked af­ter the Mong Kok riot. Po­lit­i­cal po­lar­iza­tion and the slow­ing econ­omy are threat­en­ing Hong Kong's rep­u­ta­tion, while China's slow­down could worsen ten­sions by push­ing up un­em­ploy­ment and hurt­ing prop­erty prices, he said.

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