Fitch’s HK downgrade ‘politically motivated’

‘One country, two systems’ remains intact despite turmoil: Lam

US ratings agency Fitch’s decision to downgrade Hong Kong’s long-term foreign-currency issuer default rating (IDR) was a “politically motivated move” that attacks the city’s rule of law and the “one country, two systems” model and ignores the resilience and potential of the city’s economy, experts said on Friday.

While weeks of unrest has seriously dented the city’s global image, the Hong Kong Special Administrative Region’s (HKSAR) government has taken concrete steps to stop violence and to boost the economy, which still holds massive potential in working with the mainland, and Fitch failed to recognize that, they noted.

Fitch on Friday lowered Hong Kong’s IDR to AA from AA+ with a negative outlook, asserting that months of persistent conflicts and violence have raised doubts about the city’s governance. “Ongoing events have also inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong’s governance system and rule of law,” the agency said in a statement sent to the Global Times on Friday.

But rather than focusing on key ratings drivers, Fitch took special aim at the “one country, two systems” model and the city’s rule of law. “The gradual rise in Hong Kong’s economic, financial, and socio-political linkages with the mainland implies its continued integration into China’s national governance system, which will present greater institutional and regulatory challenges over time,” it said.

“That’s absurd,” Mei Xinyu, an expert close to the Ministry of Commerce, told the Global Times. “Fitch lowered Hong Kong’s rating due to continuous social unrest, which might be reasonable, but it downgraded it because of the city’s further integration with the mainland, having doubts on ‘one country, two systems.’”

Hong Kong Chief Executive Carrie Lam on Friday also pushed back at Fitch’s decision. What Hong Kong experienced over the past few months “hasn’t undercut the ‘one country, two systems’ and the rule of law,” Lam told reporters in Nanning, capital of South China’s Guangxi Zhuang Autonomous Region, where she was attending a conference on regional economic cooperation.

Lam and the HKSAR government have taken steps to stop unrest and boost the economy. Right before her trip, the chief executive on Wednesday announced a four-action plan, including formal withdrawal of the extradition bill, to create a platform for dialogue.

In another clear sign of political considerations, Fitch also commented on Lam’s move, saying “even with concessions to protester demands,” public discontent will likely persist.

Such assessment of Lam’s measures also echoes similar calls from US politicians. US House of Representatives Speaker Nancy Pelosi tweeted on Thursday that the “move is welcome news, much more must be done.”

Li Xiaobing, an expert on Hong Kong, Macao and Taiwan affairs from Nankai University in Tianjin, said that there is a pattern of US companies and politicians working together to pursue political goals.

“This is all part of the US strategy. The three big ratings agencies’ downgrade and the comments of US politicians form a tacit relationship,” Li told the Global Times, noting that the US has used this to start an economic crisis in some European countries.

Two other major ratings agencies, Standard & Poor’s and Moody, cut Hong Kong’s ratings in 2017.

Fitch’s downgrade on Friday also twisted the fact that economic integration with the mainland brings massive potential for the city’s economy and that Hong Kong’s economy remains resilient, especially with the help of the mainland, analysts said.

Hong Kong unveiled HK$19 billion ($2.4 billion) in relief measures to support the city’s economy in August. On Wednesday, the city released new favorable policies to support small- and medium-sized enterprises.