Is Hong Kong Doing An Economic Hara-kiri?

The mass protest in Hong Kong is likely to have both short-term and a more serious long-term impact.

If unrest continues, its appeal as a financial hub is in trouble. Hong Kong is a Chinese city with Western institutions and laws. It is a “window” of what China could become if this experiment succeeds. But China will want Shanghai to be the pre-eminent centre. But the problem is, Shanghai does not have Western institutions or the rule or law from an international perspective.

Economic growth for Hong Kong was already below 1 per cent in March 2019, and that is before the mass protest. The Hang Seng Index plunged 1.7 per cent on a single day and property developers, shopping malls are the big losers from this political development.

  

The “One Country, Two Systems” framework is now under serious threat. HSBC and others could be hit by capital outflows. Hong Kong is the regional headquarters for many companies. This is now being reconsidered. Having said that, Hong Kong has so far been resilient in the face of Occupy Central and SARS.

For China, it is best to do “Financial Free Trade Zones” for both Hong Kong and Shanghai where all western rules, laws and institutions are applicable. That creates funds flow, job creation and pre-eminence in world financial markets. That then becomes the new definition of “One Country, Two Systems”.

Reference:

Hong Kong's Long-Term Economic Role Is at Stake Amid Demonstrations, Bloomberg, 14 June 2019