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Tuesday, July 07, 2020, 00:14
HK's future as a financial hub remains secure
By Ho Lok-sang
Tuesday, July 07, 2020, 00:14 By Ho Lok-sang

One of the top news stories reported in the weekend edition of China Daily is that 73 countries have voiced their support for China’s National Security Law for Hong Kong at the ongoing 44th session of the United Nations Human Rights Council in Geneva. This followed the issue of a statement by 27 countries that expressed “deep and growing concerns” over the new National Security Law. The 27 included the United Kingdom, France, Germany and Japan, but does not include the United States. That is only because the US had withdrawn from the Human Rights Council in 2018.

It is clear that the world is now split, with mostly Western countries that back the US, and mostly developing countries that back China. The former happens to be mainly countries that have a record of brutally colonizing and exploiting other countries, the latter mainly countries that were exploited. Today, many people in the Western world have forgotten their dark past, and often refer to the former as democratic and free countries, and the latter undemocratic, not free, or even dictatorial regimes. These dichotomies are really not necessary and even counterproductive. The proper approach is to cast aside ideological differences, and instead face the fact that we all have much to learn from one another and from history.

From the global perspective, this split and in particular the rising animosity between the two camps is most unfortunate. Instead of a struggle for supremacy, we should learn from history, and amend whatever we had done wrong in our past. A good development is that humanity seems to have been awakened to the need for human rights. The United Nations Human Rights Council was established in 2006. A disappointing development is that the US pulled out of the UN Human Rights Council in 2018. 

At the Millennium Summit in New York in September 2000, which is said to be the largest gathering of world leaders in history, heads of states and governments through the UN Millennium Declaration had committed to the millennium goals. These included eradication of extreme poverty and hunger; universal primary education; gender equality; to reduce child mortality; better maternal health; combating HIV/AIDS, malaria and other diseases; ensuring environmental sustainability; and developing a global partnership for development.

In the face of a paranoid United States in the grip of Sinophobia, Hong Kong was recently first hit by the Hong Kong Human Rights and Democracy Act of 2019 and then by the Hong Kong Autonomy Act. ... Fortunately for Hong Kong, there is no sign whatsoever that Hong Kong has taken a hit

In the face of a paranoid United States in the grip of Sinophobia, Hong Kong was recently first hit by the Hong Kong Human Rights and Democracy Act of 2019 and then by the Hong Kong Autonomy Act. The US threatened to impose various sanctions on the Hong Kong Special Administrative Region and China because Beijing introduced a national security law for Hong Kong. 

Fortunately for Hong Kong, there is no sign whatsoever that Hong Kong has taken a hit. The decision of the National People’s Congress Standing Committee to enact a national security law for Hong Kong was announced on May 21. But in June, Hong Kong’s stock market did well. On average, each Mandatory Provident Fund account holder netted a return of HK$6,949 ($897). In particular, the stock price of Hong Kong Exchanges and Clearing broke new highs after new highs. This is because many mainland enterprises are seeking listing or re-listing in Hong Kong, after the US tightened its listing rules. 

Beijing is also trying to counter the possible effects of US sanctions on Hong Kong by expanding its support for Hong Kong as a financial hub. In particular, the People’s Bank of China has vowed to improve the Bond Connect program, which has boosted foreign ownership of Chinese bonds and the internationalization of the renminbi. This is on top of the “wealth management connect” program announced just days earlier. This wealth management connect program would allow foreign wealth managers to offer products through Hong Kong to clients in the Guangdong-Hong Kong-Macao Greater Bay Area. Hong Kong, of course, has already benefited tremendously from the Stock Connect channel, which has tied the Hong Kong stock market with those in Shenzhen and Shanghai. It was estimated that net purchases of Chinese stocks through the Stock Connect channel rose by 40.3 billion yuan ($5.7 billion) in June.

Although there is concern that the US might step up its sanctions on China, and people particularly worry if the US would limit the use of the US dollar and payments through the Society for Worldwide Interbank Financial Telecommunications (SWIFT)platform by mainland and even Hong Kong banks, these fears apparently have so far not been taken seriously by the markets. The Hong Kong dollar exchange rate has actually climbed to HK$7.74965 to $1, which is the limit of the strong side of the Hong Kong dollar exchange rate. The latest figures on Hong Kong dollar bank deposits and renminbi bank deposits, for May, also rose to new highs in months or years.

As an economist who has watched developments in international financial markets for years, my understanding is that the US will impose such “nuclear weapon-like” sanctions at its own peril. It will definitely speed up the decline of the US dollar as the world’s predominant means of international settlement. Moreover, there are many American enterprises having invested significantly in the mainland. Their renminbi profits need to be expatriated to the US. If these earnings cannot be changed into US dollars, all their investments will come to naught.

As far as I can see, Hong Kong’s future as a financial hub is well assured.

The author is a senior research fellow at the Pan Sutong Shanghai-Hong Kong Economic Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily. 

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