Security law will shake Hong Kong’s financial hub status: economists

Victoria Harbor in Hong Kong

TAIPEI (CNA) — A national security law proposed by China to tighten its grip on Hong Kong is expected to undermine the status of the special administrative region as a financial center, economists said Tuesday.

It is possible that the Chinese authorities plan to boost the visibility of Shanghai in the region at the expense of Hong Kong through the proposed security law, which is believed to undermine the territory’s financial credibility, they said.

If the new law takes effect, “Hong Kong will bear not only the economic but also political consequences,” said Liu Meng-chun (劉孟俊), head of the First Research Division at the Taipei-based Chung-Hua Institution for Economic Research.

“The law will no doubt hurt international trust in Hong Kong, as the ‘one country, two systems’ formula promised by the Chinese authorities will disappear,” he said.

The previous week, the National People’s Congress (NPC) — China’s parliament — proposed the security law so that it would be able to exercise constitutional power to set up a new legal framework and enforcement mechanism to ensure national security in the former British colony.

The legislation, which will allow Chinese security forces to be deployed in Hong Kong, among other measures, raised concerns over possible erosion of the autonomy of Hong Kong.

Hong Kong, with a population of about 7.5 million, had more than 258,000 people employed in its financial sector and generated about 19 percent of the territory’s gross domestic product in 2017, according to data from the Hong Kong Monetary Authority.

In the 2020 Global Financial Centres Index released in March, Hong Kong fell three spots to sixth place, overtaken by Tokyo, Shanghai and Singapore, amid unrest sparked by massive street protests to seek greater democracy.

New York and London retained the titles as No. 1 and No. 2, respectively.

Liu said that many countries are using Hong Kong as a window for an understanding about China. “But now the window is about to be closed to make Hong Kong more remote to the world.”

The NPC will review the proposed security legislation later this week and Liu predicted the bill will be passed as expected.

After China proposed the security legislation, United States President Donald Trump said that the U.S. will react strongly if Beijing follows through with its plan to impose the law.

In response, Darson Chiu (邱達生), a research fellow at the Taiwan Institute of Economic Research, said Washington could revoke Hong Kong’s independent tariff status.

Currently, the U.S. treats Hong Kong differently from China in matters of trade and commerce, under the 1992 Hong Kong Policy Act, which exempts Hong Kong exports from tariffs imposed by the U.S. on Chinese goods under the U.S.-China trade war.

“Once Hong Kong loses the special tariff status, its exports will be hit hard and its business activity will be limited,” Chiu said.

“Under such circumstances, Hong Kong is expected to see a flight of foreign funds, and its financial hub status will be further undermined,” he said.

“There are signs that China wants to sacrifice Hong Kong to allow Shanghai to replace it,” he added.

For his part, Hank C.C. Huang (黃崇哲), president of the Taiwan Academy of Banking and Finance, said Taiwan is expected to gain an advantage of the impact on Hong Kong resulting from the possible passage of the security law.

Huang said that at a time when Taiwan’s Financial Supervisory Commission is planning to further open the business of the country’s offshore banking units, the local financial sector is expected to target overseas customers who are sitting on assets valued at between NT$30 million (US$1 million) and NT$100 million.

Taiwan is competitive as it is able to offer more affordable financial products and a comprehensive portfolio of financial services, he said.

However, he warned that the Taiwanese authorities should pay close attention to possible speculation in the local property market once funds flock into Taiwan, as homes here are already unaffordable for many local young people.