Angle: Hong Kong and China continue to be confused

[Hong Kong, 5th Reuters]-While the demonstration of Hong Kong's democratization is protracted and the violent aspect is becoming more intense, the Chinese government has clearly stated its stance of not refraining from intervention by hard means. For this reason, political and economic concerns about Hong Kong's future are growing.

If the Chinese embarked on military intervention, Hong Kong's status such as “Stable International Financial Center” and “Gateway to World Mainland Investment” could be severely damaged. No city in mainland China, even in Shanghai, will be able to play the role of Hong Kong in the near future.

Therefore, we summarized the benefits that mainland China received from Hong Kong and the risks when the current framework collapses.

◎ Why China needs Hong Kong as it is now

Hong Kong is one of the largest open markets in the world and one of the largest fundraising positions for stocks and bonds, while China still enforces strict capital regulations and often intervenes in financial markets and banking systems .

Hong Kong's economy itself may have fallen to around 2.7% of mainland China, down from 18.4% when it was returned to China in 1997. However, because of the world-class financial system and legal system, it has a presence that exceeds the scale of the economy.

And this kind of system can be managed thanks to a unique governance system called “One Country Two Systems”. Under this system, Hong Kong is assured of freedom of expression and independent judiciary that are not found in mainland China, and thus has an international position to discuss trade and investment separately from the Chinese government. I have to. For example, tariffs imposed by the US on Chinese products do not apply to Hong Kong. Foreign investors also rely on Hong Kong's legal system rather than the mainland legal system that supports Communist Party rule.

◎ What is threatened

China uses Hong Kong's currency, stock and bond markets to attract foreign funds. Foreign companies are also using Hong Kong as a foothold to move into mainland China. Most foreign direct investment in China is still via Hong Kong.

From state-owned companies such as Industrial and Commercial Bank <1398.HK> to private companies such as Internet-related Tencent Holdings <0700.HK>, most major Chinese companies are listed in Hong Kong and aim for international business development. There is a tendency.

According to Refinitive data, the amount of funds raised through the initial public offering (IPO) by Chinese companies last year was $ 64.2 billion (approximately 6.8 trillion yen), which is almost one-third of the total IPO in the world. . However, the amount listed in Shanghai or Shenzhen listing is only $ 19.7 billion, which is less than $ 35 billion listed in Hong Kong.

Hong Kong and Shanghai-Shenzhen stock interconnection system is also the main means for foreigners to invest in mainland Chinese stocks.

Refinitive data show that Hong Kong's bond market accounted for 33% of the $ 165.9 billion dollar-denominated bonds issued by Chinese companies last year.

Furthermore, looking at the data of the Hong Kong Financial Management Authority (HKMA) compiled by Natixis, the Chinese bank's assets in Hong Kong were $ 1.1 trillion last year, more than any other regional bank. This is equivalent to approximately 9% of the gross domestic product (GDP).

If these huge financial channels are lost, can the Chinese economy already decelerating further destabilize and continue to bring prosperity to China that the Communist Party has demonstrated over the past decades? , The fear of trust will come out.

Hong Kong's port still handles a significant portion of China's imports and exports, and Hong Kong was China's largest service trade partner last year by country (more than 20% share, according to the Chinese Ministry of Commerce). (17% of the US), suggesting the strength of the connection between the two.

Hong Kong has become extremely important in realizing China's long-standing ambition to make the renminbi the international currency of the dollar.

◎ Possibility to ruin everything

The Chinese government has expressed that it will never sit down if the turmoil in Hong Kong threatens China's security and sovereignty. Several senior government officials have accused foreigners of saying that what is happening in Hong Kong is a matter of domestic affairs.

But political leaders in major countries are calling for restraint on the Chinese side.

Some US senators have suggested an amendment to the US-Hong Kong policy law, which was enacted in 1992, to change the treatment of Hong Kong as a separate tariff area from mainland China. This has been done because Hong Kong has determined that it is sufficiently independent from the Chinese government, and if China exercises some form of force, the United States is likely to be the decisive factor in revising the law.

Even if the Chinese government refrains from the so-called “nuclear option” of the use of force, if there is a sign of more open and direct intervention on the Hong Kong issue, and if the clash between demonstrators and police officers continues on the street, It's no wonder the house seeks opportunities from other financial centers, such as Singapore, with low tax rates and high confidence in the legal system.