Can Hong Kong’s financial system survive China’s political crackdown?

Hong Kong, China – Rumours that the Hong Kong greenback can be unpegged from the United States greenback percolate by way of native brokerages. Thousands of middle-class households have bought their flats and cashed out for a brand new life overseas. Hong Kong’s highly effective builders cringe when Beijing calls for that they alleviate the territory’s housing scarcity.

Over the previous yr, Hong Kong’s society has been torn aside by the Beijing-imposed nationwide safety legislation and adjustments to the electoral course of designed to make sure solely individuals deemed “patriots” can maintain workplace within the territory.

Now consideration is popping as to if its famously free financial system and standing as a worldwide monetary centre can survive.

Observers aren’t optimistic.

“Economic freedom without democracy and other freedoms is not stable in the long term,” stated Fred McMahon, a resident fellow with the Fraser Institute, an unbiased non-partisan think-tank in Canada.

Last month, the institute’s annual report on financial freedom nonetheless topped Hong Kong’s the freest financial system on this planet, however it pointed to the nationwide safety legislation and the town’s “descent into tyranny” as threats to holding on to the title for for much longer.

“The key aspect of economic freedom is the rule of law, which doesn’t bow to power but enforces justice and independence of the government,” McMahon advised Al Jazeera. However, for the Chinese Communist Party “the law is subservient to politics,” he added.

Experts query whether or not Hong Kong can stay economically free within the wake of the nationwide safety legislation [File: Jerome Favre/EPA]

Last yr, The Heritage Foundation, which for many years toasted the town because the poster youngster of laissez-faire economics, dumped Hong Kong from its rating.

Within months of the safety legislation coming into impact, Next Digital, a thriving enterprise that revealed the favored pro-democracy Apple Daily, was pressured to shut after proprietor Jimmy Lai was accused of “colluding with a foreign power”, and the corporate’s property had been frozen.

While Lai is behind bars awaiting trial and has since been charged with different offences, businesspeople are questioning whether or not the tycoon’s prosecution beneath the brand new legislation proves to be a singular exception – or the proverbial canary within the coal mine.

“This is a special case that has put the international business community on guard,” stated George Cautherley, vice chairman of the International Chamber of Commerce – Hong Kong. “They’re waiting to see if the government will go further than this and how this is going to evolve.”

Hong Kong’s financial system nonetheless appears to be buzzing alongside for now, however Beijing’s latest mainland crackdowns on tech giants, tuition centres and debt-binging real-estate builders have raised suspicion about what is perhaps in retailer.

Assuming historical past is any information, it might be solely a matter of time earlier than Beijing extends its curiosity to Hong Kong’s financial affairs.

A living proof: The nationwide safety legislation was promulgated in mainland China only some years earlier than it was imposed on Hong Kong, bypassing the territory’s personal elected legislature.

More lately, the town’s “big four” builders, faulted for a number of the world’s highest home costs and smallest flats, had been advised to do their bit to unravel the territory’s housing issues.

Hong Kong Chief Executive Carrie Lam (left) has made it clear that aligning the territory with China, together with over the territory’s punishing COVID-19 quarantine coverage, is her precedence [File: Jerome Favre/EPA]

For businesspeople, there may be additionally the spectre of the previous: when China was a command financial system and personal possession outlawed.

“Businesspeople are worried perhaps not so much as their own personal freedom as the value of their assets invested in Hong Kong and China,” stated Joseph Lian, former commentator and prime editor on the metropolis’s enterprise press who now teaches economics at Yamanashi Gakuin University in Japan. They “would be in for a tough ride”, he stated.

Eye on Beijing

But it isn’t solely the well-heeled who fear. Middle-class households convulsed by the crackdowns are additionally seeking to shield their cash and investments.

Tens of hundreds of Hong Kong people who find themselves planning to to migrate have put up the household flat – usually their most useful asset – on the market. Some – and never solely those that are planning to depart – are additionally opening offshore financial institution accounts out of concern that the territory might quickly be topic to the identical form of capital controls because the mainland.

The world’s longest and costliest quarantine mandate – between 14 and 21 days in a lodge for all residents coming back from abroad – has additionally been weighing on the minds of enterprise and once-regular travellers.

The European Chamber of Commerce warned earlier this month that a lot of its member firms had been contemplating relocating a few of their operations elsewhere – together with Singapore – due to the mandate, which the native authorities has proven little willingness to loosen up even for the totally vaccinated.

Chief Executive Carrie Lam has hammered home her goal of aligning the town’s pandemic management with the mainland’s zero-COVID purpose – no matter the price.

But the value of an more and more restricted financial system might find yourself being hefty.

Next Digital CEO Cheung Kim Hung – proven right here arriving on the Lai Chi Kok Reception Centre in Hong Kong – has, together with different prime executives, been charged with ‘collusion with a foreign power’ and the corporate has now been wound up [File: Jerome Favre/EPA]

Hong Kong’s separate financial system has lengthy underpinned its standing each as China’s most vital monetary hub and a worldwide one.

But with the territory on an ever-shorter leash from Beijing, Lian expects the funding {dollars} that propelled it into pre-eminence during the last half-century might quickly give option to an inflow of speculative funds, generally known as scorching cash.

“A mature financial centre has a lower proportion of hot money; Hong Kong may be going in the opposite direction,” stated Lian. “It may still make money for a lot of people; casinos do, too, but that’s not what a financial centre is for.”