Hong Kong’s Financial Center Status Remains With Rule of Law: Expert

By Penny Zhou

Hong Kong’s status as a global financial center remains intact as long as the rule of law and the city’s independent judiciary are protected, an expert says, despite ongoing pro-democracy protests and the U.S.-China trade war taking a toll on the local economy.

The semi-autonomous Chinese city has seen unwavering fierce protests since June, which erupted to oppose a bill that would allow the extradition of persons passing through Hong Kong to mainland China. The bill has since been withdrawn following months of outrage.

Earlier this month, Fitch Ratings, one of the world’s ‘Big Three’ credit rating agencies, said that Hong Kong’s status as an international finance center remains intact.

Fitch said that although Hong Kong’s short-term outlook continues to deteriorate, the city’s medium-term prospects seem more positive.

Kevin K. Tsui, a Hong Kong economist and associate professor of economics at Clemson University, said that Hong Kong financial status is hard to be replace, with no other Asian cities being likely candidates.

The city has a unique combination of factors that makes it a darling for investors. That include free flow of capital, its common law system and the rule of law.

“Up till now, still, Hong Kong is a city in which capital inflow and outflow, there is no restriction,” Tsui told NTD. “But then that’s not quite true in China.”

Tsui said this is why China’s ambition to have mainland cities like Shanghai replace Hong Kong as a financial center is unlikely to come true.

“If anything, in the past year or so, it’s becoming more and more restrictive in terms of you want to take money outside of China,” he said.

The Chinese regime has been ramping up capital control since 2016 and started cracking down on capital flight. Major corporations and banks have been fined by the Chinese authorities for transferring foreign currencies out of China.

“Investors know that,” Tsui said. “If you invest in big money, it’s hard for you to get money out, that’s not something that attracts them to invest.”

Another factor, Tsui said, is Hong Kong’s independent judiciary that upholds the rule of law. He argued that compared with civil law, the common law system is more flexible and therefore more suitable for the ever-changing nature of the financial market. It also gives more protection to small investors and creditors.

It’s “based on the decision of the judge, the court, how they interpret the law instead of [being] more centralized, having the government to say what can be done what cannot be done.” Tsui said.

Chinese authorities recently announced measures to support Macau become a financial center. Another semi-autonomous region of China, Macau has a larger pro-Beijing population than Hong Kong, and less pro-democracy and human rights activism. But Tsui said Macau’s civil law system makes it hard for it to replace Hong Kong.

“In Hong Kong’s anti-extradition movement, the independence of court is a very important topic,” Tsui said, “What Hong Kong people are fighting for is the rule of law, which is actually Hong Kong’s common law. And that separates [Hong Kong] from mainland Chinese cities and Macau.”

In Hong Kong, unlike mainland China, the judge’s decision shouldn’t be influenced by political factors.

“As long as we can tell the rest of the world that the legal system in Hong Kong is still having an independent court,” he said, investors’ confidence in Hong Kong will remain.

Earlier this month, Hong Kong police froze a nearly $9 million fund that supports protesters. HSBC previously closed an account tied to the group, raising concerns over whether Hong Konger’s financial activities can be protected from China’s political influence.

Epoch Times reporter Frank Fang contributed to this report.