Hong Kong, the semi-autonomous territory of China and former British colony, was only behind London and New York in the latest global financial centers ranking published by think tank Z/Yen. The centrally-located city-state where English is one of the official languages acts as a gateway to the vast mainland China and other Asian markets and is said to be particularly competitive when it comes to human capital and infrastructure. "Relatively low taxes, a highly developed financial system, light regulation, and other capitalist features make Hong Kong one of the world’s most attractive markets and set it apart from mainland financial hubs such as Shanghai and Shenzhen," wrote Eleanor Albert of the Council on Foreign Relations.
In a victory for pro-democracy protesters, Hong Kong's Chief Executive Carrie Lam has announced a controversial extradition bill will be withdrawn. Hong Kong was rocked by protests for 14 weeks with millions of its citizens decrying the plan proposed by its Beijing-approved government that would allow extradition of suspects to mainland China. The amendment was seen as a threat to the region's independent judicial system and as a part of a larger movement to erode its democracy. Rattled by the size and intensity of the protests, Lam suspended the bill and apologized for her government causing "confusion and conflict in society," but demonstrators demanded it be withdrawn completely. Hong Kong's stock market rose the most in a year in response.
At the heart of the decades of resentment in the pro-democracy camp in Hong Kong is the fact that its leader is not chosen by universal suffrage. Lam was picked by an election committee made up of around 1,200 elite residents. Beijing made it clear to the representatives ahead of the vote that she was their favored candidate, and the central government has the power to veto any winner. Lam leads a cabinet (Executive Council) approved by Beijing. The region also has a law-making body called the Legislative Council. It is made up of 70 members; half are chosen through direct elections in geographical constituencies and half are elected by special interest groups representing various sectors of the economy. The legislature is currently controlled by a pro-Beijing majority.
The tensions between Hong Kong's people and mainland China raise questions about the former's future as a global financial center. The fear is Hong Kong will lose relevance if the Communist Party of China continues to ignore its constitutional pledge of "one country, two systems" and transforms it into just another Chinese city.
Here are the reasons Hong Kong needs autonomy to be a global financial hub:
While Hong Kong's legal system is based on English common law due to its colonial history, China's legal system is opaque and not trusted by foreign executives. While Hong Kongers elect leaders from among pro-Beijing candidates, certain fundamental rights and freedoms are still protected in the region.
"Hong Kong's international reputation for the rule of law is its priceless treasure," said the American Chamber of Commerce in Hong Kong in a statement about the extradition bill. "We strongly believe that the proposed arrangements will reduce the appeal of Hong Kong to international companies considering Hong Kong as a base for regional operations."
“Any perceived erosion of independent judiciary and individual freedom could undermine investor confidence and negatively affect Hong Kong’s future as a leading global business and financial center,” said Fred Hu, founder of the investment firm Primavera Capital Group and former chair of Goldman Sachs’s Greater China business, to The New York Times.
2.International Appeal and Agreements
Despite being a part of communist China, Hong Kong currently has the world's freest economy, a simple and low-tax system, its own currency pegged to the U.S. dollar, very little internet censorship and a strong regulatory framework. The region, which is its own customs territory, has also signed trade agreements with foreign states. These are threatened as Chinese influence grows.
Speaker Nancy Pelosi said in a statement on June 11, “The extradition bill imperils the strong U.S.-Hong Kong relationship that has flourished for two decades. If it passes, the Congress has no choice but to reassess whether Hong Kong is 'sufficiently autonomous' under the 'one country, two systems' framework." On June 13, legislation that would make Congress reevaluate on an annual basis whether Hong Kong warrants the special status granted under U.S. law. was reintroduced.
In 1979, former president of the Hong Kong Economic Association and author Y.C. Jao wrote that one of the reasons the emergence of Hong Kong as a financial center began around1969-1970 and not earlier was because China began "groping toward a rapprochement with the West" during this time, which had a "stabilizing effect" on the region. He wrote, "Thus, even though the Vietnam War was still going on, it became clear to the multinational entities that the region as a whole was poised for a new era of economic development in a relatively peaceful environment. In such a setting, the choice of Hong Kong as the regional headquarters for both financial and non-financial multinational firms was hardly surprising."
Violent clashes between Hong Kongers and the government create an unstable political environment that makes the region less likely to attract foreign investors and businesses. According to Bloomberg, a developer recently dropped its $1.42 billion bid for a land parcel in Hong Kong's Kowloon area because of “recent social contradiction and economic instability.”