China’s Economic Downturn and CCP’s Tightened Grip Threaten Hong Kong’s Global Financial Hub Status: Experts

An electronic display board in Central, Hong Kong on Oct. 24, 2022. Bill Cox/The Epoch Times

The implementation of the National Security Law in Hong Kong by the Chinese Communist Party (CCP) and the abandonment of the “one country, two systems” principle jeopardize the city’s status as a global financial hub, experts say.

Moreover, China observers believe that Hong Kong may never return to its former glory after the CCP undermined its rule of law, resulting in significant economic consequences for the city and mainland China.

Hong Kong’s Special Financial Status

Anders Corr, a principal at Corr Analytics and publisher of the Journal of Political Risk and contributor to The Epoch Times, wrote in an op-ed on Jan. 27 that the CCP has realized that offshore regime holdings, some of which would be converted into yuan and used to buy Chinese stocks, may be utilized to prop up its equities market. He said the CCP would continue intervening in currency markets to boost the yuan, which is under pressure from falling stocks. 

Simon Shen, a Hong Kong political scientist and associate professor at National Sun Yat-sen University in Taiwan, said on NTD’s Chinese language program “Pinnacle View” on Jan. 27 that the Hang Seng Index of the Hong Kong Stock Exchange fell below 15,000 points, which is of great concern for Hong Kong.

The Hong Kong market is apprehensive that the CCP’s plan to revive the market involves redirecting Hong Kong’s reserves to China, labeling it as an offshore investment to bolster the declining economy, he said, adding that this move would only cause further problems for Hong Kong.

Mr. Shen explained that Hong Kong’s biggest advantage is the Linked Exchange Rate System (LERS), which pegs the Hong Kong dollar to the U.S. dollar. “So Hong Kong is essentially a portal for China to trade in the U.S. dollar. This is one of Hong Kong’s biggest values for China,“ he said. 

Hong Kong’s Fate Under the CCP

This year, Hong Kong is discussing drafting Article 23 of the Basic Law, which will supposedly target “foreign powers.” This comes on top of the already draconian National Security Law.

“The biggest problem is that it is very difficult to define foreign powers,” Mr. Shen said. “Hong Kong used to be a global financial hub. So if you further attack Hong Kong’s international links, of course, Hong Kong will gradually lose its status as a financial hub, and it may only be a hub for the CCP’s so-called Belt and Road Initiative. It will only be China’s financial hub, which is not the same as in the past.”

Police personnel patrol at the High Court in Hong Kong on July 28, 2023. Isaac Lawrence/AFP via Getty Images

Shi Shan, senior writer and contributor to the Chinese language edition of The Epoch Times, said on “Pinnacle View”: “Hong Kong is still quite valuable to the CCP. The CCP hopes Hong Kong can be an international hub for business settlements and transactions. That is to say, Hong Kong is a one-way valve, and the CCP can control how money comes in and goes out. Through the scale of China’s economy, the CCP can use Hong Kong as a tool to exert influence worldwide.”

Guo Jun, president of the Hong Kong edition of The Epoch Times, said on the show that Hong Kong is close to being destroyed. “Hong Kong is the ‘Pearl of the Orient’ because it is an intersection between the East and the West. This is not a geographical intersection. Instead, it is an intersection between civilizations, which has elements of Western and Chinese civilizations,” she said.

“The CCP purposely reduces Hong Kong’s status in its international strategy. I think the reason is related to the shift in U.S.–China relations in recent years,” she added.

Ms. Guo explained that in the past, freedom and civil liberties were correlated with the city’s economic prosperity, particularly the independent judiciary. However, when the CCP destroyed Hong Kong’s rule of law, the city lost its autonomy, she pointed out, adding that the city’s status as a global financial hub will be a thing of the past.

Stock Market Crisis

Henry Wu, a Taiwanese macroeconomics scholar and chief economist at AIA Capital, told “Pinnacle View” that the root cause of China’s stock market decline is not a lack of liquidity but a confidence crisis. This creates a significant challenge in implementing any measure to rescue the market, he said, adding that in the short term, if there is an effective bailout, the market may rebound, but it will also likely result in an exodus of large investors. 

Mr. Shi said: “There are now a lot of claims on the internet, saying that the CCP is prepared to spend 2 trillion yuan [about $278 billion] to save the stock market. People suggest this may be the last chance for the wealthy Chinese to leave China since those who bought into the market can finally cash out and leave.

“The CCP seems to have no other way but to print money and flood the market. Some would say that China’s economic problem is actually a political issue. The entire political structure [of the CCP] is the problem,” he added.

“One aspect of China’s economy is that no matter which industry, as long as Chinese companies come in, they will end up over-investing,” Mr. Wu said.

“From the production of chips to solar panels, there is always over-investment, which means investing beyond what they can produce and sell. Then, they drive the prices down with their state subsidies. In the end, the low prices drive the foreign investors out of the market, and then they raise prices again. This cycle essentially became the Chinese model.” 

Mr. Wu further explained that the Chinese economy cannot be revived solely through infrastructure investments. Instead, changes need to be made in the fundamental economic structure. In the past, China relied on producing lower-end products and has copied many technologies through intellectual property theft. He pointed out that mass production of lower-end goods has led to over-investment and over-capacity. To change this trend, he said that China has to move from imitation to innovation, which means that only technological innovation can reverse the current trend in China’s economy.

“To restructure and upgrade the Chinese economy so it can move up the technological ladder and not stay at the lower end, China must protect intellectual property and private property rights,” Mr. Wu said.

“The regime cannot say that private ownership does not matter. Therefore, in the end, the socialist system under the CCP simply contradicts economic development and prosperity. If China fails to protect intellectual property rights, the country will not be able to become creative and innovative, and therefore restructuring and upgrading the economy would also fail.”

Michael Zhuang contributed to this report.