Stocks Fell Below 1997 Level, HK Becoming a Relic of Its Former Self as an International Financial Center

On Dec. 1, 2023, the Hong Kong Hang Seng Index (HSI) crossed the 17,000 mark. Ten days later, on Dec. 11, the HSI dived further below 16,000, and once touching its lowest ebb at 15,972. Bill Cox/The Epoch Times

After Hong Kong implemented the “Hong Kong National Security Law (NSL),” and faced a wave of mass exodus and the pandemic, the performance of its stock market and real estate sector all points towards a scenario that Hong Kong’s past glory with enormous growth potential is gone forever. Recently, there has been increasing mockery from mainland netizens ridiculing Hong Kong as the “relic of an international financial center.”

This uncharacteristic remark has prompted Hong Kong government officials’ rebuke claiming Hong Kong’s long-term growth future remains bright because of its close economic and financial ties with the mainland, which is currently experiencing an economic decline.

A number of commentators believe that Hong Kong’s “one country, two systems” has been “deformed and getting out of shape” and that the political environment has caused foreign investment to depart to safer havens, resulting in Hong Kong becoming one “past financial center.”

On Dec. 11, the Hang Seng Index (HSI) fell below the 16,000 mark, reaching its lowest ebb at 15,972. The decline narrowed in the afternoon and closed at 16,201. Compared with July 1, 1997, the day Hong Kong’s sovereignty was handed over to the CCP, the HSI was at 16,365, indicating that the Hong Kong stock market had fallen below the 1997 level. In the first few days of the new year, the HSI continues to be at the mid-16000 level.

Even so, the Secretary for Financial Services and the Treasury, Mr. Christopher Hui Ching-yu, still published a blog on Dec. 1 to refute the infamous tag of “relic of an international financial center,” claiming Hong Kong is a “long and well-established international financial center. He refers to Hong Kong’s achievements as such being the result of its trademark “one country, two systems,” the long-term efforts of the government, regulatory agencies, the industry itself, and the word of mouth from international investors and financiers.

Hong Kong IPOs Performed Badly

Although the government still describes Hong Kong as within the “one country, two systems” framework, in reality, the inflow of funds into Hong Kong has decreased gradually.

According to a PwC report, only 73 new stocks were listed on the Hong Kong Stock Exchange in 2023, raising approximately HK$46.3 billion (US$5.94 billion), a year-on-year decrease of 19 percent and 56 percent, respectively. In particular, in February and August this year, Hong Kong experienced an unprecedented “zero listing” of new IPO stocks. The number of newly listed companies has dropped 53 percent since 2020 and the funds raised have fallen by 89 percent.

Leung Ka-cheung, chairperson of The Chamber of Hong Kong Listed Companies, made it abundantly clear to the media on Oct. 4 that European and American funds are no longer coming to Hong Kong, and this is an extremely severe problem. In addition, the recent IPO funds raised in Hong Kong are not high, and the funds raised are not bought by institutional investors but only among fellow peers and pals to support each other, “the so-called investors are all your friends and family members...a situation of “business among and within close circles (no outsiders involved).”

At the same time, Hong Kong’s international reputation may deteriorate even further as the United States adopts more stringent policies toward Hong Kong. On Nov. 29, the Foreign Affairs Committee of the U.S. House of Representatives revised and passed the Hong Kong Economic and Trade Office Certification Act.

Moody’s Downgrades HK’s Credit Rating to ‘Negative’

Although the HSI performed even worse during the 2008 financial tsunami, Hong Kong’s economic outlook this time round is obviously bleaker.

Moody’s, an international credit rating agency, lowered the outlook for Hong Kong’s credit rating from “stable” to “negative” on Dec. 6.

Moody’s pointed out that as the political, institutional, economic, and financial ties between China and Hong Kong become increasingly intertwined, when the mainland’s credit outlook is lowered, it means that Hong Kong’s credit outlook must also be adjusted accordingly. Moody’s also mentioned that the implementation of the “Hong Kong National Security Law (NSL)” and changes to the electoral system will reduce Hong Kong’s attractiveness to multinational companies.

Ironically, just when Moody’s stated that Hong Kong’s credit outlook was lowered because of the mainland, the Hong Kong government issued a statement in response, saying that “the deepening and expanding economic and financial ties with the mainland should not be a factor in downgrading the rating. On the contrary, these ties are the advantages of Hong Kong’s long-term development” and the “Hong Kong National Security Law,” and changes to the electoral system are to “ensure Hong Kong’s stability and development.”

The Hong Kong government disagreed with Moody’s on the mainland’s economic outlook, too, saying “China’s economy has huge development resilience and potential, and its long-term positive fundamentals have not changed.”

Mainland in Recession

According to official data from mainland China, in the second quarter of 2023, it attracted just only US$4.9 billion in foreign direct investment (FDI), a sharp contraction of 76 percent from the US$20.5 billion in the first quarter, and a sharp 87 percent drop from the same period last year.

By the third quarter, FDI volume showed a deficit of US$11.8 billion, the first time to report negative growth since records began in 1998. The Wall Street Journal reported on Dec. 8 that investors withdrew US$12 billion from China in the third quarter of 2023, which was the first net outflow of capital since records began in 2000. It also showed that foreign investors withdrew a total of US$160 billion in profits from China for six consecutive quarters, indicating that foreign investors believe that the risks in mainland China outweigh the opportunities, so they stopped investing there.

At the same time, leading real estate companies in mainland China have experienced “financial busts” one after another. Following the arrest of Xu Jiayin of Evergrande, Country Garden also announced that it would be unable to repay foreign debts. The suspension of redemption by Zhongrong Trust, a long-established Chinese trust institution, is likely to trigger a broader vicious cycle.

Mainland China is also facing the problem of huge debts in local governments. A report from the Bank of China Research Institute shows that the interest-bearing liabilities of local urban construction investment companies (urban investment platforms) soared from 5.7 trillion yuan (US$810 billion) in 2010 to 55.03 trillion yuan (US$ 7.8 trillion) at the end of 2021, a nine-fold increase. The balance of local government debt in 2022 was 35 trillion yuan (US$5 trillion), and the debt of urban investment platforms has far exceeded the scale of local government visible debt.

Moody’s Places Local Financing Platform on Downgrade Watch

The next day after Moody’s, adjusted China’s sovereign credit rating outlook from “stable” to “negative” on Dec. 5, it also announced the same rating adjustment for a number of directly affected institutions. Among them, the credit rating outlook of 22 local government financing vehicles (LGFV) was reduced from “stable” to “negative,” and 26 LGFVs were put under the credit rating downgrade watch list.

The 26 LGFV come from five provinces, including Shandong, Henan, Hunan, Guangxi, and Sichuan, as well as the municipality of Chongqing, and Lhasa in Tibet.

The “Macro Observation” report of the Bank of China Research Institute on June 13 disclosed that the number of urban investment platforms prone to financial risks in 2021 rose to 87.5 percent, and the number reached 2,567.

Bankruptcy, Unemployment, Layoffs Aplenty, Doubtful Mainland Can Lift HK’s Economy

There have been waves of business closures, layoffs, and unemployment in many places on the mainland. In November, Douyin’s (China’s Tik Tok) parent company “ByteDance” confirmed that it would shut down its gaming business, and thousands of employees may become redundant.

There are rumors on the Internet in mainland China that many factories in Zhejiang, Henan, and other places started holidays early due to reduced orders and overstocked inventories. In November, news abounded that a large number of non-local employees in Shenzhen and other places could not find new jobs after losing their current ones and were returning to their hometowns early for the New Year.

Mainland China’s “Qi Chacha” data shows that from January to October 2023, the cumulative number of newly registered restaurants nationwide was 3.501 million, 374,000 more than the same period last year; but at the same time, the cumulative restaurant closures nationwide reached 1.056 million, which was 538,000 for the same period last year.

Lu Guochen, Chief Writer of Taiwan’s “Business Weekly,” recently commented on the local TV program “Critical Moments” on the seriousness of seeing people who cannot even support “downgraded consumption” such as low-priced meals. “When they can’t afford a bowl of noodles that costs just ten yuan or even lower at a few yuan, that is a very horrible situation,” he said.

Under all the above circumstances, it remains doubtful how the mainland can lift Hong Kong’s economy.

Ngan Po-Kong, former assistant director of Cable News and director of Cable Finance, pointed out in his column in The Epoch Times on Oct. 24, that the mainland’s FDI in September stood only at US$9.86 billion, a 41 percent drop from the same period last year and the lowest level since 2008, the biggest drop due to the financial tsunami. He said that Hong Kong used to provide foreign direct investment to the mainland, for example in 2021, it brought more than 72 percent of the total real-term FDI nationwide that year. He predicts that with such a “precipitous decline” of mainland FDI, Hong Kong’s investment volume will inevitably be hit hard too.

HK Has Become a ‘Relic of An International Financial Center’

Lew Mon-hung, a former delegate of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), raised the question in August that Hong Kong had become a “relic of an international financial center.” He said that many Hong Kong people and the international community feel that Hong Kong has deviated from the “original capitalist system” mentioned in the Sino-British Joint Declaration and the Basic Law, and believed that the “one country, two systems” framework has been “deformed and is completely out of shape.” The status quo of Hong Kong as an international financial, trade, and shipping center is declining and sinking.

Mr. Lew also pointed out that all indicators such as freedom of speech, news reporting, publication freedom, and rule of law all show that Hong Kong is no longer the place it once was. “Everyone can see the true story of Hong Kong [and whether it is] getting better or worse.” He also believes that the mass exodus of Hongkongers simply reflects the truth that Hong Kong is not able to keep its own people’s hearts.