Hong Kong's Financial Hub Paralyzed by Demonstrations

On Wednesday (12/6), hundreds of thousands of protesters filled the streets of Hong Kong as they oppose the amendment to the Hong Kong’s extradition law which was to be debated by lawmakers in a Legislative Council session this week. Overtime the impact of the protest are unpredictable, as for Thursday morning the situation had calmed down, but with little sign that either side will back down on the extradition bill, more protests are likely to arise. The extradition law stated that Hong Kong has agreements with some 20 countries to send over people wanted for certain crimes, and the proposed amendment would expand that list to include China and Taiwan. According to officials in Hong Kong, this was spurred by a murder case in which a Hong Kong resident admitted killing his girlfriend while in Taiwan. Although he was arrested, he has not faced trial because the current laws prevent him from being sent there.

The Hang Seng index ended the day 1.7% lower. Leading the sell-off were property companies like Wharf Real Estate Investment, which fell 5.4%, and New World Development, which declined 4.2%. On Thursday the Index fell below 27.000 level, which trimmed declined to less than 0.1% from as much as 1.8% after the government postponed the meeting to discuss the bill. By many estimates, the protests were eclipsing the massive protests in 2014 aimed at achieving greater democracy for the former British colony fizzled out in failure after more than 70 days of sit-ins. Those protests had helped damp stock market sentiment, causing the Hang Seng Index to fall about 2% during the period.

Because of the conflict that occurred, the future of Hong Kong’s financial sector is facing a downturn. Willy Lam, a China expert at the Chinese University of Hong Kong said many shell companies owned by mainland Chinese have been registered in Hong Kong since 1997 and operated by China with the sole purpose of taking advantage of Hong Kong’s special status while the US does not allow the export of dual-use or technologically sensitive material to China. The potential of Hong Kong as a sustainable international businesses base is now being questioned. “We are also concerned that the amendments could damage Hong Kong’s business environment and subject our citizens residing in or visiting Hong Kong to China’s capricious judicial system,” said Morgan Ortagus as US Department of State’s spokesperson. Hong Kong now also has the risk of being used as a pawn by United States in the trade war. Ten congressmen of US have said their plan to reintroduce a bill that threatens to remove to remove Hong Kong from its status as their special trading partner, which would make it harder for mainland China companies to export at lower tariffs to the U.S. If they can’t reach a win-win solution out of this conflict, it is predicted that the Hong Kong’s financial conditions will worsen.

Sources:

CNBC Indonesia

Financial Times

CNN

Bloomberg

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