Hong Kong financial firms brace for disruptions as protests intensify

[greengiraffe]

HK is an important Chinese outpost as Chinese need it for outflows for local connected individuals and enterprises while it also need HK for the ongoing recap of Chinese companies inefficiently managed for decades due to "outflows and wastages"

Hong Kong’s status as financial testing ground may constrain Beijing
SHEN HONG AND DANIEL INMAN THE AUSTRALIAN OCTOBER 02, 2014 12:00AM

IN dealing with pro-democracy rallies in Hong Kong, Beijing may be constrained by the city’s crucial role in China’s plans to modernise its financial system.

China in recent years has used Hong Kong as a testing ground for financial liberalisation. In particular it has allowed the city to experiment with broader use of the tightly managed yuan currency in international trade and investment. Hong Kong’s exposure to China, coupled with a strong reputation for rule of law, has led to the burgeoning of a major global financial centre.

But recent moves by China have raised concerns about Hong Kong’s status. Beijing issued a report in June asserting China’s jurisdiction over Hong Kong and stating the city’s administrators, including judges, must show patriotism to China. The report helped spur protesters who have taken to the city’s streets in recent days.

HONG KONG PROTESTS: Key players

Beijing’s response to the protests will be seen in the context of such moves, which critics view as creeping efforts to assert greater control over Hong Kong, contravening promises made, when Britain returned the territory to China in 1997, to allow it a high degree of autonomy for 50 years.

A heavy crackdown on the protesters who have taken to the city’s streets, particularly by mainland forces, could deepen the view that Beijing is interfering in Hong Kong’s legal system, undermining the territory’s position as a financial hub, some economists and investors say.

“If the Hong Kong police and judiciary are seen as not fully independent, it will erode confidence in Hong Kong’s role as a financial centre,” said Julian Evans-Pritchard, an economist with Capital Economics, a London-based research firm.

That could discourage banks and financial firms that have viewed the city favourably as ­offering a Western-style business environment on China’s doorstep, in turn affecting China’s interactions with the global financial system.

Some in Hong Kong fear its role could diminish in the years ahead regardless, as China allows further market overhauls at home, including plans to build Shanghai into a rival international financial hub by 2020.

For now, Shanghai lags behind. This is due partly to the relative ease of doing business in Hong Kong, which has a trusted legal system and a deep pool of ­financial experience. China’s capital controls also hold back Shanghai, as Beijing’s strict management of the flow of yuan makes it hard to move cash in and out of the country.

“China’s capital-account controls remain one of the key determinants in maintaining Hong Kong’s lead,” said Tai Hui, chief market strategist for Asia at JPMorgan Asset Management in Hong Kong.

That leaves China’s leaders with a conundrum. They want to douse the protests, but signs of interference in the city’s legal system could push foreign financial firms to leave for other centres such as Singapore, Mr. Evans-Pritchard said.

That is an outcome Beijing can’t afford as it seeks to build up Shanghai. A year ago, China launched a free-trade zone in Shanghai as another venue to test liberalising measures. Investors, though, have been disappointed.

Hoped-for policies — such as letting foreign firms issue yuan-denominated bonds in the zone or granting them more access to China’s domestic capital markets — haven’t materialised.

Beijing will conduct financial experiments in Hong Kong that it dares not risk on the mainland out of fears of unleashing destabilising capital flows, said Steve Wang, research director at Reorient Financial Markets, a Hong Kong-based research firm.

The city has been a laboratory for nearly all of the landmark financial innovations that Chinese authorities have tried during the past three decades.

Even before Britain’s handover, China’s state-owned firms had begun to list on the territory’s stock exchange as a way to raise much-needed capital. Most of China’s biggest state-run banks, energy giants and telecommunications operators are listed in Hong Kong.

Hong Kong not only helped Chinese companies grow. It also allowed Beijing to tap its market during tough times. China Cinda Asset Management, one of four “bad banks” set up by Beijing to take non-performing loans from major Chinese lenders, raised $US2.5 billion ($2.8bn) in an initial public offering in Hong Kong in December, amid concerns over the health of the Chinese financial system.

Hong Kong also played a central role in efforts to promote the yuan as an international currency.

[greengiraffe]

Instead, all eyes are on what Lee Kuan-yew once forecast, with lubricious schadenfreude, would end up as “just another provincial Chinese city”.

The Hong Kong time bomb ticks for China
THE AUSTRALIAN OCTOBER 02, 2014 12:00AM

Rowan Callick

Asia Pacific Editor
Melbourne
THIS should be a time for celebrating — during its National Day “golden week” — China’s modern achievements, especially the rise and rise of its economy despite its current slowdown as it restructures.

Instead, all eyes are on what Lee Kuan-yew once forecast, with lubricious schadenfreude, would end up as “just another provincial Chinese city”.

Hong Kong, though, shows few signs of relegating itself to a backwater.

The great harbour city of seven million retains a vibrancy only paralleled by Manhattan, and a capacity to renew itself. It has certainly seized the central ground of the great debate about how states, especially in Asia, are best ­governed.

As one of the world’s great business centres, it has a bottom line on which that vibrancy is built: the rule of law, free trade, free and open media of all kinds, a spirit of self-reliance, and widespread admiration, not envy, for success — I was once in a minibus there whose unkempt Cantonese driver slammed on the brakes to usher out of a side road a golden Rolls Royce driven by a stiff-backed chauffeur sporting a peaked cap.

Hong Kong’s sovereign, however, has a rather different bottom line: common purpose, carefully calibrated engagement with international business, hard work, immense savings directed by the financial structure, dominance in key sectors of state-owned enterprises, massive infrastructure investment — and pervasive governance by the Communist Party.

These are the two systems — under Deng Xiaoping’s formula for the 1997 return of HK of “one country, two systems” — that were to keep running in parallel for 50 years.

But lurking inside that timetable, was a time bomb. Hong Kong’s Basic Law states that “the ultimate aim is the selection of the chief executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures”.

First the date for that “ultimate aim” was determined by China’s National People’s Congress — 2017. Then the NPC elaborated on what that nomination process — what those democratic procedures — might mean in practice: only candidates approved by at least half of the 1200 carefully ­selected members of the nominating committee will be eligible.

This set the parallel lines of the two systems on a collision course. Many Hong Kongers wish to choose their leaders, and that challenges a core requirement of the Chinese system — that the party retains control, or at the least a capacity to control, all key decisions, events, organisations and appointments.

Beijing has sensibly abandoned Marx’s requirement of communist states that they own the means of production, but instead insists on owning all the means of governance.

It has made explicit in its June “white paper” on HK the manner in which it requires the special administrative region is run.

This includes judges being categorised as “administrators”, for whom “loving the country is the basic political requirement” — despite there being 35 foreign judges sitting on HK benches, including several eminent Australian jurists, such as Murray Gleeson and Anthony Mason on the court of final appeal. The HK Bar Association warned, in reply, of the danger of “undermining the independence of the judiciary”, a core element of HK’s identity and of its business case.

The trigger for today’s extraordinary outpouring of commitment by Hong Kongers to what they view as their “bottom line” including the rule of law — not rule by law — was Beijing’s “white paper”. Characteristically, China’s clear-minded, strong and popular new leader Xi Jinping insisted on making his party’s position clear.

He invited to Beijing a fortnight ago, the folk whom he has identified as his kind of HK people: 70 tycoons and family members, most of whom have made much of their money out of gaining access to invaluable land parsimoniously supplied by HK governments, both colonial and postcolonial — and leveraged the resulting profits through service monopolies or oligopolies.

The protests target HK’s own government and its fellow-travellers, as much as Beijing.

HK-based Tom Holland writes in a research note for GavekalDragonomics that “even if this week’s protects end peacefully, the discontent will rumble on’’.

“And if slowing Chinese growth and rising US interest rates” — the HK dollar is pegged to the greenback — “inflict economic hardship on the city, the dissatisfaction is only likely to mount.”

Might Beijing promote Shanghai with its new free trade zone over HK? Holland says China’s slowing growth sets back interest rate liberalisation and capital account opening-up, vital steps if Shanghai is to compete: “The mainland city still looks decades away from mounting a credible challenge to HK.”

But an erosion of HK’s rule of law and a tightening of its governance reins would rebalance the contest, putting HK more on an equal footing with Shanghai.

The question posed of HK’s business community, including many Australians, by this dramatic turn of events, is whether their focus is on installing Beijing’s new status quo, or on the longer-term survival of the city’s core values.

[opmi]

^^ Provincial cities in PRC also not too bad.

[specuvestor]

People conveniently forget why China is planning a FTZ near Hong Kong. Confrontation is not the point. Collaboration should be focus

China is called People's REPUBLIC of China for a reason. ⅓ of NPC is not communist party. The system is there though we know the power is with the communists. HKers should try to work within the framework of republic system

HK has as much chance of being independent as New York even as New York controls more than half of US financial transactions

[CityFarmer]

People conveniently forget why China is planning a FTZ near Hong Kong. Confrontation is not the point. Collaboration should be focus

China is called People's REPUBLIC of China for a reason. ⅓ of NPC is not communist party. The system is there though we know the power is with the communists. HKers should try to work within the framework of republic system

HK has as much chance of being independent as New York even as New York controls more than half of US financial transactions

One point I am always sure, is instability is an absolute NO-NO to China for survival. One-country-two-system is an important political framework for China's Taiwan issue, but it will become secondary, upon survival call.

[CityFarmer]

A view from an experienced. I reckon this is what HK authority is thinking, and executing...

Ex-Tiananmen leaders say HK protesters biggest risk would be loss of public support

NEW YORK - Former student leaders and activists involved in the 1989 Tiananmen Square protests in Beijing say the biggest danger to pro-democracy demonstrators currently confronting the Chinese authorities in Hong Kong is if they lose support from people in the territory and become marginalized.

They say that is a much bigger risk than any possibility of a violent crackdown by Hong Kong police or Chinese soldiers stationed in the territory. In particular, if people can't go about their daily business and the economy starts to suffer badly then public support could quickly drop, leaving the students and others in the protests isolated, warned several of the former protest organizers now living in the U.S.
...
http://www.todayonline.com/world/ex-tian...ic-support

[specuvestor]

^^ Agree... in retrospect 6-4 happened because major politicians became sympathetic to the movement rather than the student protest per se, as some commentators seemed to miss the point. The crackdown actually set the backdrop for a gradual controlled opening of China's economy for the next 20 years, vs the Perestroika & Glasnost of the USSR.... we know where is USSR now. I'm not a politician so I can be politically incorrect: thousands died so that a billion can be where they are now.

Similarly any change in HK system has to be gradual. If I am HKer I would be focused on the election committee representation rather than the Chief Executive. China is "blameless" when they say they are not democratic, but they cannot say they are not republic.

Singaporeans should actually understand the Chinese structure much better than others because we've been through it IMHO I think the communist party should remain for next 20 years before China move beyond industrialised stage, and Chinese by nature is capitalist enough

[Behappyalways]

aiyoh old grandma stole rations.....


無錢可賺！老伯怒衝會場 砸白米洩憤｜三立新聞台
http://www.youtube.com/watch?v=wvWPYLtv7rM

[corydorus]

^^ Agree... in retrospect 6-4 happened because major politicians became sympathetic to the movement rather than the student protest per se, as some commentators seemed to miss the point. The crackdown actually set the backdrop for a gradual controlled opening of China's economy for the next 20 years, vs the Perestroika & Glasnost of the USSR.... we know where is USSR now. I'm not a politician so I can be politically incorrect: thousands died so that a billion can be where they are now.

Similarly any change in HK system has to be gradual. If I am HKer I would be focused on the election committee representation rather than the Chief Executive. China is "blameless" when they say they are not democratic, but they cannot say they are not republic.

Singaporeans should actually understand the Chinese structure much better than others because we've been through it IMHO I think the communist party should remain for next 20 years before China move beyond industrialised stage, and Chinese by nature is capitalist enough

64 tiananmen happens becoz the students directly attack the leader of the communist party which can de-stablise the control of the country. IMO they went overboard as this can cause havoc to the entire country. As long HK students do not make the same mistake, this will not be the reason it will result.

[rainmaker]

When the British left, they pluck this mysterious word "Democracy" into this mind of the HKee. So these protesters did not question why they are "Democrazy" when the British governor is also elected by the UK goverment to follow their wishes. Do these protester forget HK was forcefully taken by British. Even if HKee elect another new leader, do you expect him/her to really follow their wishes. And if Beijing deem this as a challenge to their leadership, they will not have an alternative but to roll-out their tanks. China leadership always believe in obedience first and talk behind the scene rather than lost face in front of the public. The one really suffering are non-politically who want to get-on with their ordinary life. The one laughing will be White Tigers. Btw, have you heard any well-known figures like actors, singers, top businessman joining the protesters. I doubt so as they understand the economic benefits that China has brought to HK. "Democrazy" really good for HKee?