Democracy bill aimed at protecting investmentsBusiness | Andrew Wong 2 Dec 2019
Hong Kong was in the global spotlight again last week as US President Donald Trump signed the Hong Kong Human Rights and Democracy Act into law. However, there are two points about this bill which one must consider.
Firstly, if Trump had vetoed the bill, it would have become law anyway via an overriding two-thirds vote in both the House of Representatives and the Senate - and let's not forget the bill had passed nearly unanimously in both houses earlier. So the signing the bill doesn't mean that Trump wants relations with China to deteriorate further. Also, if he had not signed the bill, he would have had to face the wrath of the Democrats while hurting his chances of being re-elected next year. So a veto was never an option.
Secondly, though everyone knew that it was just a matter of time before the bill was signed into law, China's President Xi Jinping went on record saying his nation wanted to work towards a phase-one trade agreement with the United States based in part on "equality" while also calling on both sides to enhance communication on strategic issues, during a meeting with former US secretary of State Henry Kissinger.
This shows that China does not want to give up pursuing a trade deal because of the Hong Kong bill and that it does not want link the Hong Kong problem to the trade war.
Hong Kong holds a unique position for both China and the United States. Therefore, in the long run, Hong Kong will remain strategically important no matter how relations between China and the United States pan out. One should also realize that though the bill is said to be aimed at protecting the rights of Hongkongers, in reality, it is aimed at protecting America's interests in Hong Kong.
The possibility of Trump wanting a cold war with China in the long run cannot be ruled out, especially as American enterprise is greatly dependent on China. But since Trump can't change this dependence in a short period of time, he's decided that a trade deal with China would be his new policy for now.
However, Trump has other things to consider as well, such as looking for other nations to replace China, while taking into account both worker productivity and consumption in China. You can be sure that the United States is thinking about all this as a large number of American and overseas enterprises have interests in China's rapid developing market.
High rate of returns have also attracted much foreign investment into China. But an area of concern for investors is how to invest and withdraw money safely under a mechanism similar to international regulations, that can protect their investments.
Hong Kong solves all these problems because it operates under "One Country, Two Systems and its laws are different to those of China's.
So a lot of foreign capital has been invested in the mainland through Hong Kong.
Here's a good example. In the past, foreign investment in A-shares was not very active even under China's Qualified Foreign Institutional Investor system. However, the establishment of the Stock Connects in Shanghai and Shenzhen increased the amount of foreign fund inflows in A-shares, mainly because Hong Kong's basic system guarantees the freedom of capital in and out of the A-shares market.
However, if the situation in Hong Kong continues to deteriorate, it can bring about a change in policy, which by no means is a guarantee for foreign investment safety. So the prime reason for the Hong Kong Human Rights and Democracy Act is to ensure that foreign capital in Hong Kong remains safe.
More importantly, because the amount of money in Hong Kong is huge, it is not feasible to move these funds to Singapore, so action must be taken to prevent the "One Country, Two Systems" in Hong Kong from collapsing.
Therefore, from an optimistic point of view, the bill shows that foreign investors do not want to give up on Hong Kong, at least for now. But if the SAR government doesn't do a good job and protect Hong Kong's role as a super agent and connector while protecting the "One Country, Two Systems" from deformation, then it is possible that foreign investors might just give up on Hong Kong in the next five to ten years.