Capital flight speculation rises - but there's hope for reduced risks too

Top News | Agencies and Winnie Lee 30 Jun 2020

The potential for capital flight from Hong Kong is becoming increasingly palpable as concerns over the national security law intensify, a British business publication reported.

According to Raconteur, the law's proposed clampdown on secession, subversion and foreign interference could imperil the city's special status as a global financial center.

Despite serving for a long time as a friendly go-between for China and the global financial system, investors in Hong Kong are already weighing up their alternatives.

"China is settling into a more antagonistic relationship with the rest of the world," said Mark Williams, chief Asia economist at Capital Economics.

"Hong Kong's position won't be eroded overnight, but without assurances that companies and staff there will enjoy strong legal protection and aren't subject to the arbitrary treatment found on the mainland, overseas firms will over time shift their operations elsewhere."

Confidence in Hong Kong's reputation as a global financial center for investors seeking exposure to China's vast markets and companies has taken another blow after the United States considered measures to restrict money flow through the territory.

It could take a heavy toll on Hong Kong, which acts as a gateway for investors in China's US$10 trillion (HK$78 trillion) bond market.

Nine of China's 10 most valuable companies are listed in Hong Kong, while also serving as a channel for two-thirds of Chinese funds raised overseas.

However, some market watchers are optimistic and believe the upcoming law could stabilize conditions.

"It is very possible that the security law will reduce risks," said James Tunkey, chief operating officer at I-OnAsia, a risk management consultancy.

"For instance, insurers and long-term real estate investors should now have a clearer view about trends [after 2047], which could be beneficial as they look to invest long-term capital."

Damian Tobin, a finance and management specialist at the Cork University Business School, said: "The US cannot act unilaterally to revoke Hong Kong's special status, but it can create significant difficulties for how mainland companies using the territory's markets are perceived by investors."

Washington's pursuit of Huawei is an example of the type of non-tariff measures America could pursue, he added.

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