'No place is safe'

A policy adviser to the Hong Kong administration has warned of the possibility of military conflict between China and the United States and the local dollar's peg to the greenback being jeopardized amid tensions.

Francis Lui Ting-ming, a member of the Chief Executive's Policy Unit Expert Group, said there will be a high possibility of economic and financial war between China and the United States in the coming decade and so the chance of military conflict would be real as well.

Lui remarked on radio yesterday there are conflicts around the world and the global economy is being buffeted so it was useless for people to think by moving aboard they could avoid strife.

Countries worldwide have been promoting "deglobalization" since the pandemic, Lui said, with governments reducing international trade to prevent being overly dependent on others.

While suggesting Beijing and Washington set up "guardrails" to stop the relationship from "going off track," Lui also believes the United States will employ various means to prevent China from becoming the global leader, which could mean a collision.

For example, he said, Chief Executive John Lee Ka-chiu is currently under US sanctions, and it is unclear whether he can attend the Asia-Pacific Economic Cooperation meeting in San Francisco in November.

Lee with 10 other Hong Kong officials is supposed to be barred from entering the United States under the sanctions imposed in 2020 for helping introduce the national security law.

The chief executive has also said it was the United States' responsibility to invite members to join this year's 21-member meeting in California as APEC does not "belong to any country or economy."

Lui, who is an emeritus professor at the Department of Economics at Hong Kong University of Science and Technology, is one of the 56 members of Lee's expert group that includes Henderson Land Development co-chairman Martin Lee Ka-shing and Chinese political scientist Zheng Yongnian.

The professor also accused the United States of weaponizing its currency, which led to a decline in global trust and created obstacles in trade settlements in the greenback. And that could jeopardize the peg system, he said.

"One of the prerequisites of the currency link is political harmony between the two sides," Lui noted, but if there is hostility it might become a problem or even trigger financial turmoil.

The United States may take forceful action against Hong Kong, such as imposing sanctions on banks willing to exchange the local currency for the US dollars, he said, emphasizing that was just an example and not something sure to happen.

The peg system was introduced 40 years ago to restore public confidence in the local dollar, and officials have emphasized there is no need nor a plan to change it. The Hong Kong currency, backed by the Exchange Fund, is traded at between HK$7.75 and HK$7.85 per greenback under the system.

Despite a global trend of de-dollarization, the US currency will not break down immediately due to the lack of viable alternatives, Lui said, and the Hong Kong financial market would collapse if the SAR administration pulled back from assets denominated in the US dollar.

While calling the US moves including confiscating the Russian and Afghanistan assets in the country "stupid," Lui also said Hong Kong must prepare for a trade war.

He believes Hong Kong can leverage its status as a financial center to facilitate the internationalization of the yuan, including providing more financial products denominated in the Chinese currency.

The SAR is the world's biggest offshore yuan hub, and data shows deposits rose 4.9 percent month-on-month in April to 833 billion yuan (HK$916 billion).

Still, the yuan accounts for a fraction of the share in the world's payments and reserves due to strict capital controls despite China being the world's largest exporter.