After the U.S. State Department on July 16 issued a warning for multinational companies in Hong Kong, reminding firms that the current situation in Hong Kong will likely negatively affect their operations, a Hong Kong economist and financial columnist said that even if the notice was not issued, most companies would have already made preparations.
Law Ka-Chung, a Hong Kong economist and former professor in the Department of Finance and Economics at the City University of Hong Kong, said in a video interview with The Epoch Times that the business environment in Hong Kong has been heading in a bad direction for quite some time now.
As the Chinese Communist Party (CCP) tightens its grip on Hong Kong and the United States takes more direct action against the CCP, “the risk will only get higher from a business perspective,” Law said.
He believes that even if the imminent threat is not great, the environment is getting harder to breathe in, and it will only be a matter of time before economic blackmail and hostage-holding becomes a recurring theme.
The nine-page Hong Kong Business Advisory, published jointly by the departments of State, Treasury, Commerce, and Homeland Security, warns that U.S. firms will encounter a number of risks posed by China’s national security law in Hong Kong, including the following:
- Businesses operating in Hong Kong, as well as individuals and businesses conducting business on their behalf, are subject to the laws of Hong Kong, including the National Security Law (NSL). Foreign nationals, including one U.S. citizen, have been arrested under the NSL.
- Businesses face risks associated with electronic surveillance without warrants and the surrender of corporate and customer data to authorities.
- Businesses that rely on free and open press may face restricted access to information.
- Individuals and entities should be aware of the potential consequences of certain types of engagement with sanctioned individuals or entities.
- Businesses operating in Hong Kong may face heightened risks and uncertainty related to PRC retaliation against companies that comply with sanctions imposed by the United States and other countries, including through enforcement of the PRC’s Countering Foreign Sanctions Law.
This is the first time the United States has issued a warning directed at Hong Kong. However, Law says that a warning wasn’t necessary to alert businesses. Most have already seen the changing environment, and have planned accordingly. Law said he observed that as early as 2015, businesses had already begun to leave Hong Kong as aggression from the CCP increased and business in Hong Kong became difficult. Law added that the price of conducting business is also rising as inflation worsens.
“If a foreign enterprise discovers something is happening in Hong Kong and their own government is powerless, the foreign capital will retract very quickly,” Law added.
Analyzing Economic Trends of Hong Kong
The latest developments on the official website of the Hong Kong government show that the economy has recovered quite well during the first quarter of this year. According to a report released by the Deloitte China National Listing Business Group in June, there were only 46 new stocks listed in Hong Kong in the first half of the year, a 22 percent decrease from 2020. The amount of funds raised, however, soared by 138 percent to about 209.7 billion yuan (about $32 billion), placing the Hong Kong Stock Exchange in third place.
It seems that Hong Kong’s status as a world financial center is still valid, but Law believes that the regime has meddled with the data.
Law has written many articles arguing that one should look at long-term investments, such as foreign direct investment (FDI).
“Obviously, if the annual net inflow of FDI is used to calculate GDP, India has constantly outperformed China and Singapore has long overtaken Hong Kong,” he said. “This can be seen very clearly.”
Although public data indicate that the Hong Kong Stock exchange added around 100 stocks at once, Law believes it is the CCP artificially inflating the financial hub, making it “hot money.”
By definition, hot money is capital that investors regularly move between economies and financial markets to profit from high short-term interest rates. Accordingly, the flow rate of hot money is extremely fast.
Law thinks that Hong Kong today cannot attract much foreign capital, and will likely stay in this awkward situation. He pointed out that, should foreign capital continuously flow into Hong Kong, the Hang Seng Index has the potential to rise to around US$5,000-$8,000.
The Hang Seng Index is a critical indicator of the Hong Kong stock market. In the past year, the Hang Seng Index was essentially below 30,000 HKD (less than US$4,000).
On the ratings of A-shares and Hong Kong stocks, Law believes that they are basically the two “weakest and worst” major markets in the world.