Protests jeopardise Hong Kong’s leverage with Beijing

Protests jeopardise Hong Kong’s leverage with Beijing

Hong Kong protestors demand that Chief Executive Leung Chun-ying step down and for Beijing to allow free elections in 2017. Yet, volatile financial markets undermine some of the city’s leverage with Beijing.

The protests in Hong Kong are now into the second week and it is still very unclear what the future holds for Hong Kong and its relationship with China.

Comprised mainly of students and members of Occupy Central, but also a lot of normal Hong Kongers, foreigners working there, and many financial sector employees, the protestors are demanding that Beijing give them free elections in 2017. This was initially promised when the British handed over Hong Kong to China in 1997, as a Special Administrative Zone.

Now, Beijing seeks to approve all candidates that run in the election, stifling Hong Kong’s free elections and ensuring their control over and involvement in choosing of Hong Kong’s Chief Executive. Ultimately, for Beijing, it is important that Hong Kong’s Chief Executive is Pro-Beijing.

The protests have had a big effect on Hong Kong, and journalists from around the world have come to report. Inconveniently for Beijing, the journalists that China refused a Chinese visa have mostly ended up living and working in Hong Kong, meaning it did not take the international press long to be on the scene.

The protests have had a direct impact, as the physical spaces being occupied by Hong Kong’s Occupy Central movement are tourist, retail and finance hubs. Shops in the Causeway Bay area have been closed, as have certain bank branches, and disruptions are likely to continue, causing losses throughout the retail and banking sector.

On top of this, the Mainland Chinese National Holiday attracts a large amount of tourists to Hong Kong every year, but the protests are likely to deter some, with the tourist industry among the largest to suffer directly. Although the Chinese mainland is trying hard to contain the media and social media backlash, there are reports on Chinese media of ‘unrest and illegal activity’ in Hong Kong, making many Mainland Chinese tourists think twice about going to Hong Kong for their holidays.

Hong Kong has long been a popular destination for foreign firms, due to the city’s greater economic freedom compared to mainland China. The investment environment is extremely favourable, especially for finance and real estate companies. However, foreign firms have already expressed growing concern over China’s increasing involvement and meddling in Hong Kong and financial markets have reacted with greater volatility to the events.

Following the protests, Hong Kong stocks saw a sharp decline in value and the Hong Kong dollar weakened against the US dollar. On September 28, the benchmark Hang Seng Index sank 1.9 percent to 23,229.21, when the Hong Kong dollar also sank to a six-month low in a direct response to the protests.

The growing popularity and media prominence of the protests in Hong Kong are risking Hong Kong’s future status in the global market as a finance hub. If the Chinese government were to crack down on the protestors using force, it increases the perception that the Chinese government is meddling in Hong Kong’s legal system, undermining their attractiveness on a global financial level.

Hong Kong is in a dilemma, as the battle for democracy and more freedom from China may actually be scaring off foreign investors that would greatly benefit from this freedom, and that could help them secure this freedom financially. Investors are also what give Hong Kong leverage in China.

Markets are unlikely to respond positively in the short term, with the future of protests so uncertain. Nobody knows whether the protest is going to last a lot longer, or how the protests will end. Changes in leadership in the near future are also likely as the chief executive of the Hong Kong Special Administrative Region, Leung Chun-ying, is rapidly losing support from the public. But whether this leadership will be determined by China and cause less financial freedom, or allow for a more positive investor environment is still uncertain.

Right now the Chinese government is standing at a crossroads. They want to do something to contain the protests, but if they intervene, they are not only risking other countries imposing sanctions on China, but they are undermining Hong Kong’s position as a popular investment destination, and pushing investors to look more at other destinations like Singapore instead.

Categories: Asia Pacific, Politics

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