June 30, 2020 / 4:31 PM / 12 days ago

Market analysts react to China's new Hong Kong law

LONDON/NEW YORK (Reuters) - Beijing unveiled national security legislation tailor-made for Hong Kong on Tuesday, setting the stage for the most radical changes to the former British colony’s way of life since it returned to Chinese rule 23 years ago.

FILE PHOTO: A government-sponsored advertisement promoting new national security law is seen at Eastern Harbour Crossing ahead of national security legislation, in Hong Kong, China June 29, 2020. REUTERS/Tyrone Siu

The law promises to punish the crimes of secession and subversion with up to life in prison and raises concerns of a more authoritarian era for China’s most freewheeling city.

Below are some analysts’ reactions to the details:

ALLEN CARLSON, PROFESSOR OF GOVERNMENT AND DIRECTOR OF CORNELL UNIVERSITY’S CHINA AND ASIA PACIFIC PROGRAM, ITHACA, NEW YORK

“(B)y placing national security above all else it sharply curtails Hong Kong’s autonomy. It has also rendered largely meaningless the legal protections there over human rights and democracy. The expectation that it would serve as a final nail in the coffin of the ‘one country, two systems’ principle has then been confirmed.

“Perhaps of even greater concern, the law is a shot across the bow from China toward Asia and the rest of the international system. It is a warning to the rest of the world that Xi Jinping’s China is not afraid of international consternation and criticism. The Chinese leader will not be easily deterred from challenging the existing status quo when he sees it as antithetical to his, and his country’s, perceived interests.”

 

MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN FOREX, NEW YORK

“The China law is just a formality. We knew China was going to pass the law and the U.S. has already taken some action against Hong Kong. There was some interesting work from the Peterson Institute on this. If Hong Kong would be subject to the same tariffs as China, what would that mean? The conclusion is that because Hong Kong specializes in financial services and logistics, that it won’t be affected that much by the tariffs. I agree with that. The law is merely symbolic. For the United States, this means that tensions in China and with China will persist well after the U.S. elections.”

PETER HARRELL, ADJUNCT SENIOR FELLOW, THE CENTER FOR A NEW AMERICAN SECURITY, WASHINGTON

“At the end of the day, this has happened and I don’t think anything the U.S. is going to do or the Europeans are going to do is going to change China’s mind. I think the security law is here to stay. At this point, really, the goal for American policymakers should be, how do you show there are some costs to try to deter China from taking a future step - whether it’s vis a vis  Taiwan, or elsewhere - and how to get overall American policy towards China right, because at this point I don’t think U.S. actions are actually changing China’s calculus on Hong Kong.”

RAHUL SEN, PARTNER WEALTH MANAGEMENT AT HEADHUNTING AND CONSULTING FIRM BOYDEN (LONDON)

“It will be a wait-and-watch approach. No existing firm will look at pulling out or reducing their operations. Instead, they will quietly look at increasing their operations in Singapore, Switzerland and London. I have had enquiries from clients who are looking to expand their Asia or Greater China desks in Singapore as well in Switzerland and London ...

“There will not be an immediate reaction, but slowly, over time — if this plays out that Hong Kong will indeed see dilution of its sovereignty over its tax, financial system, law and currency — then we will most definitely see reduced activity in financial services.”

GARY NG, ECONOMIST, NATIXIS (HONG KONG)

“The Pandora’s box has now been opened in Hong Kong for escalated geopolitical risks. Any tougher sanction from the U.S. in the financial aspects is going to bring higher market volatility to Hong Kong than (to) other Asian markets.”

HASNAIN MALIK, HEAD OF EQUITY RESEARCH, TELLIMER (DUBAI)

“With the release of the full detail of the law, it should be clear to those in any doubt that this is not the Hong Kong they grew up in. But this tighter security environment has been on the way for many years now.”

“The difference is that U.S. and China relations are far worse and this could be used as a pretext to impede the role of Hong Kong as a finance hub.”

RORY GREEN, ECONOMIST, TS LOMBARD (LONDON)

“We have known for more than a month that this was coming. This was accelerated by protests last year and was the key trigger for Beijing to bring in more control over Hong Kong. In terms of the economic impact, trade might get affected as a fair degree of shipments passing through Hong Kong’s ports are technological shipments. It is unlikely that it will disrupt the trade deal for now.”

“On the question of financial hub, it is tricky. On the positive side, it will attract all those Chinese companies delisting from the US and looking to list nearer home.”

“On the flip side, the great attraction of HK was that it is a play on China without the political risks. Now that appears to be ending. It remains to be seen whether the investment community will look to shift its roots elsewhere based on the latest developments.”

IRIS PANG, CHIEF ECONOMIST GREATER CHINA, ING (HONG KONG)

“This is actually not as harsh as I expected, because the law, it has grandfathering over previous actions and it will not have an impact on past actions, which I think is the biggest act the Chinese government could do. I think this is also good for Hong Kong because otherwise there could be further protests if they did not grandfather previous actions.”

“Apart from this, I would say it is just as expected, including the sentencing periods etc. I believe that this law will not have a big impact on the Hong Kong economy.”

“The law is just standard, I don’t believe that many international companies will move away from Hong Kong.”

ILAN SOLOT, FX STRATEGIST, BROWN BROTHERS HARRIMAN (LONDON)

“This doesn’t improve Hong Kong’s status as a financial center, to say the least, coming back from the protests and the virus over the last year. If anything this is a downward slope for Hong Kong’s importance as a global financial hub.”

“Secondly, this drives another wedge between China and the U.S. that will fuel further separation between them. This just reinforces the view that these countries are moving apart from a geopolitical, economical and a technological perspective.”

GABRIEL WILDAU, SENIOR VICE PRESIDENT, TENEO (NEW YORK)

“On a first read, the law looks to be fairly crippling for political activism in the city. The crimes of “collusion with foreign countries or powers” and “subversion of state power” seemed to be defined quite broadly, which could allow prosecutors to criminalize all kinds of relatively benign, nonviolent activities.”

“The actual impact will depend partly on enforcement and which types of activity the authorities actually decide to prosecute, but the vagueness of the law itself will have a chilling effect, even if the government does not aggressively prosecute from the start. Activists will be aware that the threat of prosecution hangs over them.”

“On the other hand, in terms of Hong Kong’s role as a business and financial center, the law seems designed to minimize any impact. In terms of implementation, the Hong Kong and mainland governments are likely to avoid prosecutions and other enforcement actions that would scare foreign businesses away.”

Reporting by Karin Strohecker, Saikat Chatterjee and Tom Arnold in London; Noah Sin and Sumeet Chatterjee in Hong Kong, editing by Sujata Rao and Kevin Liffey

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