Hong Kong will continue to be a gateway for foreign investment and trade to China

31 May, 2020 06:11
source: Singularity Financial

Singularity Financial Hong Kong May 28, 2020 – by Zohar Lee

The U.S.-China relationship took another beating this week as the White House rolled back some of Hong Kong’s special treatment after Beijing imposed a national security law that further eroded the territory’s autonomy. But the measures didn’t rattle markets much, and that could continue—as long as the U.S.-China phase-one trade deal isn’t derailed.

U.S. president Trump announced Friday that his administration would end almost all aspects of the American government’s special relationship with Hong Kong, including on trade and law enforcement, and that it was withdrawing from the World Health Organization, where the United States has been by far the largest funder.

Trump said he would strip away Hong Kong’s privileges with the United States, ranging from an extradition treaty to commercial relations, with few exceptions. The precise details or their implications weren’t immediately clear. For example, Trump said he was directing a study of the “differing practices” involved with Chinese and American companies in financial markets, arguing that U.S. investors deserved what he called “fair” treatment.

It could have implications for Chinese companies or banks and Hong Kong’s status as a major Asian financial center, although there was no detail about when Trump might get the “study” or what it could contemplate.

U.S. stock indexes ended mostly higher Friday and booked sharp gains for the week and month, after a news conference from President Donald Trump on China turned out to be not as disruptive to trade and finance as had been feared.

“I think the market anticipating something more stringent than what was announced,” Lindsey Bell, chief investment strategist with Ally Invest, told local media.

Hong Kong will continue to be a gateway for foreign investment and trade to China

“It is inevitable the world splits between the U.S. and China,” says Justin Leverenz, manager of the $33 billion Invesco Oppenheimer Developing Markets Fund. That split comes as Leverenz says the U.S. is no longer the only game in town and the world becomes more multipolar, with China pulling other Asian countries into its orbit. And that means major shifts in coming years as companies and investors recalibrate to both countries trying to become more self-sufficient.

For Beijing, Hong Kong isn’t an issue it will back down from and that likely means a continued erosion of its autonomy. That has and will continue to feed protests and has already diminished its attractiveness as a global hub. At risk is the “one country, two systems” framework that allowed Hong Kong to retain its capitalist and Western legal norms after it was handed over to China by the British in 1997.

But Hong Kong will continue to be a gateway for foreign investment and trade to China, in part because it is in China’s interest for that to continue—especially as the U.S. increases scrutiny of Chinese-listed companies, potentially cutting them off from U.S. investors. Chinese companies have already been looking at secondary listings in Hong Kong. “I don’t see Hong Kong losing its role as a global financial center,” Leverenz says.