Hong Kong faces a perfect storm

Hong Kong is under threat from both China and the US, as the American Congress proposes removing the arrangements that exempts the territory from Donald Trump's new tariffs.

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Hong Kong is under threat from China and the US
(Image credit: Credit: Fabrizio Troiani / Alamy Stock Photo)

The powers that be might shrug off popular discontent, but they will "listen to money", says Pete Sweeney on Breakingviews. That explains Hong Kong's decision to shelve a controversial extradition bill. Plans to allow residents to be sent to face mainland courts have sparked mass protests that ultimately forced Carrie Lam, the city's leader, to suspend the bill indefinitely. Yet that gesture did not calm the unrest. Organisers claim that up to two million people, nearly 30% of Hong Kong's entire population, turned out last Sunday regardless.

China's leaders do not want to kill the goose that lays the golden egg, says Sweeney. Hong Kong accounted for about 12% of the mainland's exports last year and is the single largest source of "realised foreign direct investment" to China. Its stock exchange gives mainland firms "an independent channel to international capital outside... New York or London".

East meets West

Under the "one country, two systems" framework instituted after its return to China in 1997, Hong Kong has retained significant autonomy over its own affairs. Yet recent years have brought a creeping "China-isation", says William Pesek in the Nikkei Asian Review. The latest drama comes against a "fragile economic backdrop". Growth in the first quarter was the slowest in a decade and rocketing property prices have stoked discontent. But previous bets against the city have proved wrongheaded. Those who sold Hong Kong property before the 1997 handover "are seriously out of pocket".

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Washington's decisions could prove just as important as Beijing's, says Ambrose Evans-Pritchard in The Daily Telegraph. The US recognises Hong Kong as having a "special status", which exempts it from Trump's tariffs. The Hong Kong dollar is pegged to the greenback. Yet with a trade war raging, moves are afoot in the US Congress to bring those cosy arrangements to an end. The Fragrant Harbour's role as the world's third-biggest financial hub "can no longer be taken for granted".

Shanghai calling

The latest development underlines the threat to Hong Kong's financial status from the likes of Shanghai and Singapore, says Bloomberg Businessweek. With mounting "instability and fear" in Hong Kong and regional competitors upping their game, the city faces "a perfect storm".

Alex Rankine
Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.

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