16 February 2019
The protests have been staged in places other than Central and the financial sector is largely unaffected. This can be of some relief to Beijing. Photo: Bloomberg
The protests have been staged in places other than Central and the financial sector is largely unaffected. This can be of some relief to Beijing. Photo: Bloomberg

Beijing won’t send in the troops for Central’s sake

Almost two years ago, Benny Tai, a law professor at the University of Hong Kong, first broached the idea of occupying Central to press Beijing to fulfill its pledge of true democracy for the territory in an article in the Hong Kong Economic Journal. 

The central authorities were understandably bothered.

As the campaign gained momentum this year, pro-Beijing forces launched their own moves to counter the planned civil disobedience movement, including staging a mass demonstration in August and engaging in muckraking targeting key organizers and supporters of the campaign. All these reflect how nervous Beijing was. 

Why? Because Hong Kong’s central business district is a virtual automated teller machine for Beijing.

Just look at some of the latest figures from the Hong Kong Monetary Authority, the territory’s de facto central bank. According to a report released by the HKMA in July, 56 percent of the local banking sector’s cumulative loans to non-financial institutions went to China as of the first half of the year, compared with less than 10 percent in 2006. The share of local mortgage loans has shrunk from 30 percent to just 14 percent during the same period.

Of the HK$2.6 trillion (US$330 billion) in loans extended to mainland borrowers as of the end of 2013, more than HK$1.29 trillion went to non-private entities. In other words, about a half of the amount went to state-owned enterprises.

The figures have sufficiently alarmed the International Monetary Fund, which reportedly sent out a word of caution to local lenders about their exposure to mainland SOEs.

A similar situation can be seen on the local stock market.

The combined market capitalization of China-related stocks on the main board and the Growth Enterprise Market accounts for 40 percent of local bourse’s total. Just a decade ago, the share was 28 percent. Needless to say, most of the funds raised went north of the border.

But as a source of investment in the local stock market, China lags behind other key economies. Among overseas institutional investors — the largest investor category –- those from the United States and the United Kingdom account for 54 percent while the share for Chinese capital is just 11 percent, according to the Cash Market Transaction Survey published by the HKEX in February.

All these figures highlight the importance of Hong Kong as China’s source of foreign capital.

And this should help dispel fears that Beijing will ultimately unleash its People’s Liberation Army should the student protests persist.

When you are already one of the largest beneficiaries of Hong Kong’s financial markets, and the pro-democracy groups’ bid to occupy the financial district already disturbs you, it’s hard to imagine that you would aggravate the situation by sending out the troops.

– Contact the writer at [email protected]


Police form a cordon to block protesters from entering Central. Photo: Bloomberg

Despite the closure of some road sections, Central is operating without a hitch. Photo: Bloomberg

EJ Insight writer

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