28 October 2016
Hong Kong is losing its uniqueness and becoming just another mainland city. Photo: HKEJ
Hong Kong is losing its uniqueness and becoming just another mainland city. Photo: HKEJ

What Moody’s downgrade is telling us

Beijing and Hong Kong officials were celebrating a major victory at the Legislative Council on Friday when the bad news came.  

International credit rating agency Moody’s Investors Service downgraded Hong Kong’s long-term debt outlook to negative, citing the territory’s close links with China.

The downgrade should serve as a wake-up call for all Hong Kong people, especially those in the pro-Beijing camp, as the city’s status as an international financial center is being questioned by a key player in the global financial marketplace.

It came as the Hong Kong government won the lawmakers’ approval for an additional HK$19.6 billion funding to cover the cost overruns in the high-speed rail link project, capping its budget at HK$84.4 billion.

In the Legislative Council’s finance committee meeting, the pan-democrats were ejected from the hall and the pro-establishment lawmakers voted for the funding request by raising their hands. (Some of them even raised their hands when the acting committee chairman, Chan Kam-lam, asked “those opposed to show their opposition by raising their hands”.)

After the supposed voting, the chairman declared that “the funding request was passed based on my feeling”.

Has there been a more ludicrous way of legislative approval than by “feeling”?

The lawmakers should go through all the procedures required to pass a government bill or ordinance.

But after Chan blocked the democrats from extending the question and answer session, the Beijing loyalists approved the funding request amid a chaotic session.

That’s one clear example of how the close ties between Hong Kong and China are affecting the outlook of the territory.

That’s a clear example of how Beijing loyalists are willing and determined to work against the interests of Hong Kong people to promote the will of the Communist Party leaders.

In a statement, Moody’s explained the reasons for the downgrade by presenting the city’s political as well as economic and financial risks.

And for the political risks, it said that “tensions [between Hong Kong and China] could rise further, in particular ahead of the 2017 election for Hong Kong’s chief executive, and impair the effectiveness of government policies”.

Since Hong Kong’s return to Chinese rule in 1997, the implementation of the “one country, two systems” policy has been on a roller-coaster ride, mainly due to the clashing interests of the two sides.

Hong Kong wants to preserve its uniqueness as a capitalist city with a high degree of autonomy, while Beijing wants to transform the territory to serve a role in its game plan for global expansion.

Given this situation, the role played by the Hong Kong chief executive is a difficult one, as it involves a balancing act between Hong Kong and China.

Leung Chun-Ying’s tough style in governing Hong Kong could reflect Beijing’s intention to tighten its grip on Hong Kong, focusing more on “one country” and playing down, if not setting aside, “two systems”.

The Hong Kong leader to be elected in next year’s small-circle election may not be as hostile as CY Leung in terms of personality, but the role and direction of the chief executive would still be the same as China is bent on tightening its control of Hong Kong. 

Would that trigger more tension between Hong Kong and China? The answer is, of course, yes.

Many in the pro-Beijing camp blame Hong Kong people for focusing on the “two systems” rather than on the “one country”.

However, they seem to forget that it has been Beijing’s commitment to preserve Hong Kong’s system after the signing of the Sino-British Joint Declaration in 1984.

Now, Beijing wants Hong Kong to be ruled not only in accordance with the Basic Law, the city’s constitution, but stresses the importance of implementing China’s own constitution in Hong Kong.

As a result, Hong Kong’s legal system has been put under China’s umbrella, and such an arrangement naturally undermines the city’s legal and judicial independence.

Having an independent legal system is one of Hong Kong’s competitive advantages as an international financial center, but by stressing the importance of China’s constitution in Hong Kong, the territory is surrendering this major advantage to Beijing.

As for the economic risks, Moody’s said that “the linkages with China could lead to a weaker growth and rising losses in Hong Kong’s banking sector would erode the government’s fiscal buffers”.

In other words, Hong Kong is suffering from China’s economic slowdown. Such a downturn could adversely affect the city’s economy and financial sector, while a weak banking sector could affect public spending.

Moody’s analysis of the Hong Kong situation is based on objective facts, which are publicly available.

The question is how to interpret the facts. The Hong Kong government, of course, won’t feel the pain of China’s economic downturn, as officials continued to draw cash from the city’s fiscal reserves and pump money into white elephants such as the high-speed rail link and the Hong Kong-Zhuhai-Macau Bridge.

These two projects cost Hong Kong HK$154.2 billion, but their economic returns are likely to be insufficient.

Add the other controversial infrastructure projects including the West Kowloon cultural zone, the development of the northeastern part of the New Territories and the third runway system of the airport, and Hong Kong will have to spend more than HK$500 billion to complete them.

For many Hong Kong people, closer ties between the city and the mainland would give local businessmen more opportunities to reap profit from a market of 1.3 billion people.

However, there are a growing number of Hong Kong people, too, who believe that we should not rely too much on China for our economic growth, as we should not place all our eggs in one basket and we should be careful not to lose our independence.

Of course, Beijing’s propaganda machine has been telling us for the past two decades that Hong Kong will be better off riding on China’s prosperity.

The reality, though, is something else. Mainland people are pouring money into the territory to snap up homes and basic necessities.

Chinese companies have built their exposure in the city’s key business sectors and penetrated strategic industries such as power, telecommunications, property development and retail.

Hong Kong people are finding themselves in a nest built by the Chinese.

The Moody’s downgrade is telling us that Hong Kong is no longer as unique as it was before.

From the perspective of foreigners like Moody’s, Hong Kong is fast turning into just another city of China, and therefore, the mainland’s outlook cannot be different from ours.

– Contact us at [email protected]


EJ Insight writer

EJI Weekly Newsletter