24 October 2016
As ordinary Chinese begin to lose faith in the economy, long lines to exchange renminbi for US dollars may become common. Photo: China Spectator
As ordinary Chinese begin to lose faith in the economy, long lines to exchange renminbi for US dollars may become common. Photo: China Spectator

Why China stock crash could be a blessing in disguise for HK

Premier Li Keqiang’s forceful bailout of China’s stock market is both unprecedented in history and unparalleled in scale.

After rescue measures had been underway for a week, the authorities finally resorted to intimidation, as a team of investigators from the Ministry of Public Security visited the head office of the China Securities Regulatory Commission (CSRC) to probe “malicious short selling”, forcing a halt to major short-selling activity.

Following these interventions, along with a relaxation of forced liquidation rules for margin positions, mainland shares began to rebound and stabilize.

But it is easy to see how manipulated the market is, just by looking at the fact that while almost 1,000 counters rose to their 10 percent daily limit, about 1,400 are still suspended.

It’s impossible to classify the mainland stock market as a bull or bear market in the traditional sense — it’s in effect a “zombie market”.

After the recent crash, some so-called financial experts urged individual investors to seize the opportunity to hunt for bargains.

They are either ignorant or trying to mislead the public on purpose.

That’s because, in the wake of the crisis, Chinese stocks are apparently only suitable for fearless gamblers and speculators.

Then, over the weekend, rumour had it that there was a stampede to convert renminbi to the US dollar at banks across the major cities in the mainland because the authorities might impose restrictions on foreign currency exchange soon — suggesting that the Chinese public could be losing confidence in the economic bubble that has been fueled by the reckless printing of money by the Chinese government in recent years.

To many rich and powerful people in the mainland, the renminbi is already far overvalued, and they are racing against time to convert their money to US dollars and transfer their wealth overseas before the Communist Party outlaws the moving of personal assets offshore.

Trillions of yuan has been vaporized in the stock market fallout. Negative consequences of this huge loss of wealth are bound to surface at some point.

If China plunges into recession and faces serious unemployment, this could trigger the influx of hundreds of thousands of “locust people” into Hong Kong to find a living, throwing the entire city into chaos.

Yet the financial crisis in the mainland could also be a blessing in disguise for us.

If the Communist Party can truly learn a lesson from its mistakes and is willing to preserve the stability and autonomy of Hong Kong in order to foster its status as the only international financial hub of China, the city is well positioned to play a key role in jumbo projects like “one belt, one road” and renminibi internationalization.

The mainland crisis has proven that Hong Kong’s status as an international financial hub is irreplaceable, which is the fundamental reason our city can continue to survive.

In fact the cliché that “when China prospers, Hong Kong prospers, too”, often echoed by former chief executive Tung Chee-wah and the incumbent Leung Chun-ying, is a load of crap.

The truth is, when China prospers, we may not prosper as well.

In contrast, when China falters, that may spell a lot of opportunities for us.

This article first appeared in the Hong Kong Economic Journal on July 15.

Translation by Alan Lee

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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