Date
21 October 2019
Hong Kong authorities cannot dismiss the remarks of global credit rating agencies offhand, Kenneth Leung writes. Photo: Bloomberg
Hong Kong authorities cannot dismiss the remarks of global credit rating agencies offhand, Kenneth Leung writes. Photo: Bloomberg

Time to take a deep look at concerns raised by rating agencies

Global credit rating firm Fitch Ratings said this month that it has downgraded Hong Kong’s long-term foreign-currency issuer default rating to “AA” from “AA+”, and that the outlook on the rating is negative, in the wake of the months-long unrest in the city.

Following the announcement, Financial Secretary Paul Chan Mo-po said the government was “disappointed by the downgrading of Hong Kong’s credit rating and outlook”, arguing that they “do not agree with the assessment by Fitch on Hong Kong’s latest developments”.

Nor do they agree that “this should lead to Fitch’s calling into question the effective implementation of the ‘one country, two systems’ principle in Hong Kong.”

Chan then went on to criticize the rating agency’s remarks as being “purely speculative and groundless”.

According to the statement released by Fitch, the main reason why it decided to lower Hong Kong’s credit rating is that even with concessions to some protestor demands, “a degree of public discontent is likely to persist.”

“The potential for renewed eruptions of social unrest could further undermine confidence in public institutions, and tarnish perceptions of Hong Kong’s governance, institutions, political stability, and business environment,” it said.

I believe the observation is highly consistent with the views of people around the world as well as locals who are concerned about the state of affairs in Hong Kong.

In the face of the ongoing social disturbances, a lot of prominent figures in society have put forward suggestions on how to restore the public’s faith in the administration and its governance. I am of the view that it is an issue that the government is completely capable of resolving.

Another thing to note about the Fitch decision is that it marks the third time Hong Kong’s rating was downgraded in recent years.

In 2017, Standard & Poor’s and Moody’s lowered their ratings on Hong Kong.

The fact that globally renowned top credit rating agencies have all downgraded the city’s rating indicates that the decision made by the Fitch is hardly an isolated incident, nor is it just a simple reflection of the recent social turmoil arising from the anti-extradition bill movement.

This is something that the government needs to ponder over.

Fitch has made it very explicit in its statement as to why it is bearish about Hong Kong’s outlook.

“Fitch expects the ‘one country, two systems’ framework to remain intact, but the gradual rise in Hong Kong’s economic, financial, and socio-political linkages with the mainland implies its continued integration into China’s national governance system, which will present greater institutional and regulatory challenges over time.”

“In Fitch’s view, these developments are consistent with a narrowing of the sovereign rating differential between Hong Kong and mainland China (A+/Stable).”

In other words, what Fitch did was to remind the SAR government that Hong Kong’s unique role is built on its autonomy in terms of its systems.

An over-emphasis on Hong Kong’s integration into the mainland would only write off the unique characteristics of the city.

Given the situation, the Hong Kong government needs to enhance communication and cooperation with the rest of the world and prove that it remains committed to upholding the city’s autonomy and uniqueness.

After all, confidence among governments around the world and among multinational corporations in Hong Kong’s system and business environment is the key to maintaining the city’s status as an international financial hub.

Given Hong Kong’s high degree of integration into the global market and the free flow of information, it won’t be difficult for others to get a good and objective understanding of the state of affairs in the city.

Against this backdrop, our chief government officials may seem a bit judgmental when they accuse foreign credit rating agencies of not understanding the ground realities in Hong Kong.

This article appeared in the Hong Kong Economic Journal on Sept 11

Translation by Alan Lee

[Chinese version 中文版]

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JC/RC

Member of Legislative Council (Functional Constituency – Accountancy)