“The death knell for Hong Kong has been sounded many times since [the handover to China] but the proposed national security legislation could have crushing implications for a place so dedicated to the international language of commerce that the local form of English is stripped of embellishment”, The New York Times writes, in a piece that reads like an obituary. “Can, no can? Too often these days, the answer is no can”.
The iShares MSCI Hong Kong ETF plunged for a second day Friday headed into the long US weekend. The slump mirrored losses on the Hang Seng, which suffered its worst session in years after China confirmed it will move ahead with plans to enshrine mainland national security protocol into the city’s laws.
The outsized slump in the US-listed ETF is a simple way to illustrate acute investor angst around the city’s future as a financial hub, which, despite assurances from Carrie Lam, is now in serious jeopardy.
“Hong Kong will remain a very free society, where freedom of expression, freedom of protest, freedom of journalism, will stay”, Lam insisted, in an address on Friday evening aimed at pacifying an anxious world.
Suffice to say nobody is convinced. US lawmakers are already planning sanctions on China in retaliation for the looming change, which Mike Pompeo lambasted as a “disastrous proposal”.
“The United States strongly urges Beijing to reconsider, abide by its international obligations, and respect Hong Kong’s high degree of autonomy, democratic institutions, and civil liberties, which are key to preserving its special status under US law”, Pompeo chided.
China won’t be reconsidering. Xi has seen enough. Some commentators were already tossing around the “failed state” label to describe the city last year after six months of protests left the economy in tatters. Now, with demonstrations set to resume and some still fearful of COVID-19 flare-ups, the end game is nigh. Just ask a local. Or two. Or three.
“I think Hong Kong is half-way dead”, a clerk at a city investment company told Reuters. “I didn’t expect Hong Kong would deteriorate that quickly”. She said she hopes her children eventually move away.
“The Communist Party pulled back the curtain”, opposition lawmaker Dennis Kwok lamented, in comments to Bloomberg. “They want to use a new strategy of terror, fear, attacks, criticism, [and] direct intervention”.
As the world was fixated on COVID-19, Xi made a series of moves presaging a harder line. “On February 13, China named Xia Baolong to head the Hong Kong & Macau Affairs Office atop a newly revamped reporting structure that created a clear chain of command from Hong Kong to Beijing”, Bloomberg writes, in the same linked piece, adding that “Xia [oversaw] a crackdown on Christian churches in eastern Zhejiang province [in 2014 and 2015] in which crosses were cut from the roofs of houses of worship”.
Around the same time, another hardliner was appointed to lead China’s Liaison Office in the city.
“I do not expect that protests will end”, Carrie Lam remarked on Friday. “There will be protests of all sorts, as we have seen”, she added, dryly, from beneath a face mask.
She’s right about the protests, that’s for sure. “This is a great moment to reboot”, one 24-year-old university student who participated in last year’s demonstrations told Reuters, for a separate piece published Thursday.
In markets, stocks aren’t alone in reflecting the anxiety. “The national security news spooked the market and has caused a surge in HKD FX swap points”, SocGen’s Jason Daw notes.
“The move in forward points is related to the markets’ concern about two possible scenarios”, Daw went on to say. The first is “a resumption of heightened domestic tensions” and the second is “even greater international tensions… as the market awaits the US response”.
Interbank rates surged on Friday. Three-month Hibor spiked by the most since October of 2008, for example.
To be sure, we’ve been here before, but only in a sense. Last year’s protests took a severe toll, plunging the local economy into recession, and decimating the city’s retailers and tourism industry, while exports suffered from the trade war.
Through it all, though, financial markets were some semblance of resilient. Indeed, the Hang Seng rose 9% in 2019.
But the latest threat from Beijing isn’t likely to be something investors can ignore or even shake off. “We used to say that Hong Kong was lucky to be between East and West [but] now some people say, ‘It’s maybe cursed”, Law Ka-chung, former chief economist at state-owned Bank of Communications, told The Times, for the piece linked here at the outset.
Law was fired last year for passing around an article seen as sympathetic to the Hong Kong demonstrators. He also told The Times he wants to leave.