Closer SAR, mainland tie seen
Hong Kong's credit ratings will increasingly be tied to the mainland's creditworthiness as the two economies further integrate, according to Duff & Phelps Credit Rating (DCR).
The New York-based agency rates Hong Kong's foreign currency obligations at A and local currency obligations at A plus. But the outlook on these ratings is negative, reflecting the SAR's and mainland's worsening trade performances.
DCR's head of Asian sovereign ratings Roger Scher said: 'What would negatively impact Hong Kong's creditworthiness would be a substantial interference in the conduct of economic policy by the Chinese authorities.' The agency does not consider the recent row over immigration policy a blow to the SAR's creditworthiness.
'A testing of the judicial mechanisms embodied in the Basic Law and the involvement of mainland China to some degree in judicial and/ or policy review were bound to happen,' Mr Scher said.
But he said Hong Kong's creditworthiness would be affected if the mainland's intrusion in the SAR's judicial processes were to undermine the smooth functioning of the legal system and the respect of contracts.
Mr Scher warned that a marked deterioration in the mainland's creditworthiness could result in pressure to influence Hong Kong's economic policies, which could warrant a narrower distinction in their credit standing.
The agency considers Hong Kong's creditworthiness to be stronger than the mainland's because of the SAR's better stand-alone credit fundamentals, as well as incentives supporting the mainland not to interfere in its economic policy.
'China reaps substantial benefits from Hong Kong's independent economic status, including significant trade and investment flows,' the agency said.
'Over time we can expect Hong Kong's and China's creditworthiness to converge as the economies and societies integrate,' Mr Scher added.