Jake's View
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Despite warning from China tycoon, Hong Kong’s markets will survive political hiccups

PUBLISHED : Monday, 28 November, 2016, 5:07pm
UPDATED : Monday, 28 November, 2016, 10:48pm

The chairman of a club that comprises 140 mainland and local tycoons has urged the Hong Kong government to get tougher with pro-independence localists to stop them damaging the business environment.

SCMP, November 28

The best line we offered yesterday from an interview with this latest mainland shoot-from-the-mouth, Chen Hongtian, a Shenzhen newcomer, was that he pays HK$500 million a year in taxes to Hong Kong.

It reminds me of the story of how King Edward VII once asked the rambunctious admiral Jackie Fisher what he had done over the last week to keep busy.

“I ravished all the maidens of London, sir,” Fisher replied.

“Splendid!” said the king, “if true.”

I suppose, however, that in quoting offhand stories about British royalty I must be grateful that sovereignty over Hong Kong has now been restored to China, for, as Mr Chen reminds us, “You would be penalised if you said anything against the queen during her rule.”

Whew! Just imagine.

But enough of comedy. Mr Chen’s argument is that allowing “localist” legislators-elect to advocate independence for Hong Kong endangers the economy and we should take more severe measures to stop them.

I think he is wrong on several counts. In the first place, people who absorb themselves in constitutional boredom ... ahem ... excuse me ... I mean constitutional politics, generally think that financial markets pay political affairs a great deal more attention than they actually do.

Look at the track of the Hang Seng Index, however, or of bond prices and you will have a hard time pinpointing when political tempests broke out. In contrast it is easy to see when interest rates changed course or a major currency crashed. Financial markets do not march to the drumbeat of Beijing puppets who lose their tempers about democracy.

But even when the world takes notice, and it really only does so with the more spectacular losses of temper, I think it generally reinforces Hong Kong’s good name for rule of law. It is strong evidence that we do not have a big boss culture of government. The chief executive cannot override the law.

And this in turn is very good reason for foreign investors to register contracts in Hong Kong rather than across the border. They trust our law. Business services constitute one of the pillars of our economy and the localists do not endanger it, quite the reverse.

But I suppose Mr Chen will argue that too much localist irritation and the mainland will cut back on investment here.

The fact is, however, that most of this investment is just property speculation and our government has in any case been trying to restrain it.

What is more, the bulk of the money comes not from the mainland but from the HK dollar deposits in our own banks. These people don’t really bring it in. They borrow it here.

And to the extent that they really bring in money, they just bring it right back out again. Hong Kong is a principal conduit for mainland capital flight. We launder these flows for them. They trust us, you see. They know that rule of law in this town is stronger than the boss and he can’t steal the money from them.

There is an underlying truth for our economy here. Hong Kong has always lived by doing for the mainland what the mainland cannot itself do or, for reasons of ideology, will not do.

This has taken us from drug trafficking to shipping to gunrunning to textiles and more recently to financial services. At every stage when the mainland could and was willing to do these things itself we moved on to something new.

We have a parasite economy and like all parasites we have an ambivalent relationship with our host. We cannot survive as an integral part of it, nor can we survive as independent of it. We thrive best in a status somewhere between these two.

This is an unwelcome truth for both the localists and the likes of Mr Chen and I very much doubt that either of them will ever make any headway against these simple standard-of-living interests that the rest of us share.

But Mr Chen certainly gives us the better theatre.