A bronze sculpture of a bull looks over Exchange Square in Central where Hong Kong’s stock exchange stands. Hong Kong’s position as the most important financial market in Asia relies on freedom of information. Photo: Warton Li
Opinion
Mark Clifford
Mark Clifford
Hong Kong as a financial centre could drown if ‘river water’ from China continues to rise
A more mainland-dominated Hong Kong would threaten the city’s robust regulatory regime, high corporate governance standards, and freedom of the press and information, putting its status as Asia’s financial centre at risk
Former Chinese president Jiang Zemin famously said that well water and river water do not mix. Jiang’s point, made soon after the 1989 Tiananmen Square killings, was that Hong Kong shouldn’t try to pollute the mainland with ideas about democracy. Cadres from up north, in turn, wouldn’t try to inflict communism on postcolonial Hong Kong.
Of course, the idea that Hong Kong would be as separate from China after 1997 as it was during British colonialism was never realistic. Now, although Hong Kong’s extradition bill is dead, that river water from the north threatens to submerge the special administrative region.
It’s worth going beyond the political sloganeering and thinking more concretely about what a more mainland-dominated – and politically restrictive – Hong Kong means for business, if the special administrative region is more fully merged before 2047. The reality is likely to lie somewhere between the utopian idea of a harmonious and vibrant Greater Bay Area and dystopian visions of the sort of surveillance state now being trialled in Xinjiang.
If limits on permissible behaviour tighten, if the red lines continue to constrict, Hong Kong is likely to fade into a place of marginal international significance. This drift into irrelevance will happen not with a bang, but with a whimper.
Journalists, press photographers, journalism schoolteachers and commentators take part in a silent march against police violence, from Harcourt Garden to the Hong Kong government headquarters in Admiralty, on July 14. Photo: Edmond So
Hong Kong’s continuing importance – or lack thereof – as an international financial centre is key. A Hong Kong more like China will be one where stock markets benefit insiders with privileged access to information. Insider trading, market manipulation and other forms of fraud won’t attract meaningful penalties – except for those who anger someone more powerful.
Free markets need free information. Financial markets need fast, honest information. Financial markets are at the heart of Hong Kong’s economic success. Freedom is the reason Hong Kong has the most important international financial market in Asia. The lack of a robust, critical local and foreign press tends to go hand in hand with stunted capital markets. Singapore, despite admirable corporate governance standards, hasn’t developed in part for this reason.
If the river water keeps rising, company news will always be rosy. Information will be sanitised. Self-censorship will do the work in most cases, abetted by corporate bullying and overt orders from the government where necessary. Financial analysts, investment bankers and journalists will be looking over their shoulders even more frequently than they do now. The South China Morning Post of tomorrow could look a lot like China Daily does today.
Corporate cover-ups and poor governance would depress the prices international investors would want to pay for Hong Kong-listed equities. The Hong Kong discount would widen and shares listed here would not get as good a valuation as in a freer environment with a robust business press and a strong regulatory regime. International investors would be in Hong Kong because they must, given China’s large economy, not because they want to.
Pedestrians stand in front of an electronic display board showing the Hang Seng Index on October 11, 2018. International investors trust Hong Kong’s strong financial regulatory regime. Photo: AFP
The government’s decision not to renewFinancial Times Asia editor Victor Mallet’s visa prompted international media companies to think more seriously about moving core operations out of Hong Kong. At least one major international news organisation has made specific contingency plans to leave. Tokyo would be the likely choice in a region that is markedly less friendly to journalists than it was two decades ago. Tokyo is not as international as Hong Kong, but foreign journalists don’t face the same legal or physical threats as journalists now do in Hong Kong.
Hong Kong needs more foreign influence, not less. Hong Kong was built not only by Chinese and British but by Indians, Jews, Armenians and others who took advantage of the freedom that this improbable city offered.
Businesses are not looking to pick a fight with government. That made the position of the American Chamber of Commerce and other business groups on the extradition bill so extraordinary. Corporations are shapeshifters, more comfortable adapting than fighting. But they don’t like situations where insiders get sweetheart deals because of who they know in the government – and others are punished arbitrarily.
More legal and regulatory certainty allows better planning and a fuller control of the business operating environment. More predictability generally means more profits. Weaker rule of law and less freedom of information will drive some businesses away and discourage others from setting up operations. There will be a cost to economic growth, especially as we move toward more knowledge-intensive societies. The more knowledge-intensive the endeavour, the greater the need for freedom.
Even if Hong Kong becomes more like other mainland cities, it isn’t destined to be submerged by river waters. It will have an important regional role as a centre for southern China. The Pearl River Delta will remain one of the world’s fastest-growing regions. But if the river water keeps rising, it threatens to swamp much of what makes Hong Kong different from other mainland cities.
Mark L. Clifford is executive director of the Asia Business Council
