Hong Kong must stay prepared for geopolitical risks given its status as a “fully open international financial centre”, a top official has said, as he hit out at the United States for interfering in the global market amid the Russo-Ukrainian war. Financial Secretary Paul Chan Mo-po also lauded the national security law for strengthening the city’s financial hub status, adding that since the legislation was enacted in June 2020, companies had raised more funds in Hong Kong through IPOs, while the daily transactions of the stock market had also increased. “After years of political turmoil in Hong Kong caused by foreign and external forces, and the ‘black violence’ in 2019, the Hong Kong national security law has safeguarded the security of the country and Hong Kong … and created a safe and stable environment for society,” he said, referring to the social unrest that broke out three years ago. “But the recent Russo-Ukrainian conflict has made it clear how the US has weaponised the US dollar and some international financial systems. These blatantly distorted and interfered in the functioning of the international financial market.” The world was “undergoing major changes unseen in a century, and the geopolitical situation continues to be tense. As a fully open international financial centre, Hong Kong must make different preparations and plans for various risks”, Chan added, but did not elaborate on what these entailed. Analysts previously said Beijing remained concerned about Western powers, such as the US, using Hong Kong as a pawn to contain China’s growth. Google terminated the YouTube channel of then Hong Kong chief executive candidate John Lee Ka-chiu during his leadership campaign in April, citing compliance with US sanction laws. Liu Guangyuan, commissioner of China’s foreign ministry office in Hong Kong, accused foreign forces of smearing the security law during a high-powered symposium held by the city’s Department of Justice on Saturday. To provide support for Chinese companies facing political risks in countries such as the US, Chan said Hong Kong authorities had further simplified the requirements for Greater China firms to head to the city for secondary listings. Since the security law was imposed about two years ago, the amount of IPO funds raised in Hong Kong exceeded HK$650 billion (US$82.8 billion), an increase of more than 30 per cent compared with the same period before, Chan said. Hong Kong e-commerce start-up Yoho kicks off US$18 million IPO The average daily turnover of Hong Kong stocks exceeded HK$150 billion, nearly 60 per cent higher than a year before the implementation of the law. The total value of Hong Kong’s asset and wealth management business also reached HK$34.9 trillion at the end of 2020, a 20 per cent increase compared with the time before the law was enacted, he added. The government had reformed the stock market in recent years to boost the city’s competitiveness, Chan said, noting that since a new listing system was implemented in 2018, Hong Kong had become the largest biotech financing centre in Asia and the second largest in the world. Under the new system, emerging companies with a weighted voting rights structure, and biotech companies without income or profit, are allowed to list in Hong Kong. As of April this year, a total of 74 companies were listed under the new system, and the accumulated IPO funds raised exceeded HK$580 billion, accounting for more than 44 per cent of the total IPO funds raised in Hong Kong during the same period. Academics had mixed reactions on how Hong Kong could protect its financial system in response to possible US sanctions. “Technically, the US is capable of grabbing the lion’s share of Hong Kong’s fiscal reserves and creating obstacles for Hong Kong to go along with the linked exchange rate system,” said Professor Francis Lui Ting-ming, a prominent economist and professor emeritus at the University of Science and Technology. “These actions would incur extremely high costs on the global financial system. This would also be very costly for the US, which has to figure out whether it is a good idea to take these actions.” Lui declined to discuss in what way Hong Kong could make preparations to reduce geopolitical risks, saying: “This would be like preparation for war, or to prevent war from happening. Explicit discussion in the public arena may not be suitable.” But he suggested the city could start contemplating the need to delink the Hong Kong currency from the US dollar, adding: “I think delinking at some proper time is inevitable.” Why picking a Hong Kong leader under US sanctions may be part of Beijing’s game plan Dr Lee Shu-kam, director of Shue Yan University’s Business, Economics and Public Policy Research Centre, shared Lui’s views and said Hong Kong should speed up its integration into the mainland Chinese economy or other regional economic blocs to avoid over-relying on the US market or system. “It can be seen as a kind of de-internationalisation and it will hurt the Hong Kong economy too, with reduction in international trade and international capital flow,” he said. Citing Russia as an example of having been excluded by the West from the Swift payment system, he said: “It dealt a big blow to the banking network and financial system of Moscow. But the whole world also suffers. We see there is a shortage of supply of almost everything and prices are rising.” Swift, or Society for Worldwide Interbank Financial Telecommunication, is an international payment system used by banks and financial institutions in some 200 countries that allows transfer of money across borders. China military drill ‘a warning’ to Taiwan in wake of Biden defence pledge Meanwhile, Professor Terence Chong Tai-leung, executive director of Chinese University’s Lau Chor Tak Institute of Global Economics and Finance, saw the possible escalating tensions across the Taiwan Strait as the biggest geopolitical risk for Hong Kong. “Hong Kong is rather passive and it is only a pawn in US-China rivalry. There is not much Hong Kong can do, or prepare. Hong Kong has no natural resources and our economy relies heavily on financial development,” he said, adding the city would “suffer disastrous outflow of capital” should war break out over the strait. “Theoretically, the US can exclude Hong Kong from the Swift system,” Chong said. “But Hong Kong is an international financial centre and if the US does that, it would also hurt its financial institutions or those of the West that are operating in the city.” Chong, however, opposed the idea of delinking the Hong Kong dollar from the US unit. “It will affect investors’ confidence in Hong Kong,” he said. Additional reporting by Ng Kang-chung