However, the dilemmas posed by the ongoing protest movement and government responses suggest the People’s Republic of China (PRC) cannot have both full political control and a liberal economic environment. China’s leadership appears to see no contradiction between keeping economic liberties in place while gradually eroding the underlying institutions. At the same time, it intends to preserve economic freedoms that keep the city functioning as an Offshore Financial Center (OFC). In recent years, Beijing has continuously expanded its political control at the expense of Hong Kong’s autonomy. Since the 1997 handover, this treaty formed Hong Kong’s de facto constitution, the Basic Law, China pledged to preserve many freedoms not found in the mainland itself for the duration of a 50-year transition period, till 2047. When Hong Kong returned to Chinese sovereignty in July 1997, it did so under “One country, Two systems,” a legal commitment to a high degree of autonomy enshrined in the Sino-British Joint Declaration of 1984. District council elections in late November in which pro-democracy candidates won a landslide 390 out of 452 seats on a record 71.2 percent voter turnout, was a recent reminder on China’s failure to win support. Since 2008, the share of Hong Kong’s population identifying as Chinese has declined overall, with a further steep drop in 2019 (see exhibit 1). 1The resistance by large parts of the population and business community expresses their distrust of China’s political system.
#Risk 1 och risk 2 trial#
The protests were ignited by a proposed extradition law (since dropped) which would have allowed extradition to mainland China, trial by mainland courts, and asset freezes in Hong Kong based solely on Chinese court rulings. The political crisis that has gripped Hong Kong since March 2019 is far from any resolution and has the potential to hasten the city’s demise as an international financial center. The pressure for accelerated convergence with China’s political and legal system has reached a critical point. Growing distrust in Hong Kong’s institutions jeopardizes its position as an offshore financial center.Beijing’s hardline reaction threatens to inflict substantial and irreparable damage on the city’s institutions.However, the city's ability to attract new companies and global talent has suffered. There has been no massive capital outflow, and the Hong Kong Stock Exchange continues to attract major IPOs. The city’s function as an offshore financial center has so far not been affected. Protests have hit Hong Kong’s economy, but its financial markets remain unaffected for now.However, strengthening other offshore centers could contribute to an erosion and atomization of Hong Kong’s gateway function. Other cities outside of the mainland come with considerable political and economic constraints for China. Alternative offshore centers in Macau, Singapore or London can only serve as complimentary hubs.Hong Kong provides access to foreign currency and has a crucial role in integrating China’s financial system with global markets. The city has no real domestic competitors for this role, despite the growing importance of China’s financial centers. Hong Kong is a vital gateway connecting China with global financial markets.Hong Kong’s freedoms, primarily the rule of law and a lack of capital controls, are essential for China to satisfy its growing appetite for international capital. The city’s Special Administrative Region status has given Hong Kong the autonomy to fulfill the institutional requirements of an international finance and trading hub. Hong Kong's position as a financial hub rests on the city’s high degree of autonomy.