THE FINANCIAL SECTOR & HONG KONG’S SECURITY LAW
The confusion around Hong Kong’s future couldn’t get more complex: (1) the issuance of the new Hong Kong National Security Law; (2) the progression of the COVID-19 crisis; and (3) the increasingly desperate electoral chances of American President Donald Trump appear to be driving increasingly demagogic rhetoric and more dangerous public policy initiatives from the United States. This confrontational positioning is also embraced to a lesser degree by traditional China rivals in Japan and Western Europe.
In the midst of this fog of confusion, the ongoing Hong Kong crisis would on its face appear to pose a dilemma for financial institutions with a presence in the SAR, involving a complex web of decisions with ramifications extending beyond Hong Kong, and with no certainty over outcomes. While this is in some ways a legitimate observation, it risks leading to indecision and procrastination that may result in some financial institutions engaging the Hong Kong crisis without a clear-eyed assessment of the political, economic and financial implications. This weakens the institution’s capability to chart its own course and leaves it vulnerable to becoming collateral participants at best, or at worse a collateral casualty.
Fortunately, when viewed with discipline and long-term perspective, the facade of complexity fades and actually presents a clear, straight-forward set of decision criteria that will allow financial institutions to make an informed decision relating to their engagement in Hong Kong.
For the reader’s consideration, here are several clear and unambiguous realities of the Hong Kong landscape for financial institutions:
A Hong Kong without an acceptable and wholly integrated relationship with China will have very little commercial or financial value to international financial institutions.
China will not and cannot allow Hong Kong to be an independent or “exceptional” part of China. Not politically. Not financially. Not commercially.
The challenge to financial institutions is not currently coming from China, but from politicized reactions in their home jurisdictions. It is not China that is threatening sanctions on the financial institutions; it is their domestic base.
Financial institutions will either abide by the authority of China or they will not operate in China. By China we mean any commercial or financial activity in Hong Kong or the mainland that is dependent on its relationship with China. And in future perspective that means everything about Hong Kong.
There are of course many more dynamics to the relationship between Hong Kong and external financial institutions. Many aspects are nuanced and allow for relationship maneuverability. But the foundation and inescapable reality of the relationship of financial institutions to Hong Kong is predicated on these realities.
By acknowledging these realities and smartly anticipating and planning for various scenarios that may evolve, financial institutions can steer a self-determined future relationship that is largely insulated from the collateral damage that will inevitably befall an undisciplined and nearsighted management of the Hong Kong relationship, which is fundamentally a China relationship.
Expect the Trump driven demagoguery to continue into November and perhaps into the next American administration, even if the increasingly likely defeat of President Trump occurs this November.
However, those in the financial sector who see through the fog of change and act accordingly without indecision and procrastination will inevitably enjoy a preferred position in the reality of this phase of Hong Kong’s integration into Greater China.
DISCLAIMER: The information contained herein is strictly for informational purposes. Optima Strategies Limited and any of its principals or employees are not responsible for its completeness or accuracy. This information is offered as a free service and all receiving parties are advised to confirm any and all information. This document is the proprietary intellectual property of Optima Strategies Limited and should not be copied, circulated to other parties or otherwise used without written permission.