Will China “defund” Hong Kong?

CHINA ADVISORY - Report 04 Oct 2019 by Andrew Collier

Beijing has indirectly suggested two, very different, economic policies towards Hong Kong as a result of the six-month long protests.

1) One policy calls for financial support from Chinese state firms. Reuters reported Sept. 21 (never confirmed) that nearly 100 state firms met over the border in Shenzhen and were urged to invest in tourism and retail in Hong Kong to prop up the economy.

2) The second policy is that significant state firms would move operations out of Hong Kong to avoid problems and downgrade Hong Kong as a financial center. This policy would entail Chinese state banks in Hong Kong being called to move their headquarters to Shenzhen, just across the border, vacating substantial space they occupy in Hong Kong, which would then be considered as a “suburb “of Shenzhen​.

In this report, we analyze the logic of the two approaches and their potential impact on Hong Kong’s economy and financial system. Both policies – if enacted – would be highly significant to the future of Hong Kong as a financial center. Moreover, these policies signal changes to the role that Chinese state firms, particularly the banks, play in global economic affairs. As there is quite scattered data on overall mainland state corporate investment in Hong Kong, which is difficult to collate, we focus here on the financial industry.

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