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  • Richard Harris

Hong Kong is irreplaceable for China. That’s why the PLA hasn’t rolled in yet

The events of recent weeks have thrown up a constant canard. Hong Kong is irrelevant. Its economy is 3 per cent of China’s. It is just a matter of time before Beijing, Shanghai and especially Shenzhen assume Hong Kong’s mantle.

Shenzhen is more liberal than the rest of China, it boasts an educated population of critical mass with new ideas and lots of capital to apply to leading-edge technology. Beijing and Shanghai are much bigger, with a huge hinterland, and have (if not hold) the ear of the central government.

People in Hong Kong are regarded as pampered snowflakes who have far too many liberties than is good for them. We are doomed.

Poppycock. Nothing could be further from the truth.

If all that was true, the army would be here already – but we play an irreplaceable role in China’s foreign direct investment as a critical gateway to the world. If we didn’t exist, China would have to invent us.

Hong Kong has six freedoms other cities in China don’t have. Four of these, like in the European Union, are freedom of movement of goods, people, services and capital. The others are the rule of law (as interpreted by a judiciary independent of the government) and freedom of speech. Destroy these freedoms and you would indeed destroy Hong Kong’s special role.

Money flows freely across our borders – and into the mainland, which remains largely closed to protect the yuan. In the last nine years (according to my friends at Natixis Asia Research), Hong Kong accounted for 73 per cent of the mainland’s overseas initial public offerings and 60 per cent of its overseas bonds.

No less than 64 per cent of the mainland’s inward foreign direct investment and 65 per cent of its outward foreign direct investment was booked in Hong Kong. Chinese banks, which are now worth US$1.2 trillion, hold overseas assets concentrated in Hong Kong.

We have our own currency, pegged to the greenback and backed twice over by our reserves. The peg gives us a great advantage in international trade when so much is priced in US dollars. Bank deposits in Hong Kong are a massive US$1.7 trillion, equivalent to 469 per cent of gross domestic product.

Companies can freely move goods and services in and out of Hong Kong. Some will argue that rampant fat-catism has resulted in cartelised industries – property, medicine, supermarkets and others – and driven up prices to eye-watering Swiss levels. But every jurisdiction is allowed a little fuzziness around the edges as long as it doesn’t prove too damaging.

Our borders allow significant mobility of people – from global professionals to cleaners, although immigration from the mainland is restricted . Our young people have access to future opportunities in the Greater Bay Area . On the mainland, the system of hukou or household registration still inhibits the free flow of labour.

It is significant that none of the 12 Chinese free trade zones has so far been a success – because they do not have these freedoms. They have promised more than they have delivered, because it is almost impossible to completely remove the crippling restrictions that plague foreign businesses in China. Hong Kong is a proven deliverer today and it will deliver benefits for China for a long time to come.

To our current six freedoms we can add an open-minded and educated population, global regulatory standards, efficient infrastructure, low taxes, and transparent transactions. We also have many bilateral treaties that enable us to operate independently of our sovereign.

The current disturbances are not about today, for the first four freedoms are unlikely to change much; they are about tomorrow. The millions of marchers keep on marching

because of the potential loss of the two other freedoms. The anticipation that the rule of law safeguarded by an independent judiciary will be replaced by plain rule by law – a very different thing, something more capricious and opaque – is very scary.

And a global financial centre relies upon freedom of speech for assessment of business opportunities. It is binary. Once you shut someone up about one thing, it is pretty easy to shut anybody up about anything. It is sobering to think that I would not be able to do my current PhD research into finance on the mainland – because I would not be able to use


"Hong Kong should be one leg of the financial tripod straddling time zones, with New York and London. That role is in jeopardy."

China cannot afford to destroy our commercial freedoms. My model of China is like that of Germany. Shanghai is like Munich, the domestic industrial and commercial centre. Beijing is like Berlin – the capital, full of political flatulence – and Hong Kong is like

Frankfurt . The cities have their own roles.

Hong Kong should be one leg of the financial tripod straddling time zones, with New York and London. That role is in jeopardy. A real competitor to Hong Kong is not any city in China, but one that boasts enough of the six freedoms: Singapore.

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