As published on scmp.com, Thursday 18 June, 2020.
China on Thursday moved to allay investor concerns about the impact of a new national security law on Hong Kong’s status as a financial hub, the same day the national legislature pushed ahead with a review of the bill in the face of G7 concerns.
Vice-Premier Liu He, the top economic aide to President Xi Jinping, said that Beijing “will adhere to the policy of ‘one country, two systems’, and give support to Hong Kong as it plays the role of an international financial centre”.
“We will ensure that the interests of foreign investors in Hong Kong will be protected and Hong Kong’s long-term prosperity can be achieved,” Liu, who is in charge of China’s financial industry, told the Lujiazui Forum in Shanghai.
The comments, which were read out by China Securities Regulatory Commission chairman Yi Huiman, come amid growing confrontation between China and the US-led Western world over the controversial national security law, which has caused jitters in some parts of the financial sector.
The National People’s Congress Standing Committee announced just a few hours after the speech that it will begin reviewing a draft of the Hong Kong national security law on Thursday.
The statement shows Beijing’s intentions to move forward with the law despite a rare joint statement from the Group of Seven (G7) countries on Wednesday urging it to “reconsider” its decision.
Foreign ministers from the United States, Japan, Canada, Italy, Britain, Germany and France, as well as the EU’s top diplomat, expressed “grave concern” regarding China’s decision to impose the law, saying it “would jeopardise the system which has allowed Hong Kong to flourish and made it a success over many years.”
The G7 countries did not elaborate on what they would do if Beijing goes ahead with the bill, but US President Donald Trump said on May 30 that the US government would begin eliminating special policy exemptions granted to Hong Kong, as the city was “no longer autonomous” from China.
Washington would also sanction Chinese and Hong Kong officials “directly or indirectly involved in eroding Hong Kong’s autonomy”, Trump said.
US Treasury Secretary Steven Mnuchin said last week that he was working on various capital markets responses to the legislation, including measures that could restrict capital flows through the city, which could undermine its role as a financial hub.
Liu did not elaborate on what steps Beijing would take to shore up investor confidence and stabilise the Hong Kong economy, which has been hit hard by a year of anti-government protests, followed by the coronavirus pandemic earlier this year.
But his message was clear: Beijing still cherishes Hong Kong’s role as a financial hub, backed by a convertible currency and a rule-of-law system.
“China has no intention to replace Hong Kong with Shanghai,” said Sun Lijian, a professor at the Fudan University in Shanghai. “The role of Shanghai as an international centre is that it will be the global centre for yuan deals … it will not quickly become another Singapore, New York or Hong Kong.”
The Lujiazui Forum is an annual event hosted jointly by the Shanghai government and China’s financial regulators with the purpose of boosting the city's status in the international financial circles.
However, more than a decade after Shanghai announced its lofty goal of “becoming an international financial centre by 2020”, the city is still constrained by China’s rigid controls on capital flows.
Hong Kong, meanwhile, remains as the main gateway for China to access global capital and the single biggest offshore centre for the Chinese currency, the yuan.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said at the forum on Thursday that China’s efforts to boost Shanghai’s future as an international financial centre would not come at the expense of Hong Kong.
“As an international financial centre, Hong Kong has unique advantages and rich experience, and is fully capable of continuing to play a greater role. At present, Shanghai is working hard to build an international financial centre. Shanghai and Hong Kong can further interact with each other to help both grow,” Guo said.
At the same time, the guessing game continues about how far Washington will go in sanctioning China and Hong Kong institutions and individuals.
Dan Wang, an analyst at Gavekal, a research agency, wrote in a note that Washington's sanctions would be narrow and target individual Chinese officials as “even the hawkish elements of the US government are not eager to destroy Hong Kong’s role as a financial centre”.
“Unlike hurting already-isolated countries like Cuba and North Korea, even a light jab on Hong Kong’s financial operations could trigger global financial instability,” Wang wrote.