Hong Kong Protests Raise Concerns on Foreign Investment

By ERICA SLOAN

The people of Hong Kong have been living an unfulfilled promise for democracy since 1997, when the British returned their nation to China as a special administrative region.  At the time of the transfer, the Chinese government confirmed in the Sino-British Joint Declaration that a democratic system would eventually be implemented in Hong Kong; no such system has emerged and in fact, the opposite has occurred.  The National People’s Congress of the People’s Republic of China decided in August that Beijing would simply select two to three candidates for Hong Kong citizens to choose from in each election.  In retaliation to this decision, on September 22nd, the Hong Kong Federation of Students (HKFS) launched a strike, with over 13,000 students boycotting school.  The strike culminated in efforts to reclaim a large public area called “Civic Square,” during which students were met with tear gas and pepper spray.

In the wake of the student protests, on September 28th, Occupy Central with Love and Peace (OCLP), a civil disobedience movement started in January 2013 by Benny Tai Yiu-ting, announced the beginning of the Occupy Central movement.  By choosing to occupy Central, the heart of Hong Kong’s bustling business district, the group would force the government to hear their demands for universal suffrage and free and fair elections.  Unfortunately, because the protests physically block traffic and many people skip work to attend, they decrease productivity in the workplace.  Several local retailers and bank branches have been forced to close doors and the tourism industry has plummeted, causing the stock market to suffer.

However, larger concerns arise when considering the projections of these economic impacts on a global scale, due to Hong Kong’s status as an international business hub.  Along with Singapore, Hong Kong is one of the primary locations in Asia where multinational corporations have invested over the past decade, specifically thanks to its position as the “gateway to China.”  These companies can gain access to a vast Asian market, while dealing with far fewer restrictions than they would encounter if they chose to set up shop in the mainland of China.  While the protests have caused no drastic changes to these businesses as of yet, it is possible that Beijing’s response could erode the free market and transparent legal system that make Hong Kong so attractive to foreign businesses.  If these businesses reduce their investments in Hong Kong, a redistribution of the global economy may ensue.

Gareth Leather, Asia Economist at Capital Economics in the UK explains, “International financial centers such as Singapore, London or New York would likely pick up some of the business lost by Hong Kong. That said, the advantages that Hong Kong holds in terms of geographical proximity to the mainland, as well as cultural and language affinity, will be difficult for any of these to replicate.”

Global changes may also develop through a less direct path.  Hong Kong is the main supplier of capital to China and also finances many mainland companies that raise money on Hong Kong’s stock exchange.  Thus, any blow to Hong Kong’s economy may generate a ripple effect into China.  Needless to say, any decrease in China’s economy, by nature of globalization, can have extremely far-reaching effects, specifically because China is the largest trading nation in the world.

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