How China Is Tightening Its Grip on Hong Kong's Economy


Bloomberg News

via Yahoo Finance - June 23, 2020


(Bloomberg) -- China is not only tightening its political grip on Hong Kong to rein in the restive city, it’s pushing harder to deepen its influence over the international finance hub's business life.


From real estate to initial public offerings, debt issuance and telecommunications, mainland Chinese companies -- many of which have government backing -- are playing increasingly assertive roles in almost every corner of the city. It’s a shift that has been in progress since the handover in 1997.


While supporters of greater economic integration point to the growth-boosting impact of Chinese investment in Hong Kong, critics see it as yet another reflection of the city’s diminishing autonomy from the mainland. That concern has swelled in recent weeks after China said it would impose contentious national security legislation on Hong Kong, threatening the independence of a judicial system that has been a key draw for international companies and investors.


“Hong Kong is likely to develop into a Chinese offshore center,’’ said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA. “As a national offshore center, it may have some tax benefits, leeway in terms of issuing in dollar or attracting dollar investment. But it won't be a global financial center, where most of the players are global players.’’


Take something as simple as offices. While the numbers of outposts for Japanese or U.S. companies has stayed broadly static over the past five years, the number of mainland Chinese companies with a foot on the ground has soared. Just in the past three months, CMB International Capital Corp., China Minsheng Banking Corp. and Orient Finance Holdings Ltd. have expanded their office space in the Central hub, according to people familiar with the matter.


As mainland Chinese companies are expanding, concern over the city’s future is growing among western companies. Over a quarter of companies questioned by the American Chamber of Commerce in Hong Kong this month said they were considering moving elsewhere. Nearly 40% of respondents said they were considering relocating personally as China pushes forward with a contentious new national security law that is seen eroding Hong Kong’s legal framework.


It’s also the case that these new mainland China offices are having a growing impact. Among the industries that have ramped up their presence are China’s state-backed brokerage houses, asset management companies and banks.


They’re increasingly arranging and buying offshore debt deals for the nation’s firms -- displacing international firms in the city from the lucrative deals.


Chinese firms made up 12 of the top 20 bookrunners for Chinese dollar bond deals so far last year, up from just three a decade earlier, Bloomberg-compiled data show. They were responsible for arranging 60% of the funds raised in these deals last year, overtaking their international peers for the first time in 2018, according to the data.


The buyers of the deals are also increasingly wealthy investors in China and the region as a whole.


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