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ANALYSIS: "Protests cause Hong Kong's economic strength to falter"


In Hong Kong's fashionable shopping district around Kowloon Street, it is suddenly possible to move unobstructed. Normally, you have to walk through the bog with countless Chinese tourists and embark on risky detours in traffic when long queues outside the international luxury brand stores are paving the sidewalks again.

A growing, well-to-do upper middle class from the mainland here usually turns its interest in Versace, Bvlgari and Armani into multi-headed shopping parties. However, this summer's increasingly violent conflicts between the local government and the democratic protest movement have frightened visitors and more and more companies have noted a negative economic development.

On Wednesday, the analysis company IHM Markit presented its purchasing manager's index, which underlines the negative development. IHM Markit has asked questions to purchasing managers at the large Hong Kong-based companies and their analysis shows that the economy is shrinking for the second consecutive month.

More difficult times

Hong Kong's financial development cannot be fully explained in street life or in the local rotation of consumer goods. It is Asia's most important financial center and is usually described as the gateway to China for Western companies and vice versa. It is on the Hong Kong stock exchange many Chinese companies take note to open the door for foreign investors. Hong Kong's currency, the Hong Kong dollar, is tied to the US dollar and has traditionally been a stronger and - above all - a more reliable currency than the Chinese, in the sense less politically manipulated.

The trade war between China and the United States has therefore already weakened the region. Although Hong Kong is not affected by the same tariffs as the mainland, but when the financial flows slow down, the sluggers also suffer. Decline in trade between China and abroad leads to more difficult times for intermediaries in Hong Kong.

Increased borrowing costs

On Friday, another financial hit came for the city when one of the world's three largest credit rating agencies, Fitch, downgraded Hong Kong's credit rating by a step in its rating scale. From AA + to AA, the verdict sounded, with a negative forecast of further downgrade. This is the first time since 1995 that Fitch has lowered its credit rating in Hong Kong.

The effect will be increased borrowing costs for financial operators in Hong Kong. Fitch cited two reasons for the action, both linked to the protests and what they are facing: first, the unstable environment for companies after months of violent conflicts, and second, a failing confidence in the independent political and legal system that Hong Kong guaranteed upon returning to China from the UK in 1997 .

In accordance with Deng Xiaoping's slogan "One country, two systems", Hong Kong would under certain years be guaranteed some internal political autonomy and an independent legal system. The independence of the political processes has rubbed Beijing on edge for several years, and what triggered the ongoing protests in Hong Kong was a bill on extradition agreements that was perceived as a premature legal integration - the agreement runs until 2047.

Swedish companies doubt

On site here in Hong Kong, there are just under 200 Swedish companies, ranging from large brands such as Ikea, Volvo and HM to small consulting firms. Kristian Odebjer, CEO of the Swedish Chamber of Commerce in Hong Kong, says that more and more Swedish companies are now seriously doubting the long-term future here:

- More and more political decisions that have been made give us a feeling that mainland China will rule and that in the future will take a greater grip.

This is exactly what Fitch referred to in his rating reduction.

Source: svt

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