The unrest in Hong Kong has many people worried about a crackdown led by Beijing. That would be a disaster not only for Hong Kong, but for the Chinese economy, AaronBack explains. WSJWhatsNow
By Nathaniel Taplin Sept. 9, 2019 6:57 am ET “One country, two systems”—the awkward formula under which freewheeling Hong Kong has survived in China’s statist economy—has always been viewed with deep ambivalence in the ultra-capitalist territory and Beijing alike. Yet maintaining the arrangement is paramount to the success of both.
On pure size, Hong Kong carries far less heft relative to the mainland than in the late 1990s. Its output was 3% as large as the mainland’s in 2018, against nearly a fifth in 1997. While Hong Kong is legally part of China, the People’s Republic guaranteed it a “high degree of autonomy” until 2047 as a condition of the 1997 handover. It has its own Western-style legal system, currency and trade agreements. The U.S. and other major powers treat it as a separate legal jurisdiction. Should the U.S. reconsider that status, as legislators have threatened in the event of aggressive action by Chinese authorities, Hong Kong could become subject to U.S.
But the financial impact of a loss of confidence could be severe. Chinese investment inflows into Hong Kong over the past two decades have been gargantuan, which is one reason why property there is so pricey. Should capital flight tank the property market—or undermine the Hong Kong dollar’s longtime peg to the greenback—Chinese property developers and banks would likely sustain serious damage.
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