Will National Security Laws Affect HK’s Status as International Financial Center?

Hong Kong has been one of the world’s major international financial centers (IFC) for several decades. However, during this period, whenever the city has experienced a historical event, be it good or bad, speculation has mounted that its status as such may be affected.

For example, both the handover of Hong Kong and the concurrent Asian financial crisis in 1997 led to fears over whether Hong Kong would be able to maintain its IFC status. This time, the introduction of national security legislation in the Hong Kong Special Administrative Region (HKSAR) has now raised fresh concerns over the city’s position as a global center for finance.

It is clear that these worries later turned out to be unnecessary – neither the handover nor the financial crisis undermined Hong Kong’s status as an IFC. It seems reasonable to believe that Hong Kong will continue to play a significant role within global finance, not just because of the historical trajectory of its financial market and the resilience of its financial sector, but due to the fact that it has the critical elements necessary for any IFC.

The HKSAR’s financial hub status rests on its solid foundations. It has a business-friendly legal system which allows for the free flow of capital and information, a well-established rule of law, internationally accepted linguistic and cultural norms, state-of-the-art infrastructure, a pool of talented professionals, and strong connections with the Chinese mainland.

Hong Kong’s status as an IFC will undoubtedly remain unchanged unless the above conditions are eroded. Political and social stability is indispensable to maintaining these conditions. In terms of the impact to the HKSAR, nothing is more serious than political turmoil, and therefore, the rampant street violence in Hong Kong over the past months, which has achieved nothing but to harm social stability, must be curbed. As such, the national security legislation, which is primarily designed to maintain law and order within Hong Kong society, can play its due role. It will only contribute to Hong Kong’s stability and help build confidence among global financial market players in the HKSAR.

Moreover, Hong Kong’s success largely hinges upon its unique and strong relationship with the Chinese mainland, which is guaranteed by the “one country, two systems” arrangement. With the national security legislation in place – which is also designed to safeguard and consolidate the “one country, two systems” principle – Hong Kong will remain unequivocally aligned with China’s developmental interests in the long run. This in turn will guarantee the prosperity of HKSAR and its IFC status.

In essence, the national security legislation will not erode the critical conditions of Hong Kong as an IFC, to which stability is indispensable. In this context, it is unlikely that the national security legislation will bring about any negative changes to the fundamentals of Hong Kong’s international financial market.

Of course, immediate negative repercussions to the HKSAR financial market cannot be disregarded. Hong Kong is unfortunately being used as a political football against China by certain outside forces, with the national security legislation being just a convenient pretext. For example, the impact of the United States revoking Hong Kong’s special trade status as a separate customs territory cannot be overlooked. Therefore, it is urgently necessary for the HKSAR financial sector to hedge against this move by the U.S. in order to maintain Hong Kong’s status as an IFC

Professor Kong Qingjiang is dean of the School of International Law, China University of Political Science and Law.