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Hong Kong is over unless China fixes own economy, Roach says

Tan KW
Publish date: Wed, 21 Feb 2024, 09:54 PM
Tan KW
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China must fix its economy and let Hong Kong run itself if it wants a better future for the financial hub, former Morgan Stanley Asia Ltd chair Stephen Roach said, after a pessimistic column he wrote sparked an uproar.

“The most important thing Beijing can do is, number one, fix its own system,” Roach, a senior lecturer at Yale University, told Bloomberg Television on Wednesday.

“Beijing also needs to be more aggressive and transparent underscoring its commitment to the ‘one country, two systems’ model,” he added.

Roach argued in a column for the Financial Times last week that Hong Kong’s embattled stock market symbolises the end of its economic success over the past two decades. The economist cited factors including Beijing’s tightening grip over the former British colony and rising US-China tensions to make the case that it is fast declining.

“It pains me to admit it, but Hong Kong is now over,” he wrote. “A city I once called home and have cherished as a bastion of dynamism has had the world’s worst-performing major stock market over the past quarter of a century.”

Roach’s assessment triggered rebuttals from prominent figures in Hong Kong. Laura Cha, outgoing chair of Hong Kong Exchanges & Clearing Ltd, said she “fully disagrees” with the pessimistic view and blamed external factors for the market downturn.

“There are from time to time people predicted Hong Kong has come to the end,” Cha told reporters last week at a bourse ceremony. “We have always proved them wrong.”

In a letter to the FT, Regina Ip, convener of the local government’s advisory Executive Council, argued that the Fed’s rate hikes and other US policies are the “root cause” of woes in Hong Kong equities. Chief Secretary Eric Chan dismissed Roach’s comments as “fear-mongering” on a radio show.

Fixing the long-term structural problems for the Chinese economy is no easy task, Roach said in the Wednesday interview, and Beijing’s moves to arrest issues like deflation and a housing slump have been “de minimis thus far.”

Hong Kong briefly lost its place to India as the world’s fourth-largest stock market earlier this year as global capital poured out of China. Beijing’s stringent Covid curbs, persistent crackdowns on the private sector, the property crisis and geopolitical tensions with the West have all combined to erode the country’s growth prospects.

Chinese leader Xi Jinping’s government is seeking to strengthen economic ties between Hong Kong and mainland cities via the so-called Greater Bay Area project. The hope is it eventually rivals clusters like Tokyo and Silicon Valley.

That is a China-centric “concept that allows Hong Kong to play one role when other cities like Shenzhen play possibly equally important, if not greater roles,” Roach said. “Hong Kong is at risk of getting marginalised.”

Xia Baolong, China’s point person on Hong Kong, will visit the city in a weeklong inspection trip starting Thursday, the local government said. He’s the director of the Hong Kong and Macao Work Office of the Communist Party’s Central Committee, which was created last year to strengthen the party’s supervision of the semi-autonomous territory.


  - Bloomberg


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