China Vows Hong Kong Will Continue as Global Financial Hub
China’s top banking regulator issued assurances that Hong Kong’s linked exchange-rate system is stable and the city’s unique strength as an international financial center will not be weakened under Beijing’s pending new national security law for the special administrative region.
The China Banking and Insurance Regulatory Commission (CBIRC) said Thursday that Hong Kong’s role as a global financial hub will be further consolidated in the future. It was the first official response from the Beijing regulator after the Trump administration threatened last week to strip Hong Kong of its special treatment as the U.S. determined the city is no longer sufficiently autonomous from the Chinese mainland with the new law.
Since China assumed sovereignty over Hong Kong from the British in 1997 under the “one country, two systems” principle, the U.S. has treated Hong Kong separately from the mainland in customs, export controls, visas and other areas of law and policy under the 1992 United States-Hong Kong Policy Act.
That law includes a provision allowing the U.S. dollar to be freely exchanged with the Hong Kong dollar. Hong Kong’s linked exchange-rate system, in which the Hong Kong dollar is pegged to the U.S. dollar, was put in place nine years before the measure was enacted. The peg system relies on free exchange between the two currencies.
After U.S. President Donald Trump issued his threat May 29, Hong Kong’s central bank and financial secretary made statements assuring of the city’s monetary and financial stability. Hong Kong is capable of responding to all kinds of risks and challenges, a spokesperson from the CBIRC said Thursday at press conference.
The CBIRC spokesperson cited Hong Kong’s sound legal and financial systems, large number of highly educated financial professionals, strong economic foundation, world-class business environment, foreign exchange reserves of $440 billion and a fiscal reserve of more than HK$1 trillion ($129 billion).
Sanctions against Hong Kong that some U.S. politicians are threatening would harm “others without benefiting oneself” and won’t have any material impact on Hong Kong, the spokesperson said. Hong Kong’s financial markets are operating smoothly, and there’s no abnormal capital outflow, the spokesperson said.
The Trump administration hasn’t announced any specific actions, but investors are worried that the threat of U.S. sanctions could diminish business confidence and compromise Hong Kong’s importance as an international financial center. That fear sparked rumors that Hong Kong might impose foreign exchange controls, prompting local residents to exchange Hong Kong dollars into greenbacks.
The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, denied the rumor and assured that it has the capability, resources and determination to safeguard Hong Kong's monetary and financial stability. The free flow of capital and free convertibility of the Hong Kong dollar will continue to be safeguarded by the Basic Law of the Hong Kong Special Administrative Region, and the central bank sees no need and has no plan to change the well-established linked exchange-rate system, the HKMA said.
Hong Kong Financial Secretary Paul Chan told China Central Television Wednesday that Hong Kong can tap a currency swap line with China’s central bank, which can provide U.S. dollars to back Hong Kong’s currency peg should Washington impose sanctions.
Damaging Hong Kong’s financial stability would not be in the interests of local financial institutions as well as mainland financial institutions and all foreign financial businesses including U.S. companies, the CBIRC said.
The Trump administration’s threat to strip Hong Kong of its special trading status would violate rules of the World Trade Organization (WTO), China’s Commerce Ministry spokesman Gao Feng said Thursday at a routine press briefing. The special trading status was recognized by all WTO members and did not depend solely on the United States, he said.
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