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Hong Kong Special Administrative Region (SAR)

Red Chips are stocks of mainland Chinese companies traded on the Hong Kong stock exchange. China uses Hong Kong to channel its investments around the world and a large share of the capital that flows into China goes through the Hong Kong financial system. The Chinese have a large incentive to maintain their image as a preferred destination for foreign capital. The financial linkage underwritten by British common law and a reputation for transparent and honest regulation that gives Hong Kong an importance to the Chinese economy that far outstrips its relative size.

Hong Kong is a Special Administrative Region of China, a status that initially ensured its courts, civil service and media enjoy freedoms that do not exist on the mainland. Political stability, the rule of law, low taxes, minimal regulation and freedom of speech are qualities that have made it the main gateway between mainland China and the rest of the world for multinational companies for decades. Hong Kong is one of the world's most important financial centers, second only to New York and London in terms of global significance. The territory boasts over 150 licensed banks and more than 1,600 asset managers as well as associated professional services. Although Hong Kong accounts for less than 3% of entire China's gross domestic product (GDP), the territory is the country's most important offshore fundraising location. Despite the growing significance of places like Shanghai and Shenzhen as China's financial centers, Hong Kong remains a key gateway connecting mainland China with global financial markets. Hong Kong owed its status as a flourishing financial hub to a number of factors, like the region's rule of law and independent judiciary.

international firms often use Hong Kong as a base to expand into mainland China. China also uses Hong Kong's financial markets to attract foreign funds. Chinese companies are by far the most important USD issuers in the Hong Kong offshore market, so most of Hong Kong's external debt is actually debt from Chinese subsidiaries operating from Hong Kong. Hong Kong's contribution to China's gross domestic product dropped from 20% in 1997 to less than 3% by 2019. By the year 2000, Hong Kong accounted for two-thirds of all foreign investment in China and one-third of China's foreign exchange. But by 2004, inward FDI and IPO funds raised through foreign equity markets (including Hong Kong) accounted for about 1114% of total investment. Hong Kong was the home of 73% of mainland Chinese companies initial public offerings overseas during the period 2010 to 2018. In the same vein, Hong Kong accounts for 60% of overseas bond issuance of mainland companies and 26% of their syndicated loans.

Almost all U.S. portfolio investment goes toward Chinese firm listing on the Hong Kong stock exchange. By one estimate, by 2019, about 60% of foreign investment in China and a similar share of its outbound investment was channelled through Hong Kong. By another estimate, in 2019 it was the largest source of overseas direct investment in China, accounting for 54% of the national total, and the leading destination for China's foreign direct investment outflow, with the same percentage. Sixty-four percent of mainland Chinas inward FDI comes from Hong Kong, and between 2010 and 2018, 65% of outward FDI was channeled through Hong Kong.

Assistant Professor Masato Kajimoto of the University of Hong Kong' Journalism and Media Studies Centre says Hong Kong has been divided between the pro-democracy camp and the pro-government bloc for years, mainly due to the 2012 Anti-National Education Movement and the Umbrella Movement two years later. But he says the gap has deepened further since many people turned to social media, including Facebook, Twitter, YouTube, WhatsApp, Weibo and Telegram.

"It is natural for people to seek and share the views that reinforce their political beliefs. On social media those views are often amplified by like-minded users, creating an environment known as the 'echo chamber.' What we see is not just consuming the political views that you like. Those views include vicious attacks on other viewpoints. And I think that's particularly problematic because you're not only excluding yourself from other viewpoints, you are constantly exposed to other viewpoints. And yet, instead of trying to understand the other ways to look at things, you are constantly mocking them, attacking them, making fun of them. And that you can see on both sides clearly in Hong Kong."

US policy treats Hong Kong separately from the rest of China in trade, investment, commerce, and immigrationbased on Beijings pledge to give the territory a high degree of autonomy under the one country, two systems model. Public Law No: 116-76 (11/27/2019) "Hong Kong Human Rights and Democracy Act of 2019", requires the U.S. State Department to report annually to Congress whether Hong Kong is sufficiently autonomous from China to justify keeping the citys distinct trading status, and whether China has eroded Hong Kongs civil liberties and rule of law, as protected by the citys Basic Law.

The Department of State shall report and certify annually to Congress as to whether Hong Kong is sufficiently autonomous from China to justify its unique treatment. The report shall address issues including (1) demands for universal suffrage; (2) law enforcement cooperation, including extradition requests; (3) sanctions enforcement and export controls; (4) decision-making within the Hong Kong government; (5) judicial independence; (6) civil liberties in Hong Kong, including freedom of assembly and freedom of the press; and (7) how any erosion to Hong Kong's autonomy impacts areas of U.S.-Hong Kong cooperation.

The Department of Commerce shall report annually to Congress on China's efforts to use Hong Kong to evade U.S. export controls and sanctions and the extent of such violations occurring in Hong Kong generally. The report shall also (1) identify any items that were improperly reexported from Hong Kong, (2) assess whether dual-use items subject to U.S. export laws are being transshipped through Hong Kong, and (3) assess whether such dual-use items are being used to develop various mass-surveillance and predictive-policing tools or the social-credit system proposed for deployment in China.

By December 2020 the UK was granting the most special British National Overseas [BNO] travel documents to Hong Kong residents since the 1997 handover, bolstering predictions of a mass exodus as China tightens its grip over the former British colony. Some 216,398 Hong Kong residents received British National (Overseas) passports during the first 10 months of the year, higher than any annual figure stretching back to 1997, according to data provided by the U.K.s Passport Office. The U.K. side violated its promises, insisted on going its own way and repeatedly played up the issue of BNO passports, Chinese Foreign Ministry spokeswoman Hua Chunying told a regular news briefing 04 December 2020 in Beijing. As the British side violated its commitment first, China will consider not recognizing the BNO passport as a valid travel document and reserves the right to take further measures.

A China-backed newspaper on 26 January 2020 warned that Hong Kong would have to leave behind any notion of "Western" democracy, suggesting that the ruling Chinese Communist Party (CCP) is planning to further tighten its grip on the city's political life amid an ongoing crackdown on dissent. In an article titled "Leaving behind the myth of Western democracy: consultative elections to comply with Basic Law," the CCP-backed Ta Kung Pao newspaper suggested a "consultative" process with even less public involvement may be implemented in future. It said the current method of choosing the city's chief executive could still result in the election of a candidate with political views not approved by Beijing. Currently, the chief executive is selected by a 1,200 election committee that was once overwhelmingly pro-Beijing. But a landslide victory for pro-democracy parties in the 2019 District Council elections may have rung alarm bells among Chinese leaders, as District Councils -- once overwhelmingly pro-China -- are represented on the committee.

A British National (Overseas) - BN(O) - passport is available to a huge number of people -- about 70 percent of Hong Kong's total population of 7.5 million. Hong Kong's pro-Beijing leader Carrie Lam played down the threat of a mass exodus. "I just don't see how 2.9 million Hong Kong people would love to go to the United Kingdom," she told Bloomberg, using the figure for the number of people eligible for BN(O) status that does not include their dependents. As many as 5.4 million Hong Kong residents could be eligible for the plan, including an estimated three million passport holders and just over two million dependents: around 72 percent of the city's population.

Britain prepared to open its doors to millions of residents from Hong Kong following China's security crackdown in the former colony. "I am immensely proud that we have brought in this new route for Hong Kong BNOs to live, work and make their home in our country," British Prime Minister Boris Johnson said in a statement. "In doing so we have honored our profound ties of history and friendship with the people of Hong Kong, and we have stood up for freedom and autonomy values both the UK and Hong Kong hold dear." Britain predicted up to 154,000 Hong Kongers could arrive over the next year and as many as 322,000 over five years.

China said 29 January 2020 that it would not recognize the British National Overseas (BNO) passport as a valid travel document or for proof of identity. "From January 31, China will no longer recognize the so-called BNO passport as a travel document and ID document, and reserves the right to take further actions," Foreign Ministry spokesman Zhao Lijian told reporters. BNO passports won't be accepted for the purposes of entering or leaving Hong Kong, with residents required to present an alternative document. Hong Kong permanent residents who are not of Chinese nationality and hold no other valid travel document can apply to the immigration authorities for a document of identity for visa purposes.



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Page last modified: 30-01-2021 12:35:03 ZULU