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Stephen Roach, don’t bet against Hong Kong people

IN 1897, WHEN THE New York Journal told Mark Twain, the humorist, of the rumor he was dying in poverty in London, he was amused. He replied, “The report of my death was an exaggeration,” hoping to nip the story in the bud.

The same can also be said of anybody who predicts Hong Kong’s demise.

Stephen Roach is a highly regarded American economist. He was formerly the chairman of Morgan Stanley Asia and once called Hong Kong his home. He professes to “love Hong Kong”, which is why it pained him, on Feb 12, to tell the Financial Times that “Hong Kong is now over”.

Roach undoubtedly cares for the city, and is not some crazed ideologue bent on harming China. He knows his stuff, making his conclusion all the harder to fathom. However, “even Homer sometimes nods”, and experts can err.    


Roach said that the combination of three developments led him to his “uncomfortable position as a naysayer”.

The first issue highlighted was a “distinct lack of political autonomy in the aftermath of the massive demonstrations of 2019-20,” which is hard to follow (the other two were economically related). After all, the “political autonomy” enjoyed by the city before 2019 was ruthlessly abused by those who wished to undermine the “one country, two systems” policy, and the house nearly collapsed. Their antics posed an existential threat not only during the insurrection of 2019-20 but also before it.

Although, by 2012, Hong Kong’s political development had proceeded to the point whereby half its legislators (35) were directly elected by the geographical constituencies, with universal suffrage being the Basic Law’s ultimate aim, it was sabotaged from within. Political saboteurs infiltrated the body politic, bent on frustrating the government’s work and confronting Beijing, and mayhem resulted.

Whatever its short-term challenges, Hong Kong will ultimately prevail, and a bright future beckons. Once this becomes clearer, Roach will hopefully be happy to eat his words.”

Anti-China forces not only turned the Legislative Council into a bear-pit where brawls were common and staff were injured but also paralyzed its operations for months on end. A new breed of lawmakers, some of whom were unwilling to take their oaths of office in the manner prescribed by law, made a mockery of the city’s burgeoning democracy. They did not see their role as ensuring people’s livelihoods, furthering Hong Kong’s participation in the country’s economic development, or promoting the city’s status internationally.

Instead, they used their positions to filibuster, to support street violence, and to incite the US to revoke Hong Kong’s trading preferences and sanction its officials. This beggared belief and this type of conduct by elected officials would have been unacceptable anywhere in the world. If Hong Kong was ever to resume normal operations and to maintain its position as a financial center, a trading hub and a tourist destination, things had to change.

And change they did once the political system was reformed after the insurrection. Those who assume elected office must now be responsible individuals who appreciate patriotic duties, and Hong Kong is back in business. Had things continued politically as before, Hong Kong would have been finished, something Roach failed to grasp.

Moreover, despite some last-minute tinkering, little by way of political development occurred under the British before 1997 but this did not prevent Hong Kong from becoming an Asian success story. Indeed, it was only when greater democracy was introduced after 1997 that the problems began, with malign individuals exploiting it to harm China. By not factoring this in, Roach compromised his analysis.


His forte, however, is economics, and here he was also pessimistic on two issues. He said Hong Kong’s “economic underpinnings” would be undermined by a “protracted malaise in the mainland Chinese economy” (a little surprising, given that China’s economy expanded by 5.2 percent last year). It would also face “a squeeze from US-centric friendshoring,” meaning the city’s East Asian trading partners would have to choose sides “in coping with the crossfire of the Sino-American conflict” (the implication being they would side with the US against China).

Although views may differ, Roach has exaggerated the city’s difficulties, and this blurred his perspective. In 2022, when Robin Harding, the FT’s Asia editor, assessed the situation in Hong Kong, he saw things differently. In an FT article entitled “Don’t write off Hong Kong as a financial center just yet”, he wrote. “For hard economic reasons, the future of the Chinese territory, which retains some separation from the mainland under the principle of ‘one country, two systems’, is more secure than any global rival except for New York.”

Harding explained how Hong Kong retained “an entirely separate and fully convertible currency pegged to the US dollar”. He said a series of “so-called Connect schemes” in the city enabled “foreigners to access Chinese markets and Chinese investors to place money abroad”. He also pointed out that, for Chinese companies cold-shouldered on US stock markets, the Hong Kong Stock Exchange (the world’s fifth-largest) was the “natural venue for them to seek international capital”.   


Other leading experts endorsed Harding’s optimism, including Carlos Casanova, senior Asia economist at Union Bancaire Privee (UBP). On Feb 5, in Nikkei Asia, he said it was “important that investors not lose sight of Hong Kong’s continuing importance as a global financial center”. In 2023, it was the world’s largest clearing center for the yuan outside of the Chinese mainland, and processed over 70 percent of cross-border yuan payments, well ahead, for example, of second-placed London, with its 5 percent share.

This, noted Casanova, was significant because last year the yuan overtook the yen to become the fourth-most-widely-used currency for cross-border payments. As China’s share of global trade was almost 20 percent, he predicted the yuan’s share would keep rising in the years ahead.

About two-thirds of direct foreign investment entering or leaving the mainland goes through Hong Kong. Casanova expected the amount of investment flowing through it into other low-cost manufacturing hubs to increase. He said this “should generate opportunities for both local and global companies”. 

He also highlighted how the Big Four accounting firms, which prepare companies to go public, had all forecast a strong rebound in initial public offerings in 2024, “likely generating over $10 billion in proceeds and making the city once again a leading global IPO market”.

Casanova even predicted that Hong Kong’s fund management industry could overtake Switzerland as the world’s largest cross-border private wealth management center by 2027. He pointed to the city’s “unusually large concentration of international fund managers, advisory businesses and private banks”. Whereas Hong Kong had about 2,000 licensed asset managers in 2023, the corresponding figure in Singapore, for example, was 1,194. And while Hong Kong had approximately $2.2 trillion in assets under management, Singapore had $1.5 trillion.

Casanova was in no doubt that “Hong Kong remains an essential player in global finance”, a view shared by Donald Liao, co-chief executive of HSBC Asia-Pacific. On May 10, 2023, Liao emphasized the significance of Hong Kong’s role as the Chinese mainland’s gateway to the world. He said he believes the city will “continue to be a capital and talent hub for mainland China and the rest of the world, as long as we take advantage of the huge opportunities in the mainland market, maintain our renowned legal system, and play by the rules of the international market”. Of this, there can be no doubt.

Although Western politicians rarely have a kind word to say about Hong Kong, honest commentary is not entirely dead.”

In 2023, moreover, Chris Williamson, chief business economist at Standard and Poor’s (S&P) Global Market Intelligence, confirmed in an S&P economics commentary that “business is booming in the Hong Kong Special Administrative Region, with output growing at the fastest rate for over a decade”. He said the S&P Global’s latest purchasing managers index (PMI) had shown “business confidence soaring far higher than anything seen previously in the survey’s history, buoyed by surging demand amid the reopening of the Chinese mainland economy”.

The PMI survey, not mentioned by Roach, also revealed, said Williamson, that “future output expectations surged almost six points to jump to its highest since comparable data were available in 2012, rising for a sixth successive month to indicate a remarkable turnaround in business confidence”. Whereas rising orders were being received by Hong Kong businesses, this was being driven by a “wave of new business received from the Chinese mainland, which rose at a rate not seen since the global financial growth boom of early-2010.”


Although Western politicians rarely have a kind word to say about Hong Kong, honest commentary is not entirely dead. Whereas the likes of the UK’s prime minister, Rishi Sunak, and foreign secretary, Lord (David) Cameron, malign the city at the drop of a hat, there are still a few statesmen around. One such is Lord (William) Hague, the former Conservative Party leader and foreign secretary, and a typical Yorkshire straight shooter.

On January 20, Hague said Hong Kong had “flourished on the strength of its dynamism”. He explained its “geographic location, free-trade policy and efficiency as a logistics hub, as well as its trade history and networks, have propelled the city to become one of the world’s largest trading economies”. Sunak’s government might not be in so much trouble if there were more truthful politicians like this around.             

The picture that emerges, therefore, of Hong Kong’s future is far rosier than Roach would have us believe. Like other economists, he should have attached greater weight to Beijing’s unflagging support of the city, which is crucial to any proper understanding of its situation. In January, Hong Kong’s exports to the Chinese mainland, its largest market, soared by 54.2 percent year on year.

Whereas the central government is expected to set a growth target for the national economy of about 5 percent at this month’s two sessions annual meetings, it envisages an increasing role for Hong Kong in China’s overall development. This encompasses the Greater Bay Area, which accounts for over a third of China’s exports, and  the Belt and Road Initiative (BRI).

On Feb 27, the visiting director of the Hong Kong and Macao Affairs Office, Xia Baolong, rammed the point home. He said the “high-quality development of China’s economy is a powerful driving force for Hong Kong to move towards a bright future”. He added, “the central government firmly supports Hong Kong’s economic development and Hong Kong’s protection of investor interests”. He also highly supported the city’s status as an international financial center. His message, therefore, was entirely positive and will hopefully have registered with Roach.    


Hong Kong has faced difficult times, like many other places, but these are being overcome. On Feb 27, the Census and Statistics Department reported that its exports rose 33.6 percent in January (they jumped to HK$388.7 billion), the best monthly performance in three years. As imports rose 21.7 percent year on year in January to HK$385.1 billion, there was a trade surplus of HK$3.6 billion.

It was particularly gratifying that Hong Kong’s export growth was mainly driven by Asian demand. In January, exports to Asia increased 45.7 percent year on year. This hardly supported Roach’s claim that East Asian countries were giving Hong Kong the cold shoulder as global tensons rise. Indeed, ASEAN was Hong Kong’s second-highest trading partner in 2022, with trade amounting to HK$1.29 trillion, or 13.7 percent of its total.

In 2022, Hong Kong applied to join the Regional Comprehensive Economic Partnership (RCEP), a free trade pact among Asia’s largest economies, including China, Indonesia, Japan, Malaysia, and South Korea. On Sept 16, 2023, the secretary for commerce and economic development, Algernon Yau Ying-wah, said, “I expect Hong Kong can join the free trade pact next year.” If so, it will help to bury Roach’s claim that Hong Kong’s East Asian trading partners will, to its detriment, be “squeezed” into choosing sides.  

Over the years, Hong Kong has faced many vicissitudes but has always pulled through. Although the doom-mongers predicted the worst, it triumphed over natural disasters, pestilence, financial crises, political upheaval, brain drains, social disorder and even wars. Whatever its short-term challenges, Hong Kong will ultimately prevail, and a bright future beckons. Once this becomes clearer, Roach will hopefully be happy to eat his words.    

Grenville Cross is a senior counsel and law professor, and was previously the director of public prosecutions of the Hong Kong SAR.

Click this line to read a variety of writings by Grenville Cross.

Illustration at the top by Simply Art 4794.

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