Why the Dragon seized Hong Kong

2 Min Read
416 words

In the last 18 months, China has broken it's 1997 "One Country, Two Systems" treaty that allowed Hong Kong to operate a separate legal and political system for 50 years to 2047.

Why didn't they just wait till 2047 and take over Hong Kong legally? Why jump the gun?

The reason is that China aspires to be a superpower, and you can't be a superpower without a powerful financial centre. China has spent the last twenty years trying to build Shanghai into a leading financial centre, and they've mostly failed - Shanghai does a lot of Chinese business, but very little international finance takes place there because no-one fully trusts China.

And Hong Kong was just sitting across the water, with all the expertise and infrastructure of a genuinely powerful international financial centre. Why not just grab it? (As an aside, the reason the EU was so upset about Brexit stemmed from the same thing - without London, the EU's dream of being the third superpower is dead).

So the Chinese grabbed Hong Kong.

Up until this takeover, Hong Kong functioned as the main financial centre for south-east Asia. If you were in South Korea, Vietnam, Philippines, Indonesia etc and you wanted to do some sort of international deal, or list your company on the stock exchange, or tap the bond markets, you went to Hong Kong. The Hong Kong markets are deep and liquid and their lawyers and other experts are first rate, as is Hong Kong's financial regulator. Hong Kong also operates an English Common Law system, with judges on their Supreme Court sourced from the English speaking world, so you get genuinely neutral justice.

What will happen now is that South-East Asian business will migrate to Singapore instead. Singapore also operates an English Common Law legal system with independent Supreme Court justices sourced from the English speaking world.

Hong Kong will still make a lot of money though, just dealing with China's business. It is important to remember that the size of the Chinese economy has doubled in the last decade - it's now bigger than the EU's economy. But as a financial centre it will become less international.

Some of Hong Kong's experts might also move to Singapore or London (especially as the UK has offered passports to anyone born in Hong Kong before 1997).

China's power grab might have killed the thing they were trying to achieve - making China the financial centre for South-East Asia.

Posted Using LeoFinance Beta