Hong Kong’s sound economic fundamentals, robust financial regulatory regime, resilient banking sector and strong fiscal position will continue to enable the economy to embrace the challenges ahead, Financial Secretary John Tsang said recently.
Tsang was responding to global credit rating agency Moody’s changing Hong Kong’s outlook to negative from stable, according to a news report released by Hong Kong’s Information Services Department.
“As the International Monetary Fund Staff Report released in January concluded, those strengths, together with the Linked Exchange Rate system, will provide Hong Kong with strong buffers to deal with near-term challenges, while laying the foundation for steady growth and healthy job creation in the medium term,” he said.
Tsang added that while Moody’s has changed the rating outlook, it continues to recognize Hong Kong’s credit strengths and strong economic fundamentals, and maintains unchanged Hong Kong’s credit rating at Aa1.
He noted that mainland China will continue to be a key source of growth and stability for the global economy, and that Hong Kong is in a good position to benefit from the structural rebalancing in the mainland’s economy from investment to consumption, as the increase in demand in services will create new business opportunities for a service-oriented economy like Hong Kong.
Tsang pointed out that banks in Hong Kong have a strong capital base, and have prudently managed their property-related exposures, while the risk associated with mainland-related lending is manageable.
He also reiterated that the ‘”one country, two systems” principle has worked well and both the Central People’s Government and the Hong Kong Special Administrative Region (SAR) government remain firmly committed to upholding this principle.
Meanwhile, the SAR government added that Moody’s comments about mainland interference in Hong Kong’s policy formulation and implementation, as well as the political risk arising from political links with the mainland, are “all purely speculative and subjective statements.”
Hong Kong has been exercising a high degree of autonomy and enjoying executive, legislative and independent judicial power, including that of final adjudication in accordance with the Basic Law. There has been no evidence of mainland interference in Hong Kong affairs or Hong Kong institutions losing independence over time. In fact, the successful implementation of the “one country, two systems” principle is widely recognized by the international community, said the report.
Moody’s on outlook downgrade
On March 12, the rating service affirmed the government of Hong Kong’s long-term debt and issuer ratings at Aa1 and changed the outlook to negative from stable.
The announcement followed Moody’s outlook change on China’s Aa3 rating to negative from stable.
“The revision in Hong Kong’s rating outlook reflects Moody’s view that trends in Hong Kong’s credit profile will continue to track those in China, due to its tightening political, economic and financial linkages with the Mainland,” said Moody’s in a statement.
In particular, increasing political linkages are likely to weigh on Hong Kong’s institutional strength. In addition, the risks to China’s economic and financial stability may also undermine Hong Kong’s own economic and financial outlook.
In its rationale, Moody’s said the principal driver of the negative outlook on Hong Kong’s rating is the tight linkage between the credit profiles of the SAR and China.
“That linkage manifests itself in the economy, given the very strong trade links between the two; in the financial system, given Hong Kong’s banking system’s involvement in the Mainland; and ultimately in the political and institutional arena, given the tensions inherent in the ‘One Country, Two Systems’ policy.”
So while Hong Kong possesses credit strengths—principally in the form of fiscal buffers—that continue to support a higher rating than China’s, “the close and enduring linkage between the two issuers’ credit profiles suggests that the pressures currently facing the Chinese authorities have implications, over both the near and longer term, for Hong Kong’s own economic, financial and institutional strength,” it further stated.
Photo: Matthäus Wander
