Hong Kong protests underline China risk

Hong Kong’s banks and schools remained closed today as pro-democracy demonstrations continued in the city’s financial district.

Many companies told their employees to stay at home as demonstrators occupied three of the busiest districts in Hong Kong.

Protestors are attempting to shut down the city and force Hong Kong’s leader, chief executive CY Leung, to talk to them about their demands for voting rights in the 2017 election.

Mr Leung has even been forced to dismiss rumours of possible military intervention from mainland China.

As outlined in StrategicRISK’s 2014 Hong Kong Risk Report, many believe the move of this month’s Asia-Pacific Economic Cooperation (APEC) ministerial meeting from Hong Kong to Beijing was a response to potential actions taken by Hong Kong’s pro-democratic camp.

Aon Asia’s CEO for greater China Owen Belman said that many also believed the Chinese government could leave Hong Kong out from its long-term national economic development plans.

“The Chinese government can also indirectly affect companies operating in Hong Kong through issuing policies and directives to companies located in mainland China whose parent companies, subsidiaries, suppliers, or customers of companies are operating in Hong Kong,” he said.

Belman said that the Chinese government had implemented several policies that had benefited Hong Kong economically, the most notable being the ‘individual visit scheme’ that had brought an influx of mainland tourists into Hong Kong, fuelling the growth of retail industries over the past decade.

“More recently, the financial market, issuers and investors in Hong Kong are getting excited over the connection of Hong Kong and Shanghai bourses before end of this year,” he said.

“On the other hand, the Chinese government may also take actions to slow the Hong Kong economy down.”

Executive director of Willis Hong Kong Lincoln Pan believes there are several areas in which the shifting political dynamics in China will impact Hong Kong.

One is the gap between the Chinese renminbi and the Hong Kong dollar, which Pan forecasts to increase in the coming years, creating inflation risk in Hong Kong and purchasing pressures for Hong Kong-based firms procuring from China.

“The currency gap will further impact the ability of Hong Kong companies to attract and retain mainland Chinese talent at appropriate salaries,” he said.

Where and how China chooses to direct its economic and political strength will have a massive impact upon Hong Kong in coming years.

As risk and business continuity manager at Veolia Water Lenny-Baptiste Conil explains, most of the money flowing through Hong Kong is either coming from or going to mainland China.

“Therefore Hong Kong, being China’s port of entry to the outside world, is affected by all major policies decisions in China,” he said.

“It is debatable whether it is a Western country with Chinese rules or a small China with Western rules but one thing is for sure: Hong Kong is closely nestled under China’s wingspan.”

For more discussion of the key risks that are affecting businesses operating Hong Kong, see StrategicRISK’s 2014 Hong Kong Risk Report.

A risk report for mainland China will also be available soon, adding to the already comprehensive selection available here.