On the 100th day of Hong Kong’s anti-extradition movement, Moody’s downgraded the territory’s outlook to negative from stable. Although the credit rating stayed unchanged at Aa2 (two notches above China’s A1), a negative outlook signals that a rating downgrade could come in one to two years. Less than two weeks ago, Fitch’s downgraded Hong Kong’s credit rating to AA from AA+, with the outlook also lowered to negative from stable. The current rating is still toe notches above China’s A+. S&P has yet to take any action in light of the current political turmoil in the territory. Its last move was in September 2017, when it downgraded Hong Kong to AA+ from AAA, with the outlook raised to stable from negative

As noted in the press release, the rationale for Moody’s downgrade of outlook is the “rising risk that the ongoing protests reveal an erosion in the strength of Hong Kong’s institutions, with lower government and policy effectiveness” than previously assessed. Yet, maintaining the rating at Aa2 reaffirmed the city’s economic strength, brought about by “its competitive position as a trade and finance gateway between China, Asia Pacific and global markets”, as well as “the autonomy and predictability of its judicial an administrative institutions, including a strong rule of law and transparent and predictable regulatory regime”. Moody’s, however, warned that “closer linkages with China in Hong Kong’s institutional framework and policymaking would lead to an erosion in the currently very high strength of Hong Kong’s governing and judicial institutions, policy effectiveness and competitive advantage over large cities in the mainland and other international trade or financial hubs”. Fitch’s downgrade earlier this month conveyed a similar message. Although the “one country, two systems” framework in Hong Kong should remain intact, the agency is increasingly concerned that the “gradual rise” in linkages with the mainland implies “continued integration into China’s national governance system”.

Hong Kong’s Anti-Extradition Movement is World Affair

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Hong Kong is an ardent advocate of liberal capitalism. It upholds the free economy, the rule of law, and various kinds of human rights and freedom. It is also member of major rule-based international organizations (Hong Kong is a founding member of WTO). Geographic proximity with China alone does not explain Hong Kong’s status as an irreplaceable gateway between China and the rest of the world for investments and trades. It’s the differentiation with China in terms of legal, regulatory and political systems that makes Hong Kong a unique place. This is the ultimate reason for the establishment of the “one country, two systems” framework in 1980s as Britain and China negotiated about the sovereignty of Hong Kong after 1997.

The anti-extradition movement is not a domestic issue between Hong Kong and China. It is an international affair as protesters in Hong Kong are standing on the front-line of the battle in defense of the existing world order. The US Congress’ proposed “Hong Kong Human Rights and Democracy Act”, which requires the US government to sanction Chinese and Hong Kong officials should they undermine the autonomy and basic rights of Hong Kong, is an example of what the international community can do in support of the movement of Hong Kong.

Former US President Eisehhover suggested that surrender to the communist would create domino effect. If only one country in a region came under the influence of communism, it could spread quickly to surrounding countries. Although this had not materialized during the cold war era, the fear is still haunting. The monster has grown much bigger, in the mask of “state capitalism”. It has been trying to erode the existing liberal order by joining the games of the liberal world. Hong Kong, lying on the border between the liberal free world and authoritarian China, is now on the front-line of the battle in defense of the system established and operated since WWII.

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