Moody’s has cut Hong Kong’s credit rating, saying the government’s “slow” and ineffective response to months of protests has prompted it to reassess the Chinese territory’s institutional strengths and governance.
Hong Kong’s rating was reduced by one notch to Aa3 from Aa2, making Moody’s the second major agency to cut its rating since protests began last summer.
“The underlying drivers of the protests are certainly deep-seated and intractable,” Moody’s said. “Nevertheless, the response by Hong Kong’s government to both political demands by parts of the population and broader concerns about living standards in [Hong Kong], housing costs and equality of economic opportunities has been notably slow, tentative and inconclusive.”
The territory’s economy has come under strain — and its place as one of Asia’s pre-eminent financial hubs called into question — as chief executive Carrie Lam’s government has struggled to contain months of violent clashes between policy and protesters.
HSBC, the territory’s biggest lender, was forced this month to close branches after it was accused of helping police close an account used to raise funds for demonstrators.
Moody’s warned in its report issued late on Monday Hong Kong time that the lack of an effective response points to more “significant constraints on the autonomy of Hong Kong’s institutions than previously thought, notwithstanding the ‘one country, two systems” policy which has underpinned autonomy for the last two decades”.
When Fitch cut Hong Kong’s rating in September, it expressed concerns over the extent of Beijing’s control over the territory.
“Months of persistent conflict and violence are testing the perimeters and pliability of the ‘one country, two systems’ framework that governs Hong Kong’s relationship with the mainland, underscored by mainland officials taking a more public stance on Hong Kong affairs than at any time since the 1997 handover,” the report said.
The ‘one country, two systems’ relationship between Hong Kong and China is a crucial element that has for more than two decades drawn businesses to Hong Kong. The territory provides foreign groups with access to China and the region more generally, but with a legal system and other protections that analysts say are more closely aligned to international norms than on mainland China.
Moody’s said that signs that the relationship is fraying raise “the risk that actions by foreign governments negatively impact its competitiveness and economic strength and hinder the effectiveness of policymaking still further”. It pointed specifically to a US law passed last year that could lead to the revocation of trade and other commercial privileges Washington extends to Hong Kong.