Mentioning the National Security Law, 'Weakening of Autonomy' Criticized
Hong Kong Rebuttal: "Societal Stability and Recovery Actually Accelerated"
International credit rating agency Moody's has consecutively downgraded the credit outlooks of Hong Kong and Macau to 'negative,' following China. The reasons cited include the increasingly close political and economic ties with mainland China, where economic slowdown is expected, and the reduced autonomy due to the implementation of the National Security Law. The Hong Kong government rebutted, stating that "deepening relations with the mainland is actually an advantage for long-term development."
According to Chinese economic media Caixin on the 6th, Moody's lowered the credit outlooks of the Hong Kong and Macau Special Administrative Region governments from 'stable' to 'negative' while maintaining the credit rating at 'Aa3.' Regarding this adjustment, Moody's explained that it reflects the close political, institutional, economic, and financial ties between Hong Kong, Macau, and mainland China. The day before, Moody's had downgraded China's credit outlook from stable to negative, citing that the financial deterioration of local governments and state-owned enterprises would exert broad downward pressure on finance, economy, and the system.
Moody's also noted signs of weakening autonomy in Hong Kong's political and legal institutions, mentioning the implementation of the National Security Law in 2020 and changes to the electoral system. Moody's forecasted that "Hong Kong's political, institutional, and economic decision-making powers will gradually weaken."
Regarding maintaining the credit rating at Aa3, Moody's explained that it considered Hong Kong's competitive economy, substantial finances, and the past effectiveness of Hong Kong's monetary and fiscal policies. These strengths are expected to act as buffers against population aging and the structural slowdown of the mainland economy.
Concerning this year's gross domestic product (GDP) growth rate, Moody's projected a 2.5% increase compared to the previous year. The fiscal deficit as a percentage of GDP is expected to decrease from 6.6% last year to around 4.0% this year.
The Hong Kong government opposed Moody's announcement. The government claimed, "The continuous deepening of relations with the mainland will be a positive driving force supporting Hong Kong's long-term development," adding that "it will benefit domestic and global companies operating in Hong Kong."
Furthermore, contrary to Moody's claims, the government emphasized that Hong Kong society has regained stability since the implementation of the National Security Law. The Hong Kong government stated, "The social unrest and serious violent incidents that occurred from June 2019 to early 2020 have ended, and Hong Kong's stability has been restored," adding, "External confidence has strengthened, enabling a rapid return to normalcy." It also stressed, "The number of overseas companies in Hong Kong remains stable at about 9,000, and as of last month, the total deposits in Hong Kong's banking system reached approximately 2 trillion dollars, about a 10% increase compared to before the implementation of the National Security Law."
Regarding the downgrade of Macau's outlook, Moody's explained, "The huge tourism and gambling industries heavily depend on the mainland, and the banking system is also closely connected," adding, "Political and institutional ties have become closer in recent years." The Macau Special Administrative Region government has not made any public comments on this matter.
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