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Press Release: S&PGR: Hong Kong-China 20 Years After The Handover

12 Jun 2017 12:41 am
The following is a press release from Standard & Poor's: 
(Editor's note: The views expressed by our Asia-Pacific Chief Economist Paul 
Gruenwald in this article are those of the S&P Global economics team. While 
the views of the S&P Global economics team can help to inform the ratings 
process, sovereign and other ratings are based on the decisions of ratings 
committees, exercising their analytical judgment in accordance with publicly 
available ratings criteria.) 
HONG KONG(S&P Global Ratings) June 12, 2017--Linkages between China and Hong 
Kong have intensified in the 20 years since the handover, but there is no sign 
that Hong Kong's institutions are becoming more like those in the mainland, 
S&P Global Ratings said in a report it recently published titled, "Hong Kong 
20 Years After The Handover To China: More Opportunity, More Competition." 
"For the past two decades, Hong Kong has maintained economic, financial and 
governance systems that are separate and very different from the rest of 
China, in line with the 'one country, two systems' framework," said S&P Global 
Ratings credit analyst Kim Eng Tan. 
Hong Kong's exceptional degree of autonomy in many policy areas is a key 
reason why our issuer credit rating on the special administrative region 
(SAR), at 'AAA', is higher than that on the Chinese government 
(AA-/Negative/A-1+). However, the SAR is also more dependent on the mainland 
for growth than in the 1997, and would be more vulnerable to economic fallout 
if China were to suffer a hard landing or financial crisis. Our negative 
outlook on Hong Kong is in line with our outlook on the rating on China. 
"Deepening integration with China brings tremendous opportunity to this former 
British colony, but also increased competition and concentrated economic 
dependency," said S&P Global Ratings credit analyst Christopher Lee. 
Mainland Chinese business boosts retail, tourism, banking, insurance, and 
other industries in Hong Kong. For example, customers from across the border 
contributed more than 35% of Hong Kong-based insurers' new premiums last year, 
and new listing by Chinese companies have made Hong Kong the world's top IPO 
market for the past two years. 
At the same time, Hong Kong companies are increasingly competing with mainland 
peers. Such companies--some of which have the world's largest corporate 
balance sheets--have been snapping up stakes in SAR firms, bidding up land at 
public auction, and contributing to soaring office and residential rents. 
Resentment over perceived economic, cultural, and political crowdout erupted 
in the form of public protests in recent years, such as the "Umbrella 
Despite rising tensions, S&P Global Ratings believes a major change in Hong 
Kong policy or independence remains an unlikely scenario. 
One symbol of Hong Kong's distinction is its peg to the U.S. dollar. 
Under the Basic Law, or Hong Kong's de facto constitution, Hong Kong is 
required to maintain its economic model of free and open markets. Pegs work 
well in small, open economies, but the downside is that Hong Kong gives up its 
right to set local interest rates. The trade-off is worth it at this stage, 
said S&P Global Asia-Pacific Chief Economist Paul Gruenwald. 
"The linked exchange rate system has served Hong Kong well since 1983 and 
should be maintained," said Mr. Gruenwald. 
Only a rating committee may determine a rating action and this report does not 
constitute a rating action. 
The report is available to subscribers of RatingsDirect at 
www.globalcreditportal.com and at www.spcapitaliq.com.  If you are not a 
RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 
212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings 
information can also be found on the S&P Global Ratings' public website by 
using the Ratings search box located in the left column at 
www.standardandpoors.com.  Alternatively, call one of the following S&P Global 
Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office 
(44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; 
Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009. 
Primary Credit Analysts: KimEng Tan, Singapore (65) 6239-6350; 
                         Christopher Lee, Hong Kong (852) 2533-3562; 
Asia-Pacific Chief Economist: Paul F Gruenwald, Singapore (65) 6216 1084; 
Media Contact: Cecilia S Ho, Hong Kong (852) 2532-8061; 
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(END) Dow Jones Newswires

June 11, 2017 20:41 ET (00:41 GMT)
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