Analysed: The Impact of the US-China War on Hong Kong
Updated: Apr 6, 2022
The Coronavirus pandemic brought back the horrors of the 2008 financial crisis to the doorsteps of Wall Street, as the pandemic ravaged our planet and more importantly, the markets. Many stock markets across the globe went on a free fall with investor wealth being eroded to the tune of many millions of dollars in a matter of seconds. Economies have become fragile with supply chain disruptions and bottoming out demand from consumers. Also, a long line of bankruptcies is expected to accompany the economic turmoil. Currently, with the opening up of many countries across the globe, investors have shown exceptional confidence in company’s ability to perform post-lockdown. While the markets have rallied the past couple of days in countries like India and the USA there has been poor performance in Hong Kong due to the territory being caught in the middle of the US-China war.
For America and Hong Kong, the pandemic isn’t the only source of trouble as both the regions have been hit hard by riots and protests. While America is reeling from nationwide protests, Hong Kong is facing hostile political waters along with protests which are a direct result of the political turmoil. With China using Hong Kong as a pawn in its fierce conflict with the US, the territory looks set for an untimely demise with the US planning on removing the trade status of Hong Kong. US and China have been locking horns since as early as last year when both had rattled the world with their intense trade war. This year is much worse with both the superpowers showing no signs of retaliation. Hong Kong has been the heart of the Asian financial industry since ages, with its open and liberal economy being the breeding ground of financial super houses like HSBC and Jardine Matheson. One of the four Asian tigers along with Taiwan, South Korea and Singapore, Hong Kong since independence has become one of the high growth economies of Asia. The territory with its liberal and free legislation is a stark contrast to its neighbouring parent China which has nurtured harsh Communist governance for ages.
The status accorded to Hong Kong by the US fuelled the region’s rise as a global financial and trade hub. The status allowed Hong Kong to operate as a separate customs territory to mainland China. This allowed the region to operate as a free port which meant no tariff on export or import of goods from the region. This duty-free status was the magnet which attracted a lot of business to the city. Also with its free economy and competitive tax regimes, it attracted many multinational corporations to their shores. But, with China taking over the territory the region may see the trade status being revoked as the US steps up its fight against China. This would make the region subject to the tariffs imposed by the US, including the ones borne out of the US-China trade war last year.
This can be bad for business as companies and investors would find the region no longer attractive as an alternative to Mainland China. The region is also not much of a game-changer for China as today it accounts for less than 5% of the nation’s GDP. This makes Hong Kong less valuable for Beijing which would be thus willing to sacrifice the region if need be. The one thing that might want to make China protect the regions special status is the fact that many Chinese companies have their money tied in Hong Kong with many more looking towards the territory as an important capital raising market. US-Hong Kong between themselves traded goods worth $67 billion last year with the US importing goods worth about $17 billion from the region. If the special status is revoked then American customers could find themselves paying much more for these goods and thus American and Hong Kong businesses have been lobbying the US government to not move forward with this decision.
This growing rift between the two superpowers poses an opportunity for India both politically and economically. India has come across as a domineering force in Asia with the nation joining key agreements and councils across the continent. The nation has been viewed as one of the strongest democracies of the world while also being seen as a neutral buffer in the rift between the two superpowers. With a power vacuum being created by the small players who are looking to steer clear of this rift, India being the only country worthy and capable of filling this void has an amazing opportunity at hand. This would result in India gaining ground to becoming a leader of the next generation with the nation being a Generation Z millennial of sorts in the power circles of today’s time. Also, the nation could see businesses migrating to its shores in hopes of a more politically stable and sound country which can provide infrastructure second to that of China’s.
In the end, I feel that the nations are both capable of greater heights if they stop duelling. They both can experience economic gains provided they support the markets and stay politically insulated. This would see businesses flourish due to strong market conditions and in consequence see an economic expansion. Right now, both the nations are driving companies away from their shores due to their unfriendly and uncertain political conditions which wouldn’t result in desired economic outcomes. Thus, the countries need to stop duelling and start working towards more tangible and concrete economic decisions which can help catalyse their growth organically and independent of another’s loss.