Hong Kong‘s economy is turning from one in which the mainland is in need of Hong Kong to one in which Hong Kong is in need of the mainland. With China-US relations struggling to improve and the Communist authorities’ economy lacking, southbound capital, which is vital to Hong Kong stocks, may become a trickle, and there is no way to tell how long Wall Street’s investment in China will last. In such an environment, who can the Hong Kong economy “lean on”?
The SAR government’s fiscal deficit for 2020/21 has climbed to an all-Time high, and the first sentence of the Budget’s “Positioning Economic Development” section is “Leaning on the Motherland”. In recent years, Hong Kong has been increasingly subjected to Beijing, and the more the SAR authorities “lean on the motherland” politically, the greater the public discontent; economically, Hong Kong’s foreign trade is shrinking, while the securities industry, a pillar of the economy, is turning from the Mainland asking for help from Hong Kong to Hong Kong asking for help from the Mainland. Now the Hong Kong government’s so-called “backing” is actually becoming “dependence”.
Before the return of Hong Kong, Chinese stocks accounted for about 10% of the market value of Hong Kong stocks, a dozen years ago this proportion has jumped to 60%. It can be said that at that time, the Hong Kong securities market has been mainlandized. A few years ago, the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect opened, until February 27 this year, southward capital 2,831.8 billion yuan, while northward capital 2,123.6 billion yuan, southward than northward more than 700 billion, the formation of mainland funds to the Hong Kong securities market “blood transfusion” effect; and this “blood transfusion This “blood transfusion” effect is especially concentrated in the past year, because in the past year, the southward capital (1,232 billion yuan) is 500 billion yuan more than the northward capital (717.7 billion yuan).
Of course, the southward capital includes both mainland capital and Hong Kong and foreign capital leaving the mainland, which needs to be distinguished. According to the information I found, since the Hong Kong Stock Exchange, the net inflow of domestic capital southward to Hong Kong accumulated 249.3 billion by the end of 2019; all the southward funds containing Hong Kong and foreign capital in the same period more than the northward funds, the net inflow of Hong Kong is 200 billion, compared with the net inflow of domestic capital southward figures, Hong Kong and foreign capital is a net outflow from Hong Kong, northward to Boleh. That is to say, the climb of Hong Kong’s Hang Seng Index, relying heavily on mainland funds. And from the movement of northward capital in the past year, most of the foreign capital went northward to make long-term investment in the mainland A-share market, so we can roughly judge that the net inflow of 500 billion southward capital in the past year is also basically domestic capital, the support force of the Hong Kong stock market is very obvious, about 15% of the total turnover of the Hong Kong stock market last year is the contribution of mainland capital.
The Chinese Communist Party cannot “lean on the United States” and is in trouble
This year, Beijing began to tighten the money, which indicates that in the future, the southbound capital may be relatively contracted, which will put pressure on Hong Kong stocks that rely on southbound capital. This situation shows the dilemma of Hong Kong’s financial sector’s dependence on domestic capital. The bigger problem is that the dependence of Hong Kong stocks on southbound funds will eventually be affected by the changing situation of the Beijing authorities themselves.
The Chinese Communist Party actually has to “lean on the back” economically, relying on stolen technology and intellectual property, on raising money by listing on Wall Street, and on marketing the imagery of China’s economic triumph to attract U.S. capital. The foreign capital in Hong Kong’s northward capital is mainly from the United States. Therefore, Hong Kong’s so-called “backing to the motherland” is in fact a hope that Beijing will “back to the United States”. Earlier this year, Beijing was under the illusion that it could completely overturn Trump‘s China Policy, so that it could rely on Biden and “lean on the U.S.” economically again. But now it seems that Beijing’s hopes have been dashed.
At the request of the U.S. military, Biden set up a special task force on China preparedness for the U.S. Department of Defense, and the commander of the U.S. Strategic Command declared that “we are not in a Cold War, but a more serious threat than the Cold War. The New York Stock Exchange began delisting CNOOC, a major Chinese state-owned oil company, on Feb. 26, and the limited investment in China by Wall Street is likely to become less and less in the future.
As Beijing cannot “lean on the U.S.”, it will be difficult for Hong Kong stocks to “lean on Wall Street”. Is it possible for Beijing to get out of its predicament now that Sino-US relations are not favorable to the CCP? How long can Wall Street let Hong Kong stocks “lean” on it? Wall Street does not know, the HKSAR authorities naturally do not know, and Beijing, on whose back it is “leaning,” does not know.
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