Hong Kong’s financial markets look set for an extended period of turbulent trading after Beijing announced its intention to impose a national security law on the city, with potentially dramatic consequences.
Democracy advocates, meanwhile, called for protests against sweeping national security legislation China introduced on Friday, as authorities in Beijing vowed to end what they called a “defenseless” posture due to “those trying to sow trouble.”
Legislation slated for passage in the National People’s Congress in Beijing would help complete Hong Kong’s obligation to pass laws curbing acts of treason, secession, sedition and subversion, NPC Vice Chairman Wang Chen told lawmakers Friday. The measure would also seek to counter terrorism and foreign interference in Hong Kong, Wang said.
The announcement on national security legislation prompted calls for protests and a spike in Hong Kong residents downloading VPN software that helps mask internet usage. US President Donald Trump, when asked about China’s moves, pledged he would respond “very strongly.”
Pro-democracy lawmakers planned to march to the Chinese government’s Liaison Office in Hong Kong to express opposition to the measure, which was expected pass the rubber-stamp parliament by May 28. Activists urged additional protests against Beijing-backed legislation, including a bill that would criminalize disrespecting China’s national anthem, on Sunday and Wednesday.
The MSCI Hong Kong Index slumped as much as 4.2 percent on Friday, heading for its worst loss in two months, with property developers leading declines. The Hong Kong dollar, which slid the most in six weeks late Thursday after local media reported the news, trimmed some of its losses.
Concern over the scope of the measures, which would target secession, sedition, foreign interference and terrorism, threaten to end the relative calm that’s endured in the city of 7.5 million since the coronavirus outbreak was reported in January. The uncertainty may also spur residents and investors to park their money outside the city, a trend that was seen last year, as well as heighten tensions between the US and China.
“We could have new protests,” said Kenny Wen, strategist at Everbright Sun Hung Kai Co. Ltd. “Local tensions could trigger Sino-US tensions and the latter is much more stressful for market sentiment and the macro economy.”
China will improve national security in Hong Kong, Premier Li Keqiang said, a day after China announced dramatic plans to rein in dissent by writing a new law into the city’s charter. The law was expected to pass China’s rubber-stamp parliament—delayed from March by the coronavirus outbreak—before the end of its annual session on May 28.
Wharf Real Estate Investment Co., Swire Properties Ltd. and New World Development Co. plunged more than 7 percent. The city’s pegged currency, which has been near the strongest it can trade versus the greenback since late March due to relatively tight liquidity, weakened to 7.7551 overnight and last traded at 7.7532.
US President Donald J. Trump said Thursday that the US will “address very strongly” any Hong Kong crackdown. Two US senators also proposed a bipartisan bill that would sanction enforcers of the proposed law. Secretary of State Michael Pompeo has delayed an annual report on whether Hong Kong still enjoys a “high degree of autonomy” from Beijing, telling reporters this week that he was “closely watching what’s going on there.”
Hong Kong’s economy has struggled under the double blow of anti-government protests and the virus epidemic, with the latter prompting the shuttering of borders to non-residents. Gross domestic product contracted by a record 8.9 percent in the first quarter from a year ago, and the unemployment rate has risen to the highest since 2009.
One in four retailers could disappear by December if sales don’t improve, according to an industry association.
Social distancing laws still restrict gatherings to no more than eight people, making a return to the massive protests of 2019 hard to achieve for now. The current rules were recently extended to June 4, when tens of thousands typically gather to mark the military crushing of the 1989 protests in Beijing.
Outflows may also pose a significant threat to the global financial center. The Bank of England said in a financial stability report last year that protests led to billions of dollars being pulled from investment funds in Hong Kong, an assessment disputed by the Hong Kong Monetary Authority.
“Investors, especially foreign funds, will be cautious about parking their money in the Hong Kong market,” said Ronald Wan, chief executive officer of Partners Capital International Ltd.