The Hong Kong government hit back at a downgrade by Fitch Ratings of its sovereign rating, stressing the "one country, two systems" principle is the foundation of the city’s sustained prosperity.
Fitch on Friday cut Hong Kong's sovereign rating one level from AA+ to AA and the city’s outlook from 'stable' to ‘negative,’ the first downgrade by one of the world’s biggest rating agencies since 1995.
In a statement explaining key drivers behind the drop, the US rating agency claimed with “one country, two systems” intact, the city’s continued integration into China's governance system will present “greater institutional and regulatory challenges” over time.
It is undeniable that the practice of "one country, two systems" has been a success in Hong Kong, and it should not be downplayed.
International capital won’t flee Hong Kong because of stability and prosperity brought about by "one country, two systems.” Investors however are very likely to lose confidence in Hong Kong due to an erosion of confidence over violence and a dented law and order situation.
After its return to China in 1997, Hong Kong's international ranking on the rule of law rose from below 60th in 1996 to 11th in 2015, leaving behind the US. For many years, Hong Kong's ranking has risen steadily to the top in the World Competitiveness Yearbook compiled by the International Institute for Management Development in Lausanne, Switzerland.
New York Times columnist Thomas Friedman offered an insight two decades ago into international ratings agencies, by saying they go too far: "In fact, you could almost say that we again live in a two-superpower world. There is the US and there is Moody's. The US can destroy a country by leveling it with bombs; Moody's can destroy a country by downgrading its bonds.”
Financial institutions should not ignore the trends of the past few years. In spite of their many credit downgrades and negative forecasts for China, they have been repeatedly proved wrong about the country’s economic rise.
(Compiled by Elaine Yue Lin and Paris Yelu Xu)