The Hong Kong government says it disagrees with the decision by Moody’s Investors Service to change the city’s credit outlook to “negative” because of the protest crisis that has eroded its institutional strength.
Hong Kong chief executive Carrie Lam described Moody’s decisions as disappointing in a media briefing prior to the Executive Council’s weekly meeting on Tuesday morning.
“We do not concur, especially if the justification for that sort of change in outlook is premised on whether we’re still upholding ‘One country two systems’, whether Hong Kong’s institutions are as strong and robust as previously, and whether more integration with the mainland economy will blur the two systems,” Lam said.
She said the government would stay alert as continued instability and social unrest would inevitably undermine and adversely affect international perceptions about Hong Kong.
Protests started in early June when the government unveiled changes to the extradition bill that would allow some offenders to be tried in courts on the mainland. Huge rallies have morphed into a push for greater democracy but the Lam administration has conceded little ground.
Riot police, armored vehicles and trucks with water cannons have been deployed with tear gas and rubber bullets fired at rowdy mobs on multiple occasions over the past three months. Demonstrators have escalated their force by throwing petrol bombs towards the police and at government buildings.
Over the past month, people wearing masks have vandalized facilities at MTR subway stations near some protest sites after MTR Corp shut the stations down. People complained that the train company was helping police to suppress the public’s freedom of assembly.
The Hong Kong government says violent protests have seriously undermined the rule of law in the city. It condemned the violent behavior of protesters and said police would maintain public safety and order and fulfill its mission of upholding the law.
Moody’s announced the change in its credit outlook on Monday – from “stable” to “negative”, while affirming its “Aa2” long-term issuer rating.
The downgrade reflects the rising risk that the protests will erode Hong Kong’s institutions and undermine the city’s credit fundamentals by damaging its attractiveness as a trade and financial hub, according to a statement issued by the ratings agency.
It said the stalemate between the authorities and protesters has increased downside risks to the city’s economy and institutions and it would likely cut the credit rating in future if the protests, or measures taken by the government to resolve them, damage Hong Kong’s medium-term economic prospects or signify an erosion in its institutions.
The outlook downgrade made by Moody’s came after Fitch Ratings on September 6 downgraded Hong Kong’s long-term foreign-currency issuer default rating (IDR) to “AA” from “AA+” with a “negative” outlook.
Financial Secretary Paul Chan Mo-po claimed in a statement on Monday that Moody’s move was not based on facts.
“In spite of the concern over the recent social incidents, Hong Kong’s financial markets and its banking system have been functioning normally in the past few months,” Chan said.
The Linked Exchange Rate System had been operating smoothly, he said, and banks remain well capitalized with ample liquidity, while there has been no noticeable outflow of funds from the Hong Kong dollar or from the banking system.
“Hong Kong’s deeper economic and financial ties with the Mainland of China are a positive driver for the city’s long-term development…There is a broad-based consensus among the business community that the growing economic and financial linkages with the Mainland will bring about significant economic development opportunities for Hong Kong,” Chan said.
Chan said Hong Kong remained an international financial center and the best place to do business while “social incidents” over the recent months have not affected Hong Kong’s core competitiveness.