Hong Kong’s Hang Seng Index Plunges 5.5% as Beijing Plans to Impose New Security Laws

On May 22, 2020 at 3:33 pm UTC by Teuta Franjkovic · 4 min read
Photo: Depositphotos
Photo: Depositphotos

China is poised to pass new national security laws for Hong Kong that could plunge the semi-autonomous territory into its deepest turmoil since it returned to Chinese rule in 1997. The Hang Seng index is down.

Major stock markets in Asia fell on Friday as rising tensions between the U.S. and China had a huge effect on investor sentiment. Hong Kong’s Hang Seng index led the losses amidst the region’s major markets as it sank 5.56% to close at 22,930.14.

China has agreed to impose a new national security law on Hong Kong after months of anti-government protests in the city. The move has boosted worries that Beijing is trying to overtake more influence on Hong Kong and there are also concerns it could generate more violent pro-democracy protests.

The draft law was announced almost overnight at the annual National People’s Congress (NPC), the Chinese parliament on Friday.

The law would allegedly ban secession, foreign intrusion, terrorism and all anarchistic movements that want to overthrow the central Chinese government and any outside tampering in the former British colony.

Plans for New Security Laws and Their Impact on Hang Seng

The new legislation is expected to enforce Beijing’s hold over Hong Kong, a former British colony that returned to Chinese rule in 1997. The Asian financial hub is governed under the “one country, two systems” principle which is meant to guarantee a high degree of autonomy for the special administrative region of China.

Analysts at Mizuho Bank said:

“Justifiably, the Hong Kong Security bill on the agenda for the NPC in Beijing today evokes insecurity in the markets; as risks of US China conflict and renewed Hong Kong protests grow.”

Admitting that this expansion was a “source of concern,” OCBC Bank’s Vasu Menon said he believes that the last few years have shown that political developments “don’t have a significant impact” in the medium to long term unless they result in an economic impact.

But the plans for new legislation influence not only the Hang Seng index that is falling these days.

Mainland Chinese stocks also decreased on the day, with the Shanghai Composite down 1.89% to approximately 2,813.77 while the Shenzhen composite falling 2.22% to 10,604.97.

In Japan, the Nikkei 225 closed 0.8% lower at 20,388.16 while the Topix index ended its trading day 0.9% lower at 1,477.80. Over in South Korea, the Kospi fell 1.41% to close at 1,970.13.

Shares in Australia also declined, with the S&P/ASX 200 closing 0.96% lower at 5,497. The MSCI Asia ex-Japan index dropped 2.68%. China however said it will not set a GDP target for 2020.

No Specific Targets for Economic Growth

Chinese Premier Li Keqiang stated:

“I would like to point out that we have not set a specific target for economic growth this year. This is because our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the Covid-19 pandemic and the world economic and trade environment.”

This all came as strains between Beijing and Washington have risen during the last few days, over issues such as the coronavirus pandemic as well as a bill that was passed which could force Chinese firms to delist on U.S. exchanges.

Ray Attrill, head of foreign exchange strategy at National Australia Bank stated:

“The temperature of US China tensions are rising and taking a bite out of risk sentiment everywhere, albeit only modestly so at this stage.”

Zhang Yesui, spokesperson for the third session of the 13th National People’s Congress said:

“The NPC is exercising the power (of) the constitution to establish and improve at the state level a legal framework and an enforcement mechanism for safeguarding national security in Hong Kong. This is highly necessary.”

The thing is, that politically, Hong Kong has its own laws, but the chief executive is not directly elected and only candidates that can be accepted to the central government in Beijing are eligible for the role.

Still, the mainland government obviously wants to take things into its own hands now as the anti-government protests in Hong Kong drag on, testing Beijing’s patience.

Walking Back on Obligations

Some attempts that happened before all in order to introduce national security legislation in Hong Kong in 2003 were deferred after mass protests.

Be it as it may, the infamous Hong Kong’s Chief Executive Carrie Lam said that “legislation on national security is undoubtedly within the purview” of Beijing.

She added the new law would only target acts of secession, subverting state power and organizing and carrying out terrorist activities, as well interference by foreign or external forces.

Market News, News, Stocks
Teuta Franjkovic
Author: Teuta Franjkovic

Experienced creative professional focusing on financial and political analysis, editing daily newspapers and news sites, economical and political journalism, consulting, PR and Marketing. Teuta’s passion is to create new opportunities and bring people together.

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