Hong Kong’s reputation as a dependable financial hub took a hit on Friday after Fitch downgraded the city’s sovereign rating, citing ongoing protests and uncertainty caused by closer integration with the Chinese mainland.
Millions of pro-democracy supporters have taken to Hong Kong’s streets for the past three months in the biggest challenge to China’s rule since the city’s handover from Britain in 1997.
The sometimes violent protests have heaped pressure on Hong Kong’s economy, which had already been under pressure from the US-China trade war.
In a statement on Friday, Fitch announced it was downgrading the city as an issuer of long-term foreign currency debt from an AA+ rating to AA with a negative outlook.
Bloomberg News reported that it is the first time the credit rating agency has made such a move since 1995, a period when uncertainty had spiked over Hong Kong’s handover to China.
“Ongoing events have… inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong’s governance system and rule of law, and have called into question the stability and dynamism of its business environment,” Fitch said.
“The gradual rise in Hong Kong’s economic, financial, and socio-political linkages with the mainland implies its continued integration into China’s national governance system, which will present greater institutional and regulatory challenges over time.”
Hong Kong’s Hang Seng Index brushed off the news, ending Friday 0.66 percent higher.
The unprecedented protests in the semi-autonomous hub were sparked by a proposed law allowing extraditions to the authoritarian mainland.
Opponents saw it as the latest move by Beijing to chip away at the city’s unique freedoms, such as its independent judicial system.
But as Beijing and city leader Carrie Lam refused to budge, the movement morphed into a broader campaign calling for democratic reforms and police accountability.
Too little, too late
Lam — who was appointed by a pro-Beijing committee and has the lowest approval ratings of any post-handover leader — said she disagreed with the downgrade and blamed protesters for damaging the city’s economy.
“To every person who cares about Hong Kong, to every person who treats Hong Kong as their homes, we should stop the violence immediately,” she told reporters during a visit to the mainland.
The Hong Kong government has also run full-page ads in some major overseas newspapers, including the Financial Times on Friday, in a bid to reassure the international business community about the city’s financial and political stability.
“Despite recent disruptions, the fundamentals and institutional underpinning of our economy and society are strong,” the ad read. “We remain a safe, open, welcoming and cosmopolitan society and an internationally connected, vibrant and dynamic economy.”
Opponents blame her administration for the economic troubles.
For months, Lam has struck a defiant tone and refused to yield to protesters.
But on Wednesday, she surprised many by announcing she was scrapping the hugely unpopular extradition law.
But protesters across the spectrum dismissed the gesture as too little, too late.
Further demonstrations are expected in the coming days — including fresh plans on Saturday to disrupt transport links to the city’s airport, a major international aviation hub.
Protesters are also planning to get out large crowds on October 1, the 70th anniversary of the founding of the People’s Republic of China.
Among the demands issued by protesters is an amnesty for those arrested, an inquiry into the police and universal suffrage, all of which Lam has rejected.