Hong Kong was a British colony that returned to Chinese rule in 1997. As a reminder, Hong Kong is governed as part of the “one country, two systems” principle. Thanks to this principle it has a high degree of autonomy. People should keep in mind that Hong Kong is a financial hub and tensions in the city could affect the stocks.
Unfortunately, there is a risk that tensions could rise as China plans to impose a new national security law on Hong Kong. Furthermore, the government of China is tightening its grip on Hong Kong.
According to the information the laws would ban secession as well as foreign interference, terrorism, and all activities aimed against the central government. This is not the end of the story as the laws would ban any external interference in Hong Kong.
Also, it is not the first time when China wanted to introduce national security legislation. In 2003, the government changed its plan as a result of mass protests.
Stocks in Asia and risk factors
It is worth mentioning that the draft law was announced at the annual National People’s Congress (NPC). The NPC is the country’s parliament.
This news affected the stocks across the Asia Pacific. Hong Kong’s Hang Seng index dropped5.56% to close at 22,930.14 on May 22.
Mainland Chinese stocks declined on May 22. The Shanghai Composite dropped 1.89% to approximately 2,813.77. Meanwhile, the Shenzhen Component fell 2.22% to 10,604.97.
In Japan Nikkei 225 closed 0.8% lower at 20,388.16. At the same time, the Topix index ended its trading day 0.9% lower at 1,477.80.
Australia’s S&P/ASX 200 dropped 0.96% to 5,497 and South Korea’s Kospi index fell 1.41% to close at 1,970.13.
The government of China should try to avoid confrontation with the local population, as it will be hard to convince residents of Hong Kong.