ABSTRACT
This chapter discusses the role of Hong Kong as China’s offshore financial market amidst the rise and faltering of the China boom, as well as its implications to the local politics and society of Hong Kong. After China’s accession to the WTO in 2001, mainland China and Hong Kong remain two separate members in the organization with different terms of membership. While China continues to maintain a lot of restrictions on foreign financial capital, Hong Kong’s financial sector has been fully open to the world. In the meantime, the US and other developed countries treat Hong Kong as a separate entity on import-export controls and capital controls, offering Hong Kong free access to their markets with privileges close to those enjoyed by any OECD country. This special status of Hong Kong, conditional upon international recognition of its autonomy from Beijing under “One Country, Two Systems,” lures Chinese state companies to use Hong Kong as an offshore platform for capitalization, investment, RMB internationalization, and importation of sensitive technologies from Western countries that are banned in China. One consequence of this special status of Hong Kong is the rising economic dominance and political influence of Chinese state companies and the princeling elite associated with them. Such domination, ironically, could erode Hong Kong’s autonomy from Beijing and jeopardize Hong Kong’s special status in the world economy.
