NOTICE – Hong Kong, Macau and the Index of Economic Freedom

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Heritage Foundation recently removed Hong Kong and Macau from its 2021 Index of Economic Freedom, a list that is dominated by Singapore.

Basically, the Heritage Foundation said its annual Index of Economic Freedom, released on Thursday March 4, no longer included Hong Kong and Macau because it “measures economic freedom only in independent countries where governments exercise sovereign control over economic policies”. In other words, the Foundation implies that the governments of HK and Macau have lost their sovereignty when it comes to controlling its economic policies.

According to the Foundation, even though citizens of Hong Kong and Macau enjoy greater economic freedom than average mainland Chinese citizens, “developments in recent years have demonstrated unambiguously that these policies are ultimately controlled from Beijing.”

For me, the decision to remove HK and Macau from the index is completely wrong and shows a profound lack of understanding of how One Country, Two Systems works in Hong Kong and Macau, as well as a profound lack of understanding of what what the national security law was and what it really meant for Hong Kong.

Let me start at the beginning: following the 1984 Sino-British Joint Declaration, in 1997 Hong Kong reverted to China under the “one country, two systems” principle, under which HK would continue to benefit of its distinct political, socio-economic and legal arrangements. under a unified China, for at least fifty years without change (note “at least”, which means that 2047 need not be the end of the One Country Two Systems formula at all).

In the case of Macao, in 1987, Portugal and China signed the joint Sino-Portuguese declaration which stipulated that the territory would be returned to China on December 20, 1999, according to the One Country Two Systems formula, with the same conditions as Hong Kong: Macau has its own government, legal and financial affairs.

In fact, the One Country Two Systems formula is considered to have worked even better in HK than in Macau, since Macau citizens did not challenge it, while some Hong Kong residents have repeatedly challenged this principle these last years.

The One Country Two Systems formula worked quite well, allowing Hong Kong to grow stronger than it was, despite the 2019-20 riots.

In fact, in 2017, exactly 20 years after the handover, I did research comparing, from a socio-economic perspective, Hong Kong of 1997 to Hong Kong of 2017.

Data showed that Hong Kong was in better shape in 2017 than in 1997. While male and female life expectancies increased by eight years for both males and females to 82 and 88, respectively, in Over the past 20 years, the public rental housing stock has grown from 704,300 apartments in 1997 to more than 760,000 in 2017.

What makes some people argue that the One Country, Two Systems formula has been undermined is the passage of the National Security Act (NSL) last year, but, make no mistake, the NSL was not and will not be an attempt to undermine the status quobut simply a way to end the unsustainable situation in HK due to the protests.

Almost every nation has laws to protect its national security (the United States also has such laws). Still, some businessmen and investors have raised concerns about the national security law passed by the National People’s Congress, China’s top legislature.

The new legislation has proven beneficial as it has brought back stability and security while preserving Hong Kong’s special status, which as I said has not been challenged.

Last June, senior Chinese officials in charge of the Hong Kong portfolio publicly claimed that 99.9% of Hong Kongers would not be affected by this new law, as it only targets separatist activities, subversion of state power , terrorism and foreign interference.

Nine months later, I think most Hong Kong citizens can say that they were indeed not affected by the NSL in a negative way and that their lives have not changed, at least not because of the NSL.

So if the United States also has laws to protect national security, like most countries, and if most other countries’ laws are actually tougher, why all the fuss? For me, HK has been regularly used as a pawn in the US-China trade war initiated by former President Trump (even referred to by some as the new cold war between the US and China).

As Hong Kong Finance Secretary Paul Chan Mo-po said, the city still enjoys its economic competitiveness with the free movement of capital continuing under a two-system country and state of law is respected in the city. In other words, regardless of the indices, Hong Kong remains one of the most important financial centers in the world and one of the best places in the world to do business.

And Macau is undoubtedly focused on finance, taking advantage of opportunities such as the new stock exchange, digital yuan testing in the region, and the development of landlocked economies including Hengqin. Hint or no clue, Macau is also emerging as a financial hub within the Greater Bay Area (GBA).

The author works as a FinTech advisor and researcher. He holds an MBA and a Ph.D. in real estate law and economics from Hong Kong. He worked as a business analyst for a listed company in Hong Kong and he gave seminars at HKU on Shadow Banking in China and at several universities in Macau on the new Chinese digital yuan.

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