Concerns Over Complete Revocation of Hong Kong's Financial Hub Status Heighten Alert in Domestic Finance and Industry (Comprehensive)

Global Companies' Departure Forces Strategy Revision
Impact Still Seen as Limited for Now
"Singapore as an Alternative? Market Characteristics Differ, Feasibility↓"

Hong Kong pro-democracy protesters condemned the passage of the Hong Kong National Security Law by the Standing Committee of the National People's Congress of China at a shopping mall in the Central district on the 30th of last month. (Photo by Yonhap News)

[Asia Economy Reporters Kim Hyo-jin and Lee Chang-hwan] As the United States takes a tough stance by revoking Hong Kong's special status following China's enactment of the Hong Kong National Security Law, South Korea's financial and industrial sectors are on high alert. In particular, the financial sector is cautiously monitoring future developments while keeping in mind the possibility of having to inevitably join the Hexit (Hong Kong + Exit) movement.

According to industry sources on the 1st, as of the end of the first quarter, there are a total of 24 financial institutions operating in Hong Kong. Hong Kong has attracted investment funds worth approximately 1 trillion dollars (about 1,200 trillion won) based on the dollar peg system, which maintains the currency value within the range of 7.75 to 7.85 Hong Kong dollars per US dollar, and US visa privileges. The Hong Kong stock market competes with the New York Stock Exchange for the top spot in IPO fundraising. This status is underpinned by the special status granted to Hong Kong by the US in areas such as tariffs, investment, trade, and visas.

However, with the passage of the Hong Kong National Security Law and the consequent revocation of its special status as a global financial hub, Korean companies operating in Hong Kong are closely watching the situation. While the prevailing view is that there will be no immediate major changes, strategic shifts may become unavoidable if global companies begin to leave Hong Kong in earnest and problems arise in fundraising.

A senior official from a commercial bank with a branch in Hong Kong said, "It is too early to have full and concrete discussions about revising business strategies in Hong Kong, but we are taking the situation very seriously." Another commercial bank official explained, "Due to the long-standing pro-democracy protests and resulting unrest in Hong Kong, there is a certain level of learning effect regarding instability, and the fact that the Hong Kong stock market has not experienced sudden changes is evidence of this adaptability."

Financial authorities also view the impact as limited. As of the end of last month, the exposure of domestic financial firms to Hong Kong stands at 6 billion dollars, accounting for only 2% of total external exposure. A financial authority official stated, "Overall, the impact on our financial sector, especially financial firms operating locally in Hong Kong, will be limited," adding, "No particular unrest has been detected on the ground."

The official analyzed, "There is talk of a 'Singapore alternative,' but Hong Kong specializes in stocks and bonds, while Singapore focuses on foreign exchange and commodities, so the possibility is low due to clear differences in specialization."

The industrial sector, centered on semiconductors and petrochemicals, is also on high alert. According to the Korea International Trade Association, South Korea's exports to Hong Kong last year amounted to about 31.9 billion dollars, ranking fourth after China, the US, and Vietnam.

Among exports to Hong Kong, semiconductors accounted for 22.3 billion dollars, representing 70% of the total. It is known that 90% of this 22.3 billion dollars is re-exported to China. Since the US has not imposed regulations on Korean products exported to Hong Kong, the semiconductor industry expects no immediate damage. If exports to Hong Kong are blocked, direct exports to China are also possible.

However, if the US-China trade conflict intensifies, the biggest concern is a decline in semiconductor exports due to accompanying economic downturns. Additionally, the extra logistics costs involved in direct exports to China are a burden.

A semiconductor industry official said, "Semiconductors are traded globally without tariffs, and since the US has not imposed regulations on Korean semiconductors going to Hong Kong, there is no immediate damage," but added, "We are cautious about potential decreases in export volumes due to escalating US-China tensions." The recent halt in the rise of semiconductor prices has already increased performance pressures, and the added Hong Kong risk is an additional burden for the industry.

The petrochemical industry situation is similar. Korean petroleum products exported to Hong Kong amounted to about 1.1 billion dollars last year, ranking second after semiconductors. It is estimated that 60% of petrochemical products exported via Hong Kong are destined for China. The mood is one of concern over long-term industry downturns rather than short-term damage.

Moon Byung-gi, senior researcher at the Korea International Trade Association's International Trade Research Institute, said, "Even if there is no immediate significant damage, if trade conflicts prolong, it will be a negative factor for our economy, including semiconductors, petrochemicals, other industries, and finance," adding, "We need to consider alternative export routes such as Singapore and Taiwan, not just direct exports."

This content was produced with the assistance of AI translation services.