Adding to Hong Kong's existing worries amid protests over growing Chinese influence is the fact that distinguished ratings agency Fitch has now downgraded its credit rating to AA from AA+.
This is the first time Fitch has downgraded Hong Kong since 1995, the last time before the country was under the control of China.
"Months of persistent conflict and violence are testing the perimeters and pliability of the 'one country, two systems' framework that governs Hong Kong's relationship with the mainland," Fitch said in a statement. "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."
This is potentially a very damaging move for Hong Kong, not only because it will now be more expensive for the state and any corporates associated with it to borrow money, but also, because the symbolic effect of the downgrade is extensive. That is, it tells investors that because there now exist more barriers between Hong Kong and China, Hong Kong's status as a global financial hub is in danger as it cannot readily rely on financial support from its strong neighbor.
Since 1997, Hong Kong has steadily functioned under China's "one country, two systems" framework, in which the former is part of the latter, but is allowed to maintain its own political, legal and social systems in order to attract more lucrative foreign investment.
However, some believe that the downgrade does not demonstrate a degree of finality, and is simply the result of a temporary albeit tumultuous situation.
"Hong Kong is definitely entering an economic recession, as the protests deal a blow to the city's tourism and domestic consumption," said Iris Pang, an economist at ING bank NV. "But I don't think the issues of demonstrations and weak governance will last forever, and the financial industry will remain stable. So the situation won't be so bad in the longer term."
Hong Kong's financial secretary, Paul Chan, has argued that the downgrade was unnecessary and that Hong Kong will be able to easily maintain its status as a financial hub int he long-term regardless of the perils at hand.