HONG KONG (AFP) - Ratings agency Moody's said on Monday that prolonged political discord in Hong Kong over China's refusal to grant the key financial hub full democracy could negatively impact the city's economy.
But the agency added that the southern Chinese city would likely weather any storm caused by the current political crisis.
Activists in the former British colony had their hopes for genuine democracy dashed after China announced last week that the city's next leader would be vetted by a pro-Beijing committee. A coalition of pro-democracy groups, led by Occupy Central, have vowed to usher in a new "era of civil disobedience" against the decision, calling on followers to blockade major thoroughfares in the city's financial district.
"A prolonged period of demonstrations would likely negatively affect economic growth, indirectly affecting government finance, and confidence and, therefore, capital flows," Moody's said in a statement. The agency tempered their warning with the view that Hong Kong was well placed to manage any economic fallout from ongoing protests.
After ten years of budget surpluses, the city's authorities had built up fiscal reserves to "a very high level, equivalent to 36 per cent of GDP", the statement said.
The hub also boasts "one of the strongest net international investment positions in the world" allowing it to cope with capital outflows in the event of unrest.
However the agency warned "diminished confidence could start to erode Hong Kong's standing as a global financial center" if discord persisted over the long term.
The statement from Moody's echoes similar concerns made by HSBC in July which downgraded Hong Kong's investment outlook over the ongoing crisis.
HSBC's statement initially blamed Occupy Central's planned protests as being the main cause for the downgrade, though it was later altered to tone down the emphasis on public unrest.
The updated report said the new rating was due to "the risk of weak residential real estate prices, the slowdown in mainland tourist arrivals, the market's link to US interest rates... and weak earnings momentum", before mentioning Occupy.