Unmasking the Roach Trap: Why Roach is Wrong About Hong Kong

The highest form of political struggle is not an election. It is not even war. It is ideological struggle.

I have recently been reading the comments on Hong Kong by Stephen Roach, former chairman of Morgan Stanley Asia. Roach says Hong Kong has become just another Chinese Mainland city. His remarks carry the unmistakable flavor of ideological struggle.
 
Roach is not really focused on finance or economics. He is focused on politics, treating the National Security Law as the watershed between Hong Kong’s success and failure. He seems to have forgotten that the United States has far more national-security laws than Hong Kong, with around 20 in the United States and only two in Hong Kong.
 
What makes Roach’s remarks strange is his constant swing from one position to another. Two and a half years ago, he advanced the “Hong Kong is finished” theory. A year ago, he said “too early to declare Hong Kong over.” Now he says once again that “the Hong Kong of old is, indeed, over.”
 
For such an experienced financial professional to swing so wildly, there are two possible explanations.
 
The first is stupidity. His analysis may not be deep enough, leaving him easily swayed by surface appearances.
 
The second is malice. The forces behind Roach may be far from simple. Those forces may keep pushing him to make bearish remarks, leaving his statements adrift between his own views and the pressure behind the scenes.
 
China’s central leaders have said that the world is undergoing “profound changes unseen in a century.” Behind that phrase lies the rise of the East and the decline of the West. Put plainly, it describes the struggle between China and the United States.
 
Roach’s comments are part of that ideological struggle. Hong Kong practices “one country, two systems.” It is a capitalist international city within the framework of one country, and it serves an important role for the nation.
 
To deny Hong Kong’s status as an international financial center is to break one of the country’s arms, a crucial strategy to weaken China.
 
The precision of Roach’s moves, and those of the forces behind him, lies in targeting the heart of the issue. They seek to shape people’s thinking. Roach’s remarks have three layers of negative impact.
 
First, they deny Hong Kong stocks’ key selling point.
 
Hong Kong’s stock market has been transforming for more than two years. With strong support from the central government, a large number of exceptionally high-quality Chinese Mainland companies have listed in Hong Kong.
 
Global giants such as CATL, which holds a dominant position in strategically important industries and has chosen to establish a presence in Hong Kong.
 
For international investors bullish on CATL, Hong Kong is the most convenient place to buy its shares.
 
The listing of first-rate Chinese Mainland companies in Hong Kong has directly lifted market turnover. Average daily turnover has climbed from about HK$90 billion three years ago to around HK$300 billion today.
 
Hong Kong has become an international stock market with unique access to the Chinese Mainland’s best listed-company resources. London and Singapore may covet this China-specific advantage, but they cannot obtain it.
 
Yet Roach turns the story upside down. He portrays the listing of high-quality Chinese Mainland giants in Hong Kong as a negative Mainland factor. He turns Hong Kong stocks’ strength into a weakness.
 
This is like performing surgery on people’s thinking at its most fundamental level. If Hong Kong people accept this narrative, and officials become constrained by Roach’s thinking, they may eventually feel embarrassed to say that so many Chinese companies are listing in Hong Kong. That would be exactly what the “Roaches” want.
 
Second, his remarks intimidate capital away from Hong Kong.
 
Roach’s article is mainly about politics, not finance. He drags the National Security Law into the discussion and cites criticism of Hong Kong’s rule of law from former non-permanent judges of the Hong Kong Court of Final Appeal who are hostile to China.
 
But the reality is that there is no sign that the National Security Law has affected investors’ ability to buy stocks in Hong Kong.
 
Since 2018, the U.S. government has openly and quietly urged funds not to buy Chinese stocks. Anti-China lawmakers have even written directly to university investment funds, questioning why they buy Chinese shares listed in Hong Kong.

As time passed and China-U.S. relations eased somewhat, that sense of fear had begun to fade. But Roach is now reviving the issue. In effect, he is refreshing foreign funds’ memories and intimidating them against investing in Hong Kong.
 
Third, this thinking hijacks the minds of Hong Kong officials.
 
In my observation, many Hong Kong elites, including financial officials, genuinely love their country and sincerely hope for national prosperity and strength. But they are also highly vulnerable to being hijacked by ideas like Roach’s.
 
They often believe Hong Kong must return to its old self and restore close ties with the United States and Britain. They believe the SAR government should say less about the National Security Law, while financial officials should intervene less in the market and allow U.S. capital to take the lead. In their view, that is the true meaning of “one country, two systems.”
 
Frankly, this view ignores the reality that the United States seeks to suppress China. It is somewhat outdated. The issue is not whether Hong Kong wants better relations with the United States, but how much the other side wants better relations with Hong Kong.
 
On July 17, President Xi Jinping attended the World Artificial Intelligence Conference in Shanghai. He said that “AI development is not a solo performance by one country, but a symphony for the whole world,” and called for openness and win-win cooperation.
 
At almost the same time, China’s Kimi K3 large AI model topped global rankings. Huawei unveiled its massive Atlas 950 SuperPoD supernode, which combines 8,192 Huawei Ascend 950 AI accelerator cards. That far exceeds rival Nvidia’s supernode, which can combine only 144 chips.
 
Yet as China’s AI development made major breakthroughs, Chinese AI and chip stocks listed in Hong Kong plunged. Whether that was coincidence or deliberate is unknown.
 
There is ideological struggle in the financial world, too. Hong Kong’s response is simple: do not let Roach’s thinking hijack us. We must step outside his ideological framework.
 
Do not judge finance through politics. Do not believe that a stock market with many China-related factors cannot be a good market. We should return to capitalist thinking and recognize that a market with rising turnover is a good market, not only one tilted toward the United States.
 
Hong Kong’s financial officials should return to capitalist principles and build a strong stock market. Their work should focus on three main areas.
 
First, do not be afraid to talk up Hong Kong stocks.
 
When the forward price-to-earnings ratio of Hong Kong stocks is less than half that of U.S. equities, why should Hong Kong not compare the two markets and speak positively about its own stocks?
 
Second, do not be afraid to buy more Hong Kong stocks.
 
Do not chase U.S. stocks simply because they are rising. Recognize the value of Hong Kong stocks and support Hong Kong at the same time. If even the Hong Kong Government does not increase its holdings of Hong Kong stocks, how can it ask others to buy them?

Third, do not be afraid to work harder to attract Chinese Mainland capital into Hong Kong stocks.
 
Do not assume this is merely self-evident. Chinese Mainland capital must be actively won over. Central financial and economic ministries and commissions have many responsibilities: they must maintain the renminbi exchange rate and keep A-shares performing well.
 
Fundamentally, they do not want too much capital to flow out.
 
On July 20, China Securities Regulatory Commission Chairman Wu Qing met face-to-face with eight representatives of retail investors of different sizes. He emphasized that retail investors are the foundation of the market. This was indeed an innovation, and it also shows how difficult it is to maintain the healthy development of the A-share market.
 
If Hong Kong financial officials do not make a strong effort to compete for Chinese Mainland capital, the Mainland may genuinely have little capacity to spare for Hong Kong.
 
The conclusion is clear: we need to think in reverse. Whatever Roach tells us not to do, that is what we should do.
  
Lo Wing-hung

Bastille Commentary

** 博客文章文責自負,不代表本公司立場 **

Americans never struggle to find an angle from which to talk down Hong Kong. So let me borrow their playbook and use the same logic to talk down America for a change.

US stocks have recently returned to record highs. But Goldman Sachs estimates that AI-related shares now account for as much as 45% of total US market capitalization. America is no longer a genuinely diversified market.

America’s economic performance is tightly tied to AI mania, while its underlying growth foundation remains weak. First-quarter GDP expanded at an annualized quarter-on-quarter rate of 2.1%, but personal consumption expenditure rose by just 0.5%.

Beneath the illusion of prosperity created by inflated AI stocks, consumer demand is weak and will continue to weigh on America’s economic momentum.

America has also thoroughly become a country dominated by Indians and Chinese, gradually losing its distinctive Western character. Indian Americans make up only 1.5% of the US population, yet their share among chief executives is strikingly high. Fifteen Fortune 100 CEOs are of Indian descent, and the proportion is even higher at the very top tier of corporate America.

The technology sector, meanwhile, has been almost completely taken over by Indians and Chinese. A viral topic on overseas platforms last October claimed that Meta, Facebook’s parent company, had effectively become a “Chinese company.” Meta’s engineering ranks, the story said, were packed with Chinese employees.

One Meta employee wrote on social media that 80% of the employee’s entire team was Chinese and that these colleagues preferred speaking Chinese in the office. There were also many Indian employees, leaving white staff as a minority. Reportedly, quite a few were unhappy about it.

You may think this description of America sounds deeply biased. In fact, I am simply following the logic of Stephen Roach, the former chairman of Morgan Stanley Asia-Pacific. More than two years ago, when Hong Kong’s stock market was in the doldrums, Roach declared that “Hong Kong is over,” arguing that the market had declined after the enactment of the National Security Law.

Over the past two years, however, Hong Kong stocks have become active again. Roach changed his tune last year and said that “Hong Kong is back.” Now he is at it again, publishing another bearish article titled, “Yes, the Hong Kong of Old is Over.”

Roach’s critique of Hong Kong rests on several main arguments.

First, “mainlandization” of listed companies.

Roach argues that Hong Kong has reclaimed the global top spot for IPOs, an achievement the SAR government cites as proof of economic resilience. But he says this success rests largely on intervention and policy support from Chinese Mainland authorities. Many companies listing in Hong Kong, he notes, are Chinese Mainland giants, including CATL, Luxshare Precision and Zhipu.

Roach says Chinese companies account for 90% to 95% of funds raised in recent Hong Kong IPOs. In his view, that means Hong Kong has become a financing platform dominated by Chinese issuers rather than a truly globalized market.

But Roach’s comments are little more than an American self-fulfilling prophecy. During the first Trump administration, Trump openly attacked Hong Kong’s stock market. The US government sanctioned Hong Kong officials, and the White House even urged US funds not to invest in Hong Kong equities. Foreign capital naturally declined as a result.

Then Beijing threw its full support behind Hong Kong. As the United States stepped up its pressure on Chinese companies, a wave of first-class Chinese Mainland businesses shifted their focus to Hong Kong listings and revived the city’s stock market.

If these companies were second-rate, Roach’s argument might carry some weight. But many are industry leaders. CATL is the world’s biggest lithium-battery producer, with a 40.2% global market share in the first five months of this year, while Luxshare Precision is a leading global electronics manufacturer.

In the past, these corporate giants would have listed in the United States. Now, intimidated by Washington, they are choosing Hong Kong. That is proof that Hong Kong remains a top-tier global market. If Roach criticizes Hong Kong simply because of the nationality of its listed companies, would he call New York a Chinese city if companies such as CATL all rushed to list there?

Second, close links with the Chinese Mainland economy.

Roach stresses that Hong Kong’s economic performance is closely tied to Chinese Mainland macroeconomic trends. He also points to slower growth in the Chinese Mainland, noting that GDP growth eased to 4.3% in the second quarter this year. He worries that this will undermine Hong Kong’s future recovery momentum.

Hong Kong’s economy is indeed closely correlated with Chinese Mainland macroeconomic performance. But that has long been one of Hong Kong’s defining strengths. As an externally oriented economy beside China’s exceptionally fast-growing economic engine, Hong Kong has benefited enormously from that proximity.

As for Chinese Mainland GDP growth, Roach need not worry on China’s behalf. I am confident that full-year GDP growth will reach 4.7%. The economy charged ahead too quickly in the first quarter, slowed appropriately in the second, and will gather pace again in the third and fourth quarters.

The Chinese Mainland economy is not weak. With an economy worth RMB 140 trillion that is still expanding at such a rapid pace, it remains a pillar supporting Hong Kong’s growth.

Third, Hong Kong becoming a Chinese city

Roach presents no particularly compelling evidence. He merely notes that more people in Hong Kong are speaking Putonghua. With a touch of sarcasm, he says the Putonghua pinyin “Xianggang” now captures the city’s true identity better than the traditional English name, “Hong Kong.”

Roach also points to the SAR government’s newly launched first Five-Year Plan. He worries that such plans could become exercises in over-promising and under-delivering.

Roach need not worry about China’s or Hong Kong’s ability to plan. If Chinese people were as prone as Americans to over-promising and under-delivering, China could not have built even half of its high-speed rail network.

More Chinese Mainland people are coming to Hong Kong, but Hong Kong has always been an international city where talent converges from every direction. Americans are coming less often because of their own government’s political interference. More Chinese Mainland elites arriving in Hong Kong are simply a healthy complement.

If Roach’s racially tinged criticism held up, then America’s many Indian-American CEOs would justify calling the United States “Amerika,” using the Hindi term. Hong Kong is an international city. As long as talented people gather here, why should anyone care about their ethnicity?

Roach’s commentary is simply laughable. Americans really cannot bear to see Hong Kong doing well.

As a former Morgan Stanley executive, Roach should set aside U.S. interests and look at the issue purely from a financial perspective. If he did, he would have to admit that Hong Kong’s ability to attract so many world-leading companies is an opportunity not seen in more than a century.

Ask yourself this: has Hong Kong’s stock market ever before attracted the world’s leading company in any major industry to list in the city?

Lo Wing-hung