The Wall Street Journal - 23.10.2019

A18| Wednesday, October 23, 2019 THE WALL STREET JOURNAL.

WORLD NEWS

WORLDWATCH

BRAZIL

Senate Approves

Pension Overhaul

Brazilian senators over-

whelmingly approved a sweep-

ing revamp of the country’s in-

solvent social-security system,

which will sharply lower spend-

ing and serve as a pillar for

President Jair Bolsonaro’s over-

haul of a sluggish economy

hamstrung by bureaucracy and

protectionism.

The legislation, which is pro-

jected to save taxpayers as

much as $200 billion over 10

years, is a political victory for the

president, who is expected to

sign the bill into law in the next

few days.

The bill, approved by 60 of

80 senators, raises the minimum

retirement age to 65 from 60

for men and to 62 from 55 for

women. It also plugs loopholes

that allowed many workers,

mostly in public service, to retire

as early as in their late 40s, of-

ten with a full salary.

—Paulo Trevisani

BOLIVIA

Observers Alarmed

About Election

International election moni-

tors expressed concern over Bo-

livia’s presidential election pro-

cess after a delayed official quick

count showed President Evo Mo-

rales near an outright first-round

victory—even as a more formal

tally tended to show him head-

ing for a risky runoff.

The European Union and Or-

ganization of American States

both expressed alarm after Mr.

Morales suddenly shot upward

in the quick count following a

daylong pause in results.

Mr. Morales’s opponents

burned election offices and bal-

lots in several cities, and called

for a strike on Wednesday, ac-

cusing the leftist leader of trying

to avoid a December runoff.

—Associated Press

CHILE

Death Toll Rises to

15 in Violent Clashes

Chile’s government says that

15 people have been killed in five

days of rioting, arson and violent

clashes that have almost para-

lyzed the country. The unrest

was sparked by a minor increase

in subway fares but spread na-

tionwide, fueled by simmering

frustration by many Chileans

who say that they aren’t sharing

in the country’s advances.

—Associated Press

JAPAN MARKS ENTHRONEMENT: Prime Minister Shinzo Abe bows in front of Emperor Naruhito

during a ceremony to proclaim the new emperor’s accession at the Imperial Palace in Tokyo.

Naruhito’s father, Emperor Akihito, abdicated in May at the age of 85, after 30 years on the throne.

ISSEI KATO/PRESS POOL

Safe Harbor

Hong Kong remains a major location for mainland Chinese IPOs,

in part because of its Western-style legal and regulatory system.

$16.

Hong Kong

Shanghai London

$9.7 $7.3 $1.

$21.8 billion

NYSE

$21.

$7.3 $5.

NASDAQ

$0.

$2.

By Chinese

companies

IPO value

2019*

Hong Kong U.S. Mainland China

0 0.2 0.4 0.6 0.

Absence of corruption

Regulatory enforcement

Constraints on government powers

*As of Sept. 25 Sources: Refinitiv; World Justice Project Rule of Law Index

Rule of Law Index score

Kong is and does,” he said.

Since 1997, mainland Chi-

nese companies have raised

$335 billion by floating in

Hong Kong, tapping a broader

range of shareholders than

they could onshore.

Over the years, the pool of

capital available at home has

gotten much larger. But since

the Hong Kong dollar is pegged

to its U.S. equivalent, and the

city has no capital controls, a

listing there can generate hard

currency for foreign takeovers

and investments. It would be

harder to use a Shanghai stock

sale for the same goal.

For technology firms and

others, New York has been an-

other favored listing destina-

tion, but worsening U.S.-China

relations could make this more

problematic. Hong Kong offers

a convenient way to tap many

investors who are familiar

with China.

For global investors, Shang-

hai and Shenzhen have become

more accessible. But investors

typically prefer Hong Kong’s le-

gal protections, and they have

other concerns about mainland

markets, including the difficul-

ties of moving money out.

Chinese entities also bor-

row liberally through Hong

Kong, both via bank loans and

through bond issues.

Hong Kong is by far the

largest offshore center for bond

sales by Chinese firms. Compa-

nies can borrow for longer than

they can onshore and, crucially,

can raise funds in hard cur-

rency, said Alicia García Her-

rero, chief Asia economist at

investment bank Natixis.

When it comes to dollar

bonds, big state-backed banks

and industrial companies even

prefer to sell these in Hong

Kong, said Victor Shih, a

scholar of China’s politics and

financial system at the Univer-

sity of California, San Diego.

U.S. deals would be overseen by

American regulators and would

require greater disclosure.

Hong Kong is a preferred lo-

cation for Chinese and interna-

tional financiers or business-

people to conduct transactions

because it has a Western-style

legal and regulatory system that

is seen as fair and nonpolitical.

For now, that is a big com-

petitive advantage over

Shanghai or Shenzhen. Hong

Kong’s now-scrapped extradi-

tion bill, which sparked this

year’s protests, had raised fears

that the two legal systems

would grow closer together.

Foreign companies and state

investors have long used Hong

Kong as a staging post for in-

vesting in companies or build-

ing facilities in mainland

China. As it grows richer, China

is also deploying larger sums

abroad through foreign direct

investment, which rose from

$2.6 billion in 1997 to $143 bil-

lion last year, according to data

from China’s Ministry of Com-

merce. Much of this outbound

FDI goes through Hong Kong.

In some cases, Chinese

money is “round-tripped” out

through Hong Kong and back

onshore, perhaps to take ad-

vantage of preferential terms

for foreign investment.

HONG KONG—Since China

resumed control of Hong Kong

in 1997, the city has served as

a conduit for trillions of dol-

lars in fundraising, trade and

investment.

Having a separate system—

sealed off, yet under Beijing’s

thumb—caused a raft of social

and political concerns that gave

rise to this year’s protests, now

in their fifth month. But the

city also enabled China’s rise.

Today, Hong Kong makes up

a much smaller part of China’s

overall economy than it did 22

years ago. Its role as a gate-

way, though, remains undimin-

ished, meaning China faces a

substantial financial cost for

any crackdown.

George Magnus, an econo-

mist and the author of “Red

Flags: Why Xi’s China Is in Jeop-

ardy,” said Hong Kong stands

out from its mainland rivals for

its rule of law, competent regu-

lators, low taxes, free movement

of capital and use of English.

Neither Shanghai nor

China’s free-trade zones “can

really compete with what Hong

BYNATASHAKHAN

ANDYASUFUMISAITO

Money Helps Explain Why China Values Hong Kong

The city offers a

convenient way to

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