Chinese investments: "hostages" for Hong Kong?

Brigitte Bacher, Oliver Lorz and Ludger Schuknecht

No 163, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: It is argued in this paper that China has invested heavily in the Hong Kong economy to build trust in its intentions to maintain the present course of economic policy. The investments have the character of hostages because their payoffs depend on a functioning Hong Kong economy. This increases the stake for the Chinese to keep their promise. The paper also provides considerable empirical support for the claim that the engagement of Chinese investors in Hong Kong had a significant effect on economic confidence and the Hong Kong stock market.

Date: 1991
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