As the stand-off between Hong Kong's government and pro-democracy protesters stretched into its third week, analysts warn the civil disobedience movement could cast a 'long shadow' over the city's economic future.
"The short-term damage to the economy is already visible, with retail sales and tourism badly hit. [But] the social discontent and its aftermath are also likely to cast a long shadow over the city's long-term economic potential," Wei Yao, economist at Societe Generale wrote in a note this week.
Around 40 percent of the territory's financial business rides on its "privileged status" as the gateway for international capital seeking to enter or exit China, which could be at risk if the city loses Beijing's favor, she warned.
Hong Kong, China's biggest yuan hub, has been the test ground for nearly all new liberalization policies introduced by Beijing including the renminbi qualified foreign institution investors program (R-QFII) – which allows financial institutions to use offshore yuan to invest in the mainland's securities - and the upcoming Shanghai-Hong Kong stock connect that will allow the cross-border trading of stocks between the two cities.
"The reform experience accumulated in the past few years is probably giving mainland policymakers more confidence to diversify the liberalization approach. The cooperation with other international financial hubs is likely to speed up, and Shanghai's free-trade zone experiment will probably regain its momentum" Yao said.