On Wednesday, Moody’s, a ratings agency, lowered the forecast for Hong Kong’s credit rating from stable to negative. This decision came after a similar adjustment was made for China the previous day.

China’s reopening after the pandemic provided a boost to the city’s economy, but growth has since slowed in the second half of the year. Last month, the government revised their initial estimates for full-year growth to 3.2 percent.

According to Moody’s, the main reason for Hong Kong’s negative rating outlook is the close connection between the credit ratings of the finance hub and China.

Moody’s stated that the update in Hong Kong’s rating outlook is a result of their evaluation of the strong political, institutional, economic, and financial connections between Hong Kong and mainland China.

Hong Kong’s “stable” rating outlook has been lost for the first time since January 2020.

The organization stated that China’s potential downsides would also affect Hong Kong’s credit worthiness. Additionally, it noted that alterations in “institutional and political connections” were a significant factor in the city’s risks.

According to Moody’s, Hong Kong’s political and judiciary institutions are showing signs of decreased independence. This was seen through the introduction of a National Security Law in 2020 and alterations to the city’s electoral system. The agency predicts that there will be a gradual decline in the city’s ability to make its own decisions in political, institutional, and economic matters.

Moody’s assessment currently reflects the ongoing process of evaluating the quality of Hong Kong’s executive and legislative institutions.

In response to massive and occasionally violent pro-democracy demonstrations in 2019, Beijing enacted a comprehensive national security law in Hong Kong, which was previously under British rule.

The government has removed opposition members from the legislative body and implemented a voting system that only allows “patriots” to participate, even at the local level.

According to Moody’s, the diminishing growth in mainland China will impact Hong Kong’s economy by limiting the city’s role as a major regional hub for economic and financial activities.

Furthermore, a decrease in economic growth in Hong Kong may deplete the government’s financial reserves due to increased public spending aimed at supporting the economy, according to the statement.

AFP has reached out to the Hong Kong government for a statement.

The day before, the agency changed its forecast for China’s credit rating to negative, citing increasing debt in the world’s second-largest economy and worries about its struggling real estate market.

The finance ministry in Beijing expressed disappointment with Moody’s decision, stating that the agency’s worries about growth prospects and fiscal sustainability were unnecessary.