What's Occupy Central's impact on Hong Kong's RMB offshore center status?

Keeping in mind China's RMB internationalization plans.

Occupy Central caused an abrupt reaction in the stock market initially, with the first two days of the demonstrations having caused the Hang Seng Index to fall by a cumulative 3.1% to 22,933, the lowest level in two-and-a-half months.

According to a research note from DBS, though, the Index has made up for some lost ground and rebounded to near pre-demonstration levels in just a few days time. More short-term volatility is inevitable.

However, the report noted that more importantly, the drawn-out protests have bred longer-term concerns for Hong Kong’s status as an RMB offshore center.

The worry is that China could slow the opening of the capital account amid political upheavals, impacting Hong Kong’s offshore RMB development.

While short-term impacts are inevitable, RMB internationalization is a long-term agenda and Hong Kong is likely to remain an integral part of it.

The report noted that alternatives to Hong Kong – with its distinct advantages in terms of trade flows, geography and institutions – are few and far between.

While China could consider alternatives on the mainland, that would involve institutional changes and this course therefore remains unlikely.

Political instability shouldn’t alter the longer-term course for RMB internationalization.