The credit ratings agency Fitch cut its rating for Hong Kong to “AA” from “AA+,” with a negative outlook, citing months of political protest and the Chinese territory’s growing integration with the mainland.

“Months of persistent conflict and violence are testing the perimeters and pliability of the ‘one country, two systems’ framework that governs Hong Kong’s relationship with the mainland, underscored by mainland officials taking a more public stance on Hong Kong affairs than at any time since the 1997 handover,” Fitch stated.

The ratings agency said protest and unrest have “inflicted long-lasting damage” to Hong Kong’s image and “called into question the stability and dynamism of its business environment.”

The chief executive of Hong Kong, Carrie Lam, said the downgrade was unwarranted.

“We do not agree with Fitch Rating’s decision. Because based on what happened in the past months, nothing has undermined the ‘one country, two systems,’” Lam said.

Fitch said it expects real GDP growth of 0% in 2019, implying an outright contraction during the second half. It is forecasting 1.2% GDP growth in 2020. Previous official forecasts were for growth of 2% to 3%.

Protests erupted in Hong Kong this spring after the government proposed an extradition bill that could have placed Hong Kong citizens and visitors under the jurisdiction of officials on the Chinese mainland.

Fitch said a gradual rise in financial and socio-political linkages between Hong Kong and the mainland would present institutional and regulatory challenges over time.

“In Fitch’s view, these developments are consistent with a narrowing of the sovereign rating differential between Hong Kong and mainland China (A+/Stable),” the agency said.

Fitch said a resolution of the political situation that led to a sustained recovery in business confidence, or an improvement in mainland China’s sovereign credit profile, could prompt it to revise its credit rating upward.

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