The end of Hong Kong as we know it

Beijing is killing the goose that laid the golden egg, as it imposes its own national security law on Hong Kong, writes John West.

From British to Chinese colonialism

Hong Kong is basically a product of British colonialism. The British government took control of the territories that became Hong Kong following the Opium Wars of the mid-19th century, which the Chinese government now considers to be the beginning of China’s “century of humiliation”. 

After more than 150 years of British colonial rule, Hong Kong was returned to China in 1997.  Officials from Beijing and London agreed that Hong Kong would be governed under the “One country, two systems” principle for the next 50 years.  But the poor people of Hong Kong were not involved in this decision making, fomenting a source of social frustration.

A shonky success story

Somewhat ironically, the British colonial government created one of the great success stories of Asian economic development.  Hong Kong tops the World Economic Forum’s global ranking for macroeconomic stability, health, product markets and financial system.  It came 4th out of the 79 countries that participated in the OECD’s PISA education survey.

Despite Hong Kong’s free-market pretensions, its domestic economy is in reality dominated by cartels, monopolies and oligopolies. The tycoons control everything from supermarkets to drugstores, electricity supply to ports and buses, and construction. This pushes prices up and quality down, and results in low environmental standards. Hong Kong politicians and businessmen have their hands deep in each other’s pockets.  One measure to keep social peace has been public housing, with over half the population living in government subsidised housing.

Hong Kong has always ranked high for the quality of its governance, being in the top group in rankings for the rule of law and corruption.  But Hong Kong is also well known as a conduit for money laundering out of China and is only ranked in the middle of the pack of 125 countries in the Basel Anti Money Laundering Index.  Historically, the British colonial masters were never concerned about offering democracy to Hong Kongers until the very end of their regime in 1997.

Hong Kong became a very prosperous place.  Its GDP per capita (in PPP terms) of $62,727 is about the same as the US ($62,887), but well ahead of the UK ($46,868), Japan ($41,473), South Korea (39661).  Singapore, Hong Kong’s usual comparator economy, is way ahead of Hong Kong with a GDP per capita of $98,827.  But even before Covid-19 struck, Hong Kong’s economy was reeling, as the economy shrank by 1.2 per cent in 2019, due to the protest movement, while overall developing Asia grew by 5.2 per cent. 

Living close to China

In tandem with China’s rapid economic development, the size of Hong Kong’s total GDP relative to the rest of China has declined from 16% in 1997 to 3% in 2018.  (Hong Kong’s population size of 7.5 million is Lilliputian compared with China’s.)  Not surprisingly, we have seen a commensurate rise in Beijing’s desire to dominate Hong Kong. 

But Hong Kong should not be underestimated as it remains China’s financial arm for the rest of the world and has helped mainland China in keeping its financial sector insulated, without suffering the negative consequences of such isolation.

A recent bright spot for Hong Kong has been its management of Covid-19, which has been better than most other countries, with 1082 cases and only 4 deaths.  Having experienced SARS, which came out of China in the early 2000s, and knowing well Beijing’s poor transparency, the Hong Kong authorities reacted quickly to the threat of COVID-19. 

Hong Kong’s social traumas

Despite these positive statistics, Hong Kongers have reason to be miserable.  The gap between rich and poor is enormous, with Hong Kong having the highest inequality in the advanced world.  The cost of housing is enormous in what is the world’s most expensive city.  The territory’s youth have limited job opportunities. 

Many Hong Kongers are in despair at the “mainlandisation” as there are increasing numbers of Chinese residents and visitors, as well as Chinese companies located in Hong Kong.  Hong Kong society is now deeply fractured along pro- and anti-government lines in light of the protest movements of recent years.  And violence, by both police and protestors, has now become part and parcel of this one peaceful society. 

It is perhaps not surprising that Hong Kong should be only ranked 78th by the World Happiness Report out of the 155 countries covered, even though its GDP per capita is the tenth highest in the world.  Countries like Taiwan, the Philippines, Thailand, Korea and Japan with lower GDPs per capita are all estimated to be much happier than Hong Kong.

According to a study published by The Lancet in January 2020, probable depression in Hong Kong was reported by 11·2 percent of participants in 2019, compared with 6·5 per cent in 2017, and 1·9 percent during 2009–14. Prevalence of suspected post-traumatic stress disorder in 2019 was estimated to be 12·8 percent.

A city of protest

Hong Kong’s recent protests are not a new phenomenon. Hong Kong has long been a “City of Protest”, as Antony Dapiran has documented — from the 1966 Star Ferry protest, industrial unrest in 1967, protests against a 2003 effort to impose security laws, a Beijing initiative to impose “patriotic education” on Hong Kong schools in 2012, and the 2014 protests against voting arrangements for the Hong Kong Chief executive.

The 2019/20 protests are however of a different order of magnitude.  They were triggered by an attempt by the Hong Kong government to bring into law a treaty authorising extradition to the Mainland which would make it easy for Beijing to ask the Hong Kong authorities to hand people over for trial. 

And even after the administration dropped the extradition treaty proposal, the protests morphed into protests against police violence, calls for Chief Executive Carrie Lam to step down, as well as demands for democracy and even independence for Hong Kong.  Thousands of anti-government protesters have been jailed.  Unlike some previous protests, the 2019 protests received widespread community support, including by the business community, in light of the fear that almost anyone could be extradited to Beijing and be subject to Chinese justice.   

What drives Hong Kong’s culture of protest? 

Hong Kongers have had many genuine and reasonable gripes with their colonial masters, be they British or Chinese.  And very often protesters have achieved their goals.  In other words, protesting often works and can compensate for the lack of democracy.  Indeed, under British rule, the government was very responsive to popular discontent, as it was very intent on maintaining social peace.  However, as Hong Kong has moved closer to Beijing after 1997, this motivation has faded, with the result that social gripes are now festering and social unrest has exploded.  And the authorities’ aggressive responses to this unrest is only adding fuel to the fire.   

More fundamentally, growing numbers of Hong Kongers see themselves as having more of a Hong Kong identity, rather than a Chinese one, and are very keen to have autonomy or even independence for the territory.  And in contrast to popular myths, Hong Koingers are interested in more than just money.

Beijing reacts

Beijing’s impatience with the Hong Kong protests was clear in November last year, when Xi Jinping hinted that Beijing was planning to respond more decisively than it had to date.  He said the most pressing task for Hong Kong at present is to bring violence and chaos to an end and restore order.  Xi said the continuous radical violent activities in Hong Kong seriously trample rule of law and the social order, seriously disturb Hong Kong’s prosperity and stability, and seriously challenge the “one country, two systems” bottom line.

While Beijing was growing impatient with the territory, Hong Kong citizens showed remarkable support for the protest movement.  At local elections held in late November, pro-democracy candidates achieved a great victory, bolstered by a high turnout, while pro-Beijing candidates did poorly. 

And as protests have continued in Hong Kong, though muted by the Covid-19 crisis, in May the National People’s Congress announced a resolution that will initiate new draft legislation banning “secession, subversion, terrorism and foreign interference”.  This will be legislation from Beijing imposed on the territory, rather than Hong Kong law passed by LegCo, as should be the case, according to the Basic Law.  It will reportedly allow China’s ministry of state security to operate freely in Hong Kong, meaning that China’s secret police are coming to Hong Kong, and foreign entities and individuals will also be a target.  Overall, Beijing sees this as an opportunity for a “reset”. 

The fear of Hong Kong citizens and the international community is that the new security law could be used against almost anyone considered a problem by the government.  According to most expert analysts, this will greatly expand the mainland’s power over the city and the Basic Law — and Hong Kong’s rule of law — is now in tatters, 

And there is every reason to fear the new national security law, as it comes on top of a progressive erosion of human rights, with the abduction of Hong Kong booksellers, the expulsion of journalists, China’s interference in local court decisions, and erosion in academic freedom.

Why react now?

There has been much speculation as to why China has reacted so sharply now to the Hong Kong protest movement.  After years of seemingly unending protests, China may feel that it had no alternative but to do something.  Anti-Beijing forces are likely to win the upcoming Hong Kong Legislative Council elections meaning that LegCo would not pass the security legislation. 

Some accuse Chinese President Xi Jinping of seizing the occasion while the rest of the world is occupied with the COVID-19 crisis.  And others even speculate that Xi’s position may have been weakened by COVID-19 and that he feels a need to appear a “strong man” to shore up his own position within the Communist Party.  Such firm action might also discourage any popular dissent in China, at a time of economic weakness and a rise of new cases of COVID-19.

While Beijing’s proposed legislation is intended to restore order in Hong Kong, it is having the reverse effect, as protests are exploding again, and the genuine gripes of the population remain unanswered.

The world reacts

Markets have been reacting negatively to what they see as a grim future for Hong Kong.  In January this year, credit rating agency Moody’s downgraded Hong Kong’s rating to “Aa3” from “Aa2”, saying “The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed”.

US Secretary of State, Mike Pompeo, has announced that the US no longer views Hong Kong as sufficiently autonomous from China.  So, the US government is proposing to remove Hong Kong’s special economic privileges. 

Beijing had made a fundamental pledge to maintain a “high degree of autonomy” for the city until at least 2047, and this forms the basis for Hong Kong’s special trade relations with the US. It operates as a separate customs territory to mainland China, with a free port, meaning no tariffs are charged on the import or export of goods.

Now the US is threatening to treat Hong Kong the same as mainland China. That would mean its goods would be subject to additional tariffs, including those extra charges that were introduced as part of the US-China trade war, although some of those have recently been rolled back.  There is much debate over the merits of this US initiative as many innocent Hong Kong citizens will suffer, as will the US and other international enterprises which have bases in Hong Kong.

Coming on top of the trade war and COVID-19, the Hong Kong troubles are dragging US/China relations to a new low.

The United States has also issued a joint statement with the United Kingdom, Australia, and Canada in which they expressed deep concerns and said Beijing’s imposition of the law on Hong Kong, rather than its legislation by Hong Kong’s own legislature, curtailed the liberty of Hong Kong’s people.

Until recently, the UK had shown little concern for Hong Kong.  But Foreign Secretary Dominic Raab has now said that the UK could offer British National (Overseas) passport holders in Hong Kong a path to citizenship if China does not suspend plans for a security law in the territory.

Beijing is predictably furious at the US, the UK and other countries which have criticised its moves.

What next?

At the time of writing, Hong Kong protests are exploding and nothing is resolved. 

But it is difficult not to see Hong Kong being in a state of terminal decline.  Hong Kong’s talent has every reason to emigrate.  For those people and enterprises highly dependent on the China market, the simplest thing would be to move to Shanghai or elsewhere on the mainland.  For those seeking an international city, with the rule of law, Singapore is awaiting.  While many professionals will seek to move to countries like Australia, Canada or even Taiwan, which still understand the value of the international talent.