Hong Kong’s falling value fuels Beijing's intransigence

Share

In the eyes of the world, the protests sweeping Hong Kong this week have created the biggest political crisis for China since the student protests in 1989.

For the past week, hundreds of thousands of people have taken over the city's downtown streets week to sing and chant their displeasure with Beijing's rule of their home. They have demanded the ability to elect their leaders free of Chinese interference, and mounted an unprecedented campaign to achieve it, sleeping on asphalt, enduring furious thunderstorms and loudly demanding that China back down on its proposal to have Beijing decide who can run in 2017 elections.

In most places, such a display would prompt soul-searching, if not a little anxiety, among the political class.

Yet Beijing, which has come to dominate many aspects of Hong Kong life, has offered all the sympathy of a brick wall, calling the protests illegal and flatly refusing to compromise. "There is no room to make concessions on issues of important principles," the state-run People's Daily wrote Friday, the latest in a series of unapologetically intransigent replies to the protesters.

It may seem a dangerous strategy, one likely to further inflame discontent in a city that was once a cornerstone of China's economic success.

But Hong Kong's "Umbrella Revolution" has erupted in a city whose once-outsized role in China has been diminished, a fact that helps explain Beijing's willingness to largely ignore protesters' pleas for accommodation – and its likely success in doing so.

As its economic might and influence have grown, Beijing has found it has less need to heed its critics. There are international ramifications to this. Such thinking has helped propel China's increasingly assertive foreign policy, an issue likely to take on growing importance as China races toward top ranking in the world's wealthiest nations.

Such an uncompromising position is not unique to Hong Kong. Orville Schell, the journalist and celebrated Middle Kingdom authority, described in a recent magazine article the "suspicious, secretive, peremptory, punitive way in which official China now so often deports itself in the world, especially toward democracies, which it tends to view as especially seditious, even hostile."

But for Hong Kong, it is an issue today, as the city's demonstrators find themselves battling for the right to freely decide their future against a national power that has increasingly little reason to listen to them.

It was not always this way.

For the first decades of China's reform and opening up – and even in the years following the handover of British control – Hong Kong was indispensable to China's rise. In 1997, the year of the handover, it formed fully 16 per cent of China's gross domestic product.

It was the first stop for just about any money flowing into or out of the mainland, and a critical source of the early investments and manufacturing expertise that helped China build its economic miracle. In the late 1990s, the mainland employees at Hong Kong companies exceeded the city's own population.

But more recently, the inverse has been true. Chinese companies are increasingly active in buying Hong Kong companies. Hong Kong now forms just 3 per cent of Chinese GDP. Even the core of Hong Kong's business interests with China are at risk. The city is a financial centre with a respected judicial system. "People still write contracts that are subject to Hong Kong law rather than Chinese law," said David Eldon, former chairman of the banking giant, HSBC.

But mainland China is rapidly moving to match some of those strengths, most notably in Shanghai. Although its legal system has yet to win much international faith, the mainland city is fast developing as a financial centre populated by people who speak the same language as Beijing. Since 2012, companies have used mainland exchanges to raise nearly 60 per cent as much money as they raised in the same period in Hong Kong.

"They are getting better as they go along. Will people eventually feel more comfortable setting up their offices in China and being regulated by a Chinese regulator than a Hong Kong regulator? That could happen," said Mr. Eldon.

The issues are real enough that he has encouraged Hong Kong financial authorities to more actively pursue international business.

Still, Mr. Eldon said, China's rise does not necessarily diminish Hong Kong. (Two-thirds of the foreign direct investment flowing into China still flows through Hong Kong.)

But it does mean that Hong Kong is finding itself increasingly dependent on China, rather than the other way around. The past 10 years have seen a three-fold growth in trade volumes between Hong Kong and the mainland. The speed of change has been dramatic. A decade ago, 32 per cent of Hong Kong exports went to the United States, making it the No. 1 destination; last year, China leaped ahead of the U.S., getting 45.6 per cent of the city's exports.

To underscore how dependent the city is on China, Michael DeGolyer, a professor at Hong Kong Baptist University, has crafted a thought exercise on what would happen if Beijing decided it wanted to use every lever at its disposal to bend Hong Kong to its will.

First to go would be tourism, and along with it the 41 million mainland Chinese visitors who come each year, and support nearly 4 per cent of Hong Kong's GDP and fully 9 per cent of its jobs. Next in line: the city's retail sector, which could be thrown into turmoil by closing the land border with Shenzhen, the neighbouring Chinese city. That would have the added benefit of hitting Hong Kong where it eats, as "most of our fresh food comes by land from China," Prof. DeGolyer said.

Hong Kong's famously busy port facilities could then be held hostage by blocking vessels from transiting Chinese waters, which they must cross to dock in Hong Kong. Similar circumstances would make it simple to shut down the city's airport, with Hong Kong surrounded by Chinese airspace.

If somehow none of those measures succeeded in quelling unrest, Beijing could in this scenario administer the coup de grace: shutting down water, power and heat. Some three-quarters of Hong Kong's tap water, one-fifth of its electricity and all of its natural gas comes from the mainland.

"If Hong Kong got completely obstreperous about things, it would be absolutely simple for mainland China to demonstrate its utter dominance of this place without ever firing a shot or lifting a finger," Prof. Grolyer said.

"If you were trying to look at whether or not China could live without Hong Kong, the answer is yes, without too much of a problem."

Even Beijing's strategy of waiting out the protesters is tied to a certainty that few in Hong Kong are really willing to countenance a lengthy challenge to China. Protesters' calls for change, Chinese leadership believes, will soon be outweighed by demands from other Hongkongers for them to go home.

China is simply too important to Hong Kong today.

Indeed, the former British colony that has long prided itself on its special qualities "is now becoming a mainland Chinese city without much uniqueness," said Sonny Lo, co-director of the Centre for China Studies at the Hong Kong Institute of Education.

Hong Kong has reached perhaps the lowest point of historical influence on China, he said. "China's economic rise has proven that China itself can stand up without relying on Hong Kong."

Even the protests sweeping Hong Kong have roots in the city's growing orientation toward the mainland. That shift has produced increasing distrust, particularly among a young generation that fears aligning with China will mean limiting the freedoms their city has long enjoyed, as their leadership caters to the needs of an elite in Beijing and the Hong Kong billionaires it has wooed to its cause.

"It's about being represented. It's about having your interests defended at the top of the system," said Séverine Arsène, chief editor of the China Perspectives journal and a researcher at the Hong Kong-based French Centre for Research on Contemporary China.

Deepening ties with China have also exacted a cost, which has been expressed in increased competition for coveted university spots in the city, and even the ability of Hongkongers to buy their own powdered baby milk, rather than seeing supplies sold out to mainland buyers.

"It turns out that most of the benefits of this closer relationship have gone to the mainland," Ms. Arsène said.

That, of course, poses little concern to Chinese authorities who increasingly see Hong Kong as part of their national whole, and as a result see less reason to accord it special circumstances.

But there are dangers for China.

The "one country two systems" formulation was in many ways the creation of Deng Xioaping, the former Chinese paramount leader. But he "devised it not really so much for Hong Kong, but for China," said Martin Lee, the lawyer and legislator sometimes referred to as the city's Father of Democracy.

Mr. Deng set China on a course to become economically more like Hong Kong. But Mr. Lee believes he wanted it to also take on Hong Kong's political characteristics – to become a place that enjoys more freedoms and the rule of law.

"That is his grandiose plan, for China," he said, adding that "the present leadership of China will be doing China a great disservice by denying democracy to Hong Kong people."

Instead, China should be eager to see the city, with its highly-educated population, adopt a democratic system that can be a trailblazer for the mainland.

"China can learn and slowly follow. It will take them time. But they have time. And that's the way forward."