Hong Kong Chafes Under China’s Rule

November 17, 2016
 

Forecast

• A growing independence movement in Hong Kong will put China’s “one country, two systems” concept to the test.

• At the same time, Hong Kong’s waning economic fortunes will diminish its strategic importance to China, particularly as competing urban centers on the mainland flourish.

• As Hong Kong continues to defy China’s will, Beijing will refocus its preferential policies and investment toward partners elsewhere.

 

Analysis

Not far from Central Hong Kong, the city’s busiest commercial district, stands the regional headquarters of the Chinese People’s Liberation Army (PLA). Though the 28-story building is far emptier now than it was under British rule, a glaring PLA logo still hangs from its roof, lighting up Victoria Harbor below. It is a stark contrast to the same view two years ago, when the skyscraper — then unadorned — served as a symbol of China’s unobtrusive presence in Hong Kong. Whether intentionally or not, that subtlety is now gone, as is Beijing’s tight grip over the region that has long bucked its rule.

Nearly 20 years after the handover of the city ended British colonialism in Hong Kong, the relationship between the autonomous territory and mainland China is more contentious than ever. And things may soon get even worse. In an unprecedented move, the Chinese legislature on Nov. 7 upheld a provision of Hong Kong’s Basic Law declaring that any official who does not swear allegiance to Beijing cannot assume office. The ruling, made in part to demonstrate China’s authority over the city, effectively bars pro-independence lawmakers Sixtus Leung and Yau Wai-ching from taking their seats on Hong Kong’s Legislative Council. It may also unseat several of the council’s elected incumbents. Beijing issued a series of statements following the decision promising to punish pro-independence activities “according to law,” and Hong Kong’s chief executive vowed to implement the ruling to its fullest extent.

 

China Draws a Red Line

China’s decision is hardly surprising. After all, it is merely the latest episode in a decadelong saga of Beijing’s attempts to steadily increase its power over Hong Kong’s economic, social and political affairs. Nevertheless, the move reflects a departure from China’s tradition of keeping a low profile in the city: Until recently, Beijing refrained from openly intervening in Hong Kong’s politics to preserve the city’s ostensible autonomy under the “one country, two system” model of governance. (The constitutional principle, formed by Deng Xiaoping, described one China whose distinct regions — including Hong Kong — were permitted to keep their own economic and political systems.) But a rising tide of independence and nativism in Hong Kong appears to have changed Beijing’s calculations. By issuing its latest ruling, China seems to have drawn its clearest red line yet: No challenge to Beijing’s sovereignty in Hong Kong will be tolerated.

Ironically, though, it is the fear of China’s tightening grip that has fueled antagonism toward its rule. According to a recent poll, nearly 40 percent of Hong Kong’s youth support the notion of independence, a figure that is bound to keep rising. Indeed, over the past week, protests have spread throughout the city. Some demonstrators have chanted “political autonomy” or “colonial Hong Kong,” while others have hoisted open umbrellas in the air — a symbolic movement reminiscent of the Occupy protests held in the city in 2014. Though Beijing is no doubt aware of the growing backlash against it, the government considers its latest ruling nonnegotiable, regardless of the fact that it risks further alienating Hong Kong.

 

The Two Systems Grow Apart

The quest for Hong Kong’s independence is not new. The city has long taken pride in its vibrant civil society, capitalist economy and rule of law — characteristics that have not always meshed well with cultural norms on the mainland. In fact, Hong Kong’s identity is based in many ways on its distinct differences from the rest of China. And as the city underwent a remarkable transformation from a small port town to one of the world’s most important financial centers, its determination to protect its unique qualities grew.

In the years leading to the 1997 transfer from Britain to China, Hong Kong’s fears that Beijing might disrupt its progress deepened. Nevertheless, the two maintained a cordial relationship, thanks in part to Beijing’s pledge to honor the one country, two system model and keep its interference to a minimum. Soon, however, the city’s socio-economic integration with the mainland exposed the lopsided distribution of power between them. Concerns that China’s political and economic dominance would gradually erode Hong Kong’s individuality mounted, particularly as an influx of Chinese citizens from the mainland began to drain the city’s available space and resources. Hong Kong began to struggle with its conflicting affinity for and suspicions of Beijing, and the city’s independence movement was born.

Since 2012, tensions between Beijing and Hong Kong have intensified. The Chinese government moved to reassert its authority over the city by passing new pro-communism curriculums and enacting legislative reform, while Hong Kong began to boycott Chinese mainlanders traveling to the city. As their mutual distrust deepened, Beijing dragged its feet on making the political reforms — including universal suffrage and the direct election of the city’s chief executive — it had promised to Hong Kong. The repeated delays reinforced the growing perception among many of the city’s residents that Beijing was trying to undermine Hong Kong’s autonomy, laying the groundwork for the nativist and independence movements to sweep the city’s legislative elections in September.

The newfound strength of Hong Kong’s independence movement has put Beijing in an uncomfortable position with regard to its one country, two systems policy. On one hand, the Chinese government could preserve the model at the risk of having to cede some of its authority over the autonomous region — a concession it is finding it can ill afford to make, given the threats to its power springing up in other parts of China. On the other hand, should Beijing tighten its grip over Hong Kong, it could backfire by further inflaming the city’s anger. Though the independence movement is still small relative to Hong Kong’s total population, its appeal to young residents signals greater challenges ahead for Beijing as those generations come of age.

 

If One Door Closes, Others Will Open

As Hong Kong’s recalcitrance has grown, its strategic importance to Beijing has diminished. Before China began to open its economy to the rest of the world, Hong Kong served as one of its few gateways to global communication, investment and trade. Then, when China turned its gaze outward, Hong Kong became a crucial facilitator of Beijing’s engagement abroad. But the city’s privileged status as China’s doorway to global markets has eroded as it has integrated with the mainland’s economy and as China’s own major cities have developed. Over the past two decades, the share of China’s gross domestic product that Hong Kong accounts for plunged from 25 percent to 3 percent. At the same time, burgeoning mainland centers such as Shanghai, Shenzhen and Guangzhou gradually chipped away at Hong Kong’s competitive edge.

Meanwhile, deep structural imbalances in Hong Kong’s economy have generated problems for it. Though the city has accumulated massive amounts of wealth since 1997, much of it has been distributed unevenly, leaving it with one of the highest rates of income inequality in the developed world. Resources remain concentrated among a small group of established businesses and financial magnates with extraordinary political clout, and opportunities for upward mobility — particularly among the city’s youths — are scarce. Moreover, because wealth is largely aggregated by manipulating Hong Kong’s dwindling land supply, and a staggering proportion of the capital flowing into the city is funneled to its real estate sector, property prices have soared. (Though median salaries have risen by only 10 percent over the past decade, property prices have nearly quadrupled.)

Without a manufacturing or high-tech industry to drive economic development, Hong Kong continues to rely on trade, finance and tourism — most of which is sourced from the mainland — for more than 90 percent of its economy. This dependence on China has created a predicament for Hong Kong: Absent any local economic development, the enclave will have little choice but to continue turning to the mainland for funding and employment, a reliance that will further blur the lines between them that originally made Hong Kong so successful. Moreover, deeper integration between the city and the mainland will intensify the identity crisis that has driven Hong Kong and Beijing apart. This could even encourage the Chinese government to look elsewhere for other partners, and targets for investment or preferential policies, whether in up-and-coming cities on the mainland or in economic hubs abroad, such as Singapore.

Nearly two decades have passed since Beijing vowed to preserve Hong Kong’s autonomy for 50 years or more. Now, many have come to question whether the Chinese government will fulfill its promise as the one country, two systems concept dictating its relationship with the city comes under increasing strain. Either way, simmering tension between the two will undoubtedly make it more difficult for them to settle their differences before one of them takes a more drastic step down an irreversible path.

 

— Hong Kong Chafes Under China’s Rule is republished with permission of Stratfor.