China is not just shackling Hong Kong, it is remaking it
And it does not think global finance will object
|BEIJING AND HONG KONG
FOR MOST of its modern history, Hong Kong had no time for nostalgia. Little remains of the Victorian mansions or art-deco towers that once flanked its harbour. The city was built by unsentimental people in a hurry: traders and shippers and British opium peddlers turned merchant-grandees; imperial officials as tough as the granite of Victoria Peak; wave upon wave of Chinese migrants. 20th-century elites replaced domed and colonnaded landmarks with towers of concrete, glass and steel, destroying their heritage in the name of progress and profit. Only in recent years did the pace of destruction slow, as growing civic pride saw a few old sites preserved.
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Today’s ruling elite is bent on further demolition. Its mainland Chinese envoys and Hong Kong officials who look to Beijing for their orders have earmarked a breathtaking list of Hong Kong institutions for dismantling and replacement.
It starts with democratic elections. China’s autocrats were appalled when, after months of demonstrations in 2019 against a proposed new extradition law, pro-democracy politicians won a landslide victory in elections for Hong Kong’s district councils that November. The result gave Beijing reason to fear a similar drubbing in elections to the somewhat more powerful Legislative Council (Legco), set for September 2020. Those elections were duly postponed, with pro-democracy politicians barred from standing and accused of subversion for saying they would oppose the government.
On March 11th, far to the north in a smoggy Beijing, delegates to the National People’s Congress, China’s pliant legislature, approved sweeping changes to Hong Kong’s election laws by a margin of 2,895 votes (there was one abstention). Branded “Patriots administering Hong Kong”, the amendments will effectively bar avowed opponents of the Hong Kong government or critics of China’s Communist Party from seeking election to anything.
Candidates for elected office are not the only ones to whom such conditions will apply. China and its local allies are demanding all public officials should pass stricter patriotism tests. Over time that will leave less room for the proudly independent judges, some of them foreigners, who currently make Hong Kong’s courts some of the most trusted in Asia. The rule of law in Hong Kong will be remodelled.
A national-security law imposed last June in response to the protests of 2019 is limiting liberties such as the freedom of speech, a free press and the right to peaceful protest. Almost 50 democratic activists were recently charged under the law for holding a primary election before running for seats in Legco. Others have been arrested for holding up banned slogans or for calling for sanctions against China.
In February officials unveiled a new patriotic curriculum to teach children “a sense of belonging to the country” and “affection for the Chinese people”, a response to the pride schools in the city have taken in teaching Hong Kong children to think critically. Children as young as six will be asked to memorise offences criminalised by the national-security law, including subversion, secession, terrorism and collusion with foreign powers. Chinese officials and their local allies are convinced that years of liberal education have poisoned Hong Kong’s young minds, leaving them easy prey for foreign troublemakers.
The totemic pledge that Chinese sovereignty over Hong Kong would be guided by the principle of “one country, two systems” lies in ruins. The formula, coined in the 1980s by Deng Xiaoping, China’s paramount leader, spoke to Hong Kong’s unique value as a gateway to a vastly richer and more advanced Western world from which China could learn, a value which justified exceptionalism. Guaranteeing that Hong Kong’s capitalist way of life would continue for at least 50 years after the Union Flag was lowered was a way to keep that gateway open without seeing capital and know-how rush out through it.
The China ruled by Xi Jinping today still sees benefits in preserving Hong Kong as an international financial centre. Operating outside the mainland’s strict capital controls, Hong Kong issues its own hard currency, the Hong Kong dollar, that is freely convertible against the American dollar, and offers Chinese firms access to some of the deepest pools of capital on Earth. But Hong Kong’s access to Western know-how, as opposed to money, holds less interest for party chiefs.
Changing the guard
Mr Xi and others repeatedly declare that “the East is rising and the West is in decline.” Successive crises, from the financial crash of 2008 to the covid-19 pandemic, have left Chinese leaders increasingly confident that their model of techno-authoritarian state capitalism is superior to the partisan squabbling, short-termism and selfish individualism they see in the democratic West. When officials talk of preserving “one country, two systems” they are talking of different Chinese systems, not paying tribute to a discarded Western one. China’s rulers are not impressed when Western governments suggest that losing the hearts and minds of 7.5m Hong Kongers is a calamity. Throughout 2019, officials in Beijing growled that they served the interests of 1.4bn Chinese.
They are especially scornful of protests from America, Britain and other Western powers that the changes being imposed on Hong Kong are a betrayal of undertakings to preserve Hong Kong’s way of life that it agreed to before the 1997 handover. Chinese officials and state-backed scholars call the pre-handover Sino-British Declaration a “historical document” and accuse Western critics of colonial nostalgia. To focus on China’s breaking of old promises, though, is to risk missing the sheer scale of its ambitions for Hong Kong's future.
Talk to Chinese officials and state-backed scholars, as well as to pro-government politicians in Hong Kong, and they will insist that neutralising the opposition is a necessary step towards a greater goal: repairing flaws that render Hong Kong’s political and economic systems structurally unsound through a wholesale remodelling of its institutions and society. What is more, they are sure that Hong Kong’s role as an international financial centre will generate such profits that Western financial institutions will rush to invest, rendering the grumbling of foreign governments irrelevant.
They may well be right. Many foreign executives reject the notion that political repression is pushing global investors away. On the contrary, a surge of global capital seeking to reach Chinese markets has drawn more investment to Hong Kong over the past year. Cambridge Associates, a large investment group, said on March 8th that it would open an office in the city. The race to enter China has forced some managers to “turn money away”, says a managing partner at a global law firm.
Today’s Hong Kong stock exchange is utterly changed from that of the turn of the century. Then local companies dominated. Now the top traded companies are Chinese giants such as Tencent, Alibaba, Meituan and Xiaomi. There are now more than 2,000 mainland mutual funds that can invest in Hong Kong, a number which increased 268% in 2020. A wave of mainland cash has followed. Chinese investors brought net inflows of HK$672bn into the Hong Kong market last year through an investment channel called “stock connect”, 170% up on the year before. The inflows have made the city’s old corporate stars irrelevant. “Fuck them,” says an executive at a Chinese-state-backed investment manager. “They are a drag on the index.”
The HKEX posted a 23% increase in profits for last year, boosted by a number of Chinese initial public offerings. But the fat fees associated with such successes flow mostly to Chinese groups; the financial sector’s success is divorced from the rest of the city’s economy. Many local companies have struggled through the past two years of protests and pandemic. Swire, a 205-year-old, British-headquartered conglomerate which was a pillar of Hong Kong’s old economy, said on March 11th that underlying profits for its property unit fell by 47% in 2020. One investment manager who was born in Hong Kong and works for a local firm says the boom in Chinese business has made him and many around him rich. Yet he sees few opportunities for the city’s youth outside of working for Chinese financial-services groups.
Some of the mainland-born, Western-educated bankers in the upper echelons of Hong Kong banks actively welcome the national-security law. During the protests of 2019 they feared being attacked by locals in the streets for speaking Mandarin, rather than the local tongue, Cantonese. Many are relieved to see order restored to the streets, even with an iron fist. Tougher policing does not affect Westerners, says a mainland financier. His foreign clients in Hong Kong laugh about the anxious memos they receive from bosses at home, asking about political developments. “It doesn’t really affect their life, right? They’re not going on the street to try to demonstrate against the government.”
Class against class
Despite the success of the financial sector Beijing longs to diversify Hong Kong’s economy, says the mainland financier. There are two reasons. One is an ideological distaste for high finance among party bosses who see the proper role of banks as supporting the real economy by lending to businesses that make and sell tangible products. Maintaining Hong Kong as an international financial centre is perhaps at best “a necessary evil” for Mr Xi and his close associates, says the financier—a pragmatic way to allow Chinese firms to raise foreign funds while the mainland maintains capital and currency controls.
The other reason is real concern about Hong Kong’s income inequality, which is among the most extreme in the developed world, and the cruelly high costs of housing in the territory. Officials in Beijing deny all blame for an unhappy Hong Kong and are impatient with Westerners who cast Hong Kong’s discontent as a clash between a freedom-loving public and despotic rulers: Marx has taught them that all politics is rooted in economic forces. Their favoured scapegoats are foreign saboteurs and a small number of Hong Kong-Chinese oligarchs who have dominated the city’s property and retail sectors for generations.
Western critics focus on the blow that the new election law lands on pro-democracy parties. Chinese observers are equally interested in its changes to the Election Committee, which will give Beijing-appointed members the power to dilute the influence of the property tycoons. “It’s shameful for an economy as rich as Hong Kong to have that many people living without basic human dignity in terms of housing conditions. And that sentiment is shared extensively in Beijing, in the leadership,” says the mainland financier.
He predicts a campaign to build large amounts of public rented housing. This could be facilitated by forcing local tycoons to release some of the territory’s copious undeveloped land, a resource they are accused of hoarding so as to increase the value of their property holdings by creating scarcity. Beyond that assault on Hong Kong’s old-school business bosses, a wider campaign is brewing to craft a new “capitalism with Hong Kong characteristics”. The ultimate target is the city’s whole laissez-faire, low-tax economic model, which some officials in Beijing grumble has been elevated to an almost religious creed by local oligarchs, foreign business leaders and civil servants.
National leaders do not hide their exasperation with the low calibre of many who enter Hong Kong politics today. At the same time as the election law changes were being passed in Beijing, the central authorities sent what was widely seen as a warning along these lines in the form of a Hong Kong newspaper op-ed by Tian Feilong, a Beijing-based law professor and member of a government-backed think-tank, the Chinese Association of Hong Kong and Macau Studies. Mr Tian wrote that national leaders do not want to see rubber-stamp loyalists running the city.
In an interview in Beijing, Mr Tian expands on that thought. The central government wants to set patriotism as a “baseline”, so that Hong Kong politicians can stop dwelling on questions about who is a patriot or not and begin to compete on the basis of their policies. Patriots should love their country, says Mr Tian, but only need to respect the Communist Party. The professor insists that moderate democrats, “once they have adjusted” to the new rules, are welcome to seek election to “supervise and criticise” the government as a form of loyal opposition.
It is less clear where calls for loyalty leave judges from Britain, Australia and Canada whose part-time service on Hong Kong’s Court of Final Appeals is an indispensable source of international business confidence. Some pro-government lawyers describe a legal system in which commercial cases and political cases will be handled on different tracks, with more deference from judges in political cases. Mr Tian says that foreign judges will not be pushed out. But he concedes that the principle of “patriots governing Hong Kong” will create more cases that are not suitable for foreign judges and expose them to discomforting political pressure. “The rules on that”, he says delicately, “may need further clarification.”
As for the hundreds of thousands who joined the protest movement, Mr Tian trusts that education reforms will produce a new generation of youngsters who understand China and love it. He has blunter advice for those too old for school and stubbornly wedded to liberal values. “I think they will experience a painful psychological transition, in other words, they will have to re-educate themselves.”
All the sad mercenaries
Even among some who support the government, this is a moment of painful introspection. A member of Legco elected by one of the “functional constituencies” that represent a specific business sector expresses shame at his role as a reliable vote for the government. “I’m a mercenary for the rich,” he says. Other loyalists are more bullish about managed democracy, seeing a moment to bring technocrats into public office. Maria Tam Wai-Chu, a senior member of the National People’s Congress from Hong Kong, points to the global technology giants which have transformed Shenzhen, the gleaming megapolis that lies just across the border from Hong Kong, and laments that: “We are so backwards here in Hong Kong.” She would like to see technology experts or business executives appointed or elected to Legco, to help the city confront the 21st century. She scoffs at foreigners who worry that those new legislators must be patriots. British MPs swear allegiance to their monarch, she notes.
Regina Ip, a law-and-order conservative and pro-establishment member of Legco, talks of Hong Kong becoming an “epistocracy”, the technical term for a society governed by experts and the highly educated. At the same time, she admits, the anger and discontent seen during the protests in 2019 “has gone underground, it has not gone away”. She calls for patriotic education but also social-welfare policies to generate housing and jobs for the young. “We must have more redistribution,” she says.
A palpable sense of sadness hangs over the territory. Politics has divided workplaces, friends and families. If winning over a majority of Hong Kongers proves slow work, leaders in Beijing may be tempted to play social engineer and craft a more biddable Hong Kong, whether by blurring its borders with the mainland or shipping in new people. More than 1m mainlanders have moved into Hong Kong since 1997. Loyalist politicians in Hong Kong urge young people to try studying and working in the booming mainland next-door, or join the Chinese army.
Though emigration is a constant topic of conversation, an offer of a new fast track to residence in Britain was taken up by just 7,000 Hong Kongers between July 2020 and January of this year. “I think the elites won’t leave because they live well and make so much money. If other people choose to leave, it won’t be difficult for Beijing to find new middle-class professionals to replace them,” says Mrs Ip. “China does not lack people.”
The democratic world has every right to be shocked by the demolition of “One country, two systems” and to respond. America has not lost interest in Hong Kong, which is seen in Washington, DC, as a proof of China’s intolerance for dissent. Last October it imposed banking and other sanctions on the chief executive and nine other mainland and Hong Kong officials accused of undermining the territory’s autonomy, in breach of long-standing Chinese commitments. The territory’s chief executive is now paid in cash, her home filling up with bank notes. On March 16th Joe Biden’s administration imposed bank sanctions on 24 more officials. But the most dramatic steps, involving changes to American policies that treat the Hong Kong dollar as a fully convertible currency, have not been taken, not least because the resulting pain would be felt worldwide.
Western governments are not going to deter the demolition. The old Hong Kong is gone. Judge Mr Xi’s China by what it builds in its place. ■
