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Too important or too irrelevant? Why Beijing hesitates to intervene in Hong Kong

Posted By on November 12, 2019 @ 15:21

Two competing narratives might explain why China’s authoritarian communist rulers have so far displayed a relatively hands-off attitude towards the increasingly violent protests in Hong Kong, now in their sixth straight month and entering a deadly new phase. Whichever explanation proves correct will determine how long Beijing will remain patient if the impasse drags on as the violence continues to escalate.

The answer may also likely decide whether the ‘one country, two systems‘ formula can survive intact.

One narrative says that China has remained largely on the sidelines, leaving it to local police and authorities to find or force a resolution, because Hong Kong is really no longer important to China. Hong Kong’s days as the mainland’s key financial base are long over, this theory goes, and the territory can simply be left alone to clean up its own mess.

The other says just the opposite; Beijing is hesitant to intervene directly—militarily or by scrapping the territory’s autonomy—because Hong Kong remains too important, as a financial centre and as an international symbol. Any direct intervention—for example, by sending in the People’s Armed Police—would be devastating to China’s international image while it is already dealing with a slowing economy and a trade war with the United States.

Which holds truer? Is Hong Kong too irrelevant or too important for China to directly intervene? There is evidence to support both sides.

At the time the territory was handed back to China in 1997 [1], after a century and a half as a British colony, Hong Kong accounted for nearly 20% of China’s GDP. Today that figure is less than 3%. The neighbouring Chinese city of Shenzhen, just across the border, has surpassed Hong Kong [2]in the size of its economy and its still-soaring annual growth rate. Shenzhen and Guangzhou are already besting Hong Kong when it comes to dynamic start-ups and new technologies [3].

Hong Kong saw its role as the entrepôt for trade with China shrink once the mainland joined the World Trade Organization after 2001. Chinese cities now have their own stock markets, and more than 150 Chinese companies have bypassed Hong Kong to list on major American stock exchanges.

According to this view, China’s communist leaders under hardline ruler Xi Jinping might be content to let Hong Kong burn, as long as the contagion doesn’t spread north. With its liberal values and British colonial holdovers, Hong Kong was always a troublesome source of suspicion and mistrust.

If Hong Kong’s internal conflagration hastens its replacement by Shenzhen or Shanghai as China’s most important city, Xi might actually see that as a long-term benefit. If the protests eventually lead to an exodus of local elites with overseas passports, as well as foreigners, multinationals and foreign media outfits that make Hong Kong their headquarters, so much the better.

But the competing view holds that while Hong Kong’s importance to China’s overall GDP has diminished, the territory remains crucial to the mainland’s economic health, and no other Chinese city is even close to replacing it.

Hong Kong still accounts for more than 60% [4] of all foreign direct investment flowing into the mainland, and that number has grown [5] despite the months of protests. Hong Kong’s stock exchange is still the fourth largest [6] behind New York and Tokyo, and ahead of London, and China’s markets remain closed to foreign investors. Hong Kong’s credit rating is higher, its legal system is respected internationally, and money can be freely exchanged, unlike in China with strict capital controls.

US President Donald Trump’s trade war has heightened the importance of Hong Kong’s being treated globally as a legal and economic entity distinct from China. Chinese officials have warned Washington that the Hong Kong Human Rights and Democracy Act of 2019, which unanimously passed the House of Representatives last month and enjoys bipartisan support in the Senate, is an ‘attempt to use Hong Kong to contain China’s development’, in the words of Yang Guang, a spokesman for the Hong Kong and Macau Affairs Office which handles the territory’s affairs in Beijing.

There are even conflicting theories on whether the continuing unrest in Hong Kong poses the threat of contagion to the mainland.

One view holds that Beijing’s rulers fear that pro-democracy protests in Hong Kong might spark copycat demonstrations in Guangdong and other Chinese cities. They are loath to make even common-sense concessions—for example, allowing an independent commission to probe police brutality or restarting the stalled political reform process—for fear of sparking similar demands at home.

Yet the opposite view also holds currency. That is, with its strict control of the mainland media and the internet, China’s propagandists have succeeded in painting the Hong Kong protests as anti-China secessionist movement launched and financed by nefarious ‘black hand’ foreign forces, namely the CIA. Instead of sympathy, many mainland Chinese express only disdain for Hongkongers, whom they see as wealthy, spoiled and insufficiently loving of the motherland.

Chinese officials lately seem to be signalling more repression and no reform [7] as the path to resolving Hong Kong’s crisis. Vice-Premier Han Zheng told Hong Kong CEO Carrie Lam during a meeting in Beijing [8] that ‘extreme, violent and destructive activities‘ would not be tolerated. Mainland officials have called for strengthening China’s supervision over the territory, imposing more ‘patriotic education’ in Hong Kong schools, introducing stricter vetting of civil servants to ensure loyalty to Beijing, and implementing a long-delayed national security law [9].

Those calls are only likely to grow louder after the violence on 11 November, which included widespread vandalism, the forced closure of university campuses, and the police shooting of a protester in the stomach.

My view is that China’s leadership is caught somewhere in between—fearful of letting the unrest continue, but paralysed from intervening out of concern over making a fatal mistake.

China’s communist rulers are now facing the most serious political unrest on their soil since the 1989 pro-democracy protests at Tiananmen Square. The massacre by People’s Liberation Army troops cost China nearly a decade of sanctions, international isolation, and restrictions on technology transfers.

The Tiananmen massacre remains a stain on China’s communist party. An intervention now in Hong Kong, particularly if it turns bloody, could once again set back the leadership’s efforts to promote China’s ‘soft power’, as through its widely touted Belt and Road Initiative.

Hong Kong may not matter enough to China to risk a bloody intervention. It may also matter too much to risk making a mistake.



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URLs in this post:

[1] 1997: https://www.reuters.com/article/us-hongkong-protests-markets-explainer/explainer-how-important-is-hong-kong-to-the-rest-of-china-idUSKCN1VP35H

[2] surpassed Hong Kong : https://www.scmp.com/economy/china-economy/article/2187949/hong-kong-economy-surpassed-neighbour-shenzhen-first-time-2018

[3] start-ups and new technologies: https://www.scmp.com/economy/china-economy/article/3037101/hong-kong-start-ups-lack-shenzhens-international-focus

[4] more than 60%: https://www.wsj.com/articles/hong-kong-is-uniquechina-needs-it-to-stay-that-way-11568026657

[5] number has grown: https://www.scmp.com/economy/china-economy/article/3033377/hong-kong-remains-key-gateway-chinas-fdi-rises-29-cent-first

[6] fourth largest: https://www.economist.com/briefing/2019/08/08/hong-kong-remains-crucially-important-to-mainland-china

[7] more repression and no reform: https://www.hongkongfp.com/2019/11/10/hong-kong-govt-breaching-basic-law/

[8] meeting in Beijing: https://www.scmp.com/news/hong-kong/politics/article/3036547/no-country-would-tolerate-violent-and-destructive-acts-hong

[9] national security law: https://www.scmp.com/news/china/politics/article/3037048/need-national-security-law-hong-kong-becoming-urgent-beijing

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