Hong Kong: one nation, two systems, one big problem

Hong Kong: one nation, two systems, one big problem

Unable to negotiate values, there is no clear end to the protests in sight.

WHAT’S HAPPENING?

After a week of relative peace, pro-democracy protests in Hong Kong have resumed a confrontation stance, reigniting speculation that Beijing will intervene.

KEY INSIGHTS

– Given Hong Kong’s status as a gateway to mainland China for foreign companies, all parties stand to benefit from a negotiated solution
– Coercive measures, such as restricting Hong Kong’s water supply, could pressure protesters to cease demonstrating
– Military intervention and economic sanctions could be used to restore order, which may hurt corporations with regional headquarters in the city
– If the rule of law is no longer upheld, Hong Kong will lose its commercial viability and businesses will have to re-evaluate the cost of doing business in Hong Kong

ICARUS IS SINGED

The situation in Hong Kong is growing tenser. While recent mass demonstrations have been largely peaceful, the shutdown of Hong Kong International Airport in mid-August — during which protesters targeted suspected PRC agents in the crowd. Recent reports concerning the use of petrol bombs by protestors and firearms and water cannons by police shows the potential for violence. Chinese state media has described these incidents as ‘terrorist activity’, phrasing that could potentially justify military intervention as the Chinese Communist Party (CCP) seeks to restore order and maintain its legitimacy as the prime authority in the city.

Authorities have shown a willingness to harass bodies handling the city’s administration of infrastructure, such as MTR (the city’s public transport network), raising fears that more critical infrastructure may receive similar treatment. For instance, Beijing could threaten Hong Kong’s water supply, 70%-80% of which comes from China. However, the Tiananmen Square legacy has placed military intervention front and centre of media and analyst speculation.

The CCP could lean harder on its corporate lever. Cathay Pacific, Hong Kong’s flagship airline, has come under state pressure as employees become increasingly active in the protests, culminating in the resignation of CEO Rupert Hogg. Yet the airline has also been squeezed by democratic groups for cooperating with the CCP. By forcing firms to choose sides, the 1530 global firms with regional headquarters in Hong Kong could see a shift in the location’s commercial viability. If uncertainty continues, this may trigger a restructuring of commercial operations in the city, including the development of long-term plans to move to other Asian hubs such as Singapore, already the Asian home to tech giants such as Google. If this were to happen, Asia’s preeminent financial capital will lose its shine.

A TALE OF TWO CHINAS

Photo: Studio Incendo/Flickr

The protests emanate from the opposition to an extradition bill proposed on March 29, which many residents perceived as a threat to the independence of Hong Kong’s judicial system. The extradition bill would have allowed Hong Kong authorities to detain suspects and transfer them to countries that special administrative region has no formal extradition treaty with, including Taiwan and the mainland. The bill applied to 37 crimes and transfers would have required the approval of the chief executive. However, the ability of the CCP to go over the chief executive raised concerns that political dissidents could be detained and tried in mainland China. While the bill has been indefinitely shelved, the protesters’ demands have morphed and they are now calling for universal suffrage and an inquiry into police brutality.

Hong Kong has been in open protest for twelve weeks and the doggedness of the largely leaderless movement has raised questions about the situation’s resolution. Chinese state-controlled media has stepped up its rhetoric, referring to the protests as a potential ‘colour revolution’ and ‘terrorism’. With the CCP’s 70th anniversary approaching on October 31, presenting an image of unity and stability is of utmost importance to President Xi Jinping. The CCP’s modus operandi has been to attempt to intimidate protesters by broadcasting footage of security drills on state media. This approach has seemingly backfired, inspiring protesters to push harder for their demands, yet Beijing remains intransigent: government officials have warned protesters that they should ‘not wrongly judge the situation and take restraint for weakness.’

THE COST OF BLOODSHED

Photo: Studio Incendo/Flickr

Beijing’s warnings pose a serious threat to the wellbeing of Hong Kong’s residents and the city’s commercial viability. Hong Kong is highly dependent on China: the city is the eighth largest exporter of goods in the world precisely because it is the gateway to Chinese markets for international firms. Demonstrators risk tipping Beijing’s hand as the protests continue. The CCP is highly unlikely to fold on the issue of greater democratic rights — its military and economic might give it a strong bargaining position in the long-run. For the protesters, their options to avoid military intervention and potential bloodshed are limited. They could accept the suspension of the extradition bill as a fig leaf and dissipate, but this seems highly unlikely. They could also approach the negotiating table with the Hong Kong government and, through the city’s authorities, seek better terms for the transition into mainland rule in 2047. While there is little scope for the protesters demands to be met completely, the pressure of the CCP anniversary on October 31 gives them a short-term advantage. If the protesters can exploit this time constraint and the threat of further international attention, Beijing may offer some economic concessions. This would preserve Hong Kong’s standard of living and welfare but civil liberties would remain at risk of future curtailment as the CCP’s control over the region grows.

However, without a negotiated resolution, Hong Kong could face bloodshed. As the protests drag on, violence is becoming a recurring feature of rallies, particularly in the form of police brutality and attacks by Triad gangs, as vividly captured in Yuen Long. The protesters are being incrementally cut off from support as China targets businesses and institutions with punitive policies. Nationalist fervour in mainland China is galvanised against them as media outlets like Xinhua label protesters as rebels and terrorists. Should protesters continue to cause significant disruption in the lead up to the October 31, the CPP could intervene militarily to restore order.

The consequences of military intervention are three-fold. Even if Beijing successfully implemented martial law without casualties, the cultural identity of Hong Kong would shift dramatically. Residents would likely cease to view themselves as a commercial quasi-city state and instead begin to see themselves as an oppressed and occupied people, sowing the seeds for further unrest and civil strife. The CCP would not escape such an intervention unscathed. While China may retain the support of their closest Belt and Road partners, the dynamics of its diplomatic relationships would change — while the lure of China’s economy would remain, its anti-colonial narrative would likely suffer. Beijing’s relationship with the West would also be damaged and existing tensions exacerbated. States could use the cover of a military intervention as a pretext for measures to defend against Chinese threats to their democratic values, as seen in the targeting of protesting Hong Kong students abroad and the money laundering scandal in Australia involving Ming Chai, Xi Jinping’s cousin.

In the wake of a military intervention, private sector firms may deem Hong Kong an unsafe environment to keep their assets and employees in. If firms believe China is willing to target employees or assets for political reasons — as has been Cathy Pacific’s experience — they may take costly measures to relocate, depriving Hong Kong of growth and its status as the fourth largest stock market in the world. Much is riding on the line, but neither Beijing nor protesters appear positioned to give ground.