Unrest threatens Hong Kong’s status as Asia’s financial hub

Unrest threatens Hong Kong’s status as Asia’s financial hub
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Known for its capitalistic free economy advocating no barriers to trade and a low corporate tax rate, Hong Kong as entrepôt offers vital strategic importance to Beijing’s trade with the rest of the world. In 2013, Hong Kong was mainland China’s second largest trading partner, accounting for 9.6% of the mainland’s total trade. A total of 45.6 % ($3.2 billion) of Hong Kong’s export goes to the mainland, and 17.4% of the mainland’s total export goes to Hong Kong.

Hong Kong also has a global reputation for being Asia’s financial hub and the gateway for foreign direct investment (FDI) into China, as the city provided 47.7% of China’s total FDI in 2013. Its well-established legal system and extensive international network provide a favorable business environment to multinational corporations and companies from mainland China to set up their regional headquarters in Hong Kong.

Despite high economic growth spurred by closer economic ties between mainland China and Hong Kong from the Closer Economic Partnership Arrangement (CEPA), the recent pro-democracy movement in Hong Kong reveals a rather deteriorating relationship between the two polities.

As the city makes painful adjustments to accommodate the large influx of people from the mainland that is driving up the property prices, cultural and political assimilation to mainland China is proving difficult. Hong Kong is facing real challenges such as the erosion of freedom of press, 20% of population living below poverty line, the world’s most unaffordable housing, “brainwashing” of national education and the overcrowding of the city from 40 million Chinese tourists in 2013. The benefit from the integration of the two economies is not trickling down to offset the rising cost of living in Hong Kong.

The Hong Kong government has not acted on these issues, due in part to Beijing’s political influence. Pro-democracy supporters criticize the functional constituency system for giving disproportionately larger power and influence to the minority business elites, who tend to be pro-Beijing. For example, the system allows corporations and legal entities to vote.

At the time of the British handover of Hong Kong in 1997, Hong Kong was promised autonomy for 50 years, protected by Basic Law, to democratically elect its Chief Executive by universal suffrage. But on August 31, Beijing proposed a new electoral system with universal suffrage in which candidates must receive majority support from a pro-Beijing nomination committee. Nevertheless, pro-democracy parties have just enough members in the legislative council to veto Beijing’s proposal, which means the 2012 Chief Executive election system will remain.

Many people suspect there will be no reform in the near future as Beijing remains firm in its stance. However, the current rift between Beijing and Hong Kong will only worsen the city’s challenges and resentment, driving up tensions between the two sides.

This has already appeared in heated internet debate between Mainlanders and Hong Kongers over issues including Mainlanders failing to abide by public manners, the constant shortage of milk powder in Hong Kong, and anti-corruption officials raiding the residence of the owner of Apple Daily– the only Chinese-language pro-democracy newspaper in Hong Kong.

A recent survey of 1,007 randomly selected permanent residents by the Hong Kong Transition Project can reveal some insights into the demographics of political affiliation in Hong Kong.

Currently satisfied or dissatisfied with the performance of the SAR Government:

Hong Kong SAR govt survey

Source: http://www.hktp.org/list/constitutional-reform-confr.pptx

 

Satisfaction with performance of SAR Government by age:

Hong Kong SAR govt survey 2

Source: http://www.hktp.org/list/constitutional-reform-confr.pptx

 

Which problem in Hong Kong are you most concerned about?

Hong Kong SAR govt survey 3

Source: http://www.hktp.org/list/constitutional-reform-confr.pptx

The charts above show that political issues (in red) and unaffordable housing issue (in blue) are at the highest level, with an overwhelming number of people under age of 40 showing extreme dissatisfaction with the current performance of the government.

Pro-democracy movement Occupy Central was first started by lawyers and academics led by Benny Tai, Associate Professor of Law at the University of Hong Kong. The movement is now spreading to students who are worried about their bleak prospects of owning a house, having a decent career, or starting a new business. The dissatisfied young population is more likely to take its frustrations out to the street. There is also a growing fear that Beijing will respond by sending troops to suppress the protestors.

Hong Kong’s political crisis and social unrest have created economic risks that could potentially damage Hong Kong’s reputation as Asia’s financial hub, which it seems can only be assuaged by electoral reform.

Categories: Asia Pacific, Politics

About Author

Yoon-Je Chung

Yoon-Je Chung is a specialist in East Asian affairs with experience at the Korea Chair of Center for Strategic and International Studies (CSIS). He is currently based in Seoul and is pursuing an MA at the Yonsei Graduate School of International Studies. He received his BA in Political Science and Economics from New York University.