Turbulent twenties: China’s tightening grip on Hong Kong

Turbulent twenties: China’s tightening grip on Hong Kong

On 1 July 2017, Hong Kong marked the 20-year anniversary of the British handover to China. While the past two decades have seen marked economic growth and continued integration with the rest of the world, economic stagnation and social discontent are forming pressure points under the surface. As the Chinese State Council continues to exert control over the city, and manage the mainland’s own relative competitiveness, the future of this financial hub is as uncertain as ever.

 Multiple arrests amid the inauguration ceremony of the new chief executive Carrie Lam on 1 July 2017. Source.

 It has been two years since Hong Kong’s pro-democracy Umbrella Movement brought the city centre to a standstill, and just two months since the Legislative Council emerged from controversial elections. Once again, the city erupted into political crisis. Far from an amicable reunion, the “city of protests” continues to chafe at its shared geographical, legal and commercial boundary with the mainland, as well as the pro-independence movement, shows little sign of slowing down.

President Xi has been careful to defend the “one country, two systems” framework that has so far governed relations between China and Hong Kong, working hard to assuage fears that Beijing is overreaching into the territory’s autonomy and freedoms. Indeed, the “two systems” has worked better than many anticipated: China has largely kept out of Hong Kong’s affairs, while at the same time benefiting from its capitalist trade flows with the rest of the world. The city’s courts are respected internationally, its media remains dynamic, and political protest is tolerated on a level still unthinkable on the mainland.

Moreover, despite less-than-positive forecasts, Hong Kong’s economic growth reached a six-year high this year, with commentators expecting the momentum continue into the rest of 2017. The city, it would seem, is flourishing. However, China’s rebalancing in the region, income stagnation and on-going political angst overshadows the hype.


Cartoon by MIEL, Source.

An unsustainable economic structure

Hong Kong’s industry pillars – financial services, headquarter operations for MNCs, and entrepot trade and logistics – face increasingly strong competition from China’s first-tier cities. The market capitalisation of the Shanghai Stock Exchange surpassed that of Hong Kong’s in 2011, followed by the Shenzhen market in 2015. Earlier this month, index creator MSCI finally agreed to include companies trading in both these Chinese cities in its influential Emerging Markets Index, after keeping the door closed for three years. Combined with loosening oversight on foreign investors by the China Securities Regulatory Commission, Hong Kong is swiftly losing its edge as a nexus point between China and the rest of the global financial world.

Added to this is the rapid expansion of mainland Chinese ports, which currently offer lower costs and more competitive services. In 2013, Beijing relaxed “cabotage rules”, allowing foreign-flagged ships to move their cargoes between Chinese coastal ports in a further blow to Hong Kong’s status as transhipment centre for the mainland.


Stagnant social policies

According to official statistics, the real wage index for non-professional and non-managerial employees has been on a downward trend for the past several years. University graduates face increasingly desolate employment prospects, caught between an oversupply of education and a mismatch between salary expectations and skill levels. Combined with soaring housing prices, the current median price being 18 times the median household income, the picture for the average Hong Konger is bleak. It is no wonder, then, that the region continues to clamour for better representation through universal suffrage.

Co-founders of the Occupy Central protest movement, March 2017. Source.

Electoral interventions and growing separatism

If Hong Kong’s structural economic and social woes are building the tinderbox, China’s tightening grip on Hong Kong’s judicial system is readying the match. Concepts of the separation of powers and judicial independence have been dismissed as Western ideas. There have been calls for foreign judges on Hong Kong’s Court of Final Appeal to be replaced or limited in their powers, journalists attacked, critics kidnapped in the middle of the night, and criminals taken over the border to be detained without trial or even executed. The lauded “two-systems” approach appears to be converging.

In November 2016, China made an unprecedented intervention in Hong Kong politics when it barred two pro-independence legislators-elect from taking their seats amid an on-going oath-swearing scandal. The move was met with widespread dismay, with thousands of demonstrators gathering outside Beijing’s Central Liaison Office in Hong Kong in protests that lasted into the early hours of the morning. In a single gesture, Beijing had showed that it was ready to quash any unsuitable electoral outcomes and subordinate Hong Kong’s legislature. The city, long known for an independence of politics, was put back in its place.

It is hard to know just how much support the pro-independence movement actually enjoys. The annual July 1 anti-government march saw its size shrink by almost half, to a two-year low of 60,000 – though organisers are blaming the low turnout on police tactics in recent years. But if the general pace and size of demonstrations is anything to go by, it must surely be surmised that what began as discomfort with Chinese oversight over Hong Kong’s legal system has evolved into a widespread, diverse and increasingly vocal resistance to Chinese rule.

The “mainlandisation” of Hong Kong is seen by many to undermine its core values and institutions. The effects have already begun to show, with credit rating agencies linking the city’s recent downgrade to China’s performance amidst the continued uncertainty. If China is so willing to intervene with Hong Kong’s conventions of judicial independence, ignoring persistent fault lines within the city, investors must surely be wary of future changes to Hong Kong’s legal landscape – one that has, for so long, been unique in its independence and key to its success.

Categories: Asia Pacific, Politics

About Author

Joanna Eva

Joanna Eva is a London-based analyst and contributor with a range of clients in the risk consulting industry. She specializes in Asian political and economic analysis, having lived and travelled extensively in the region for close to a decade. She holds a Master of Law from the University of New South Wales and received her Bachelor of International Studies from the University of Sydney. She is proficient in English and Mandarin Chinese.