Hong Kong has captivated the world these past 15 weeks, awed by the tenacity of its citizens to live free and stay free. But this has forced the dragon, which we had hoped would evolve peacefully into a responsible global citizen and stabilizing force for good, to carefully weigh its options. Today, we liberally quote two respected thinkers — Alexander Neill and Shyam Saran — who have written of the risks that lie ahead. Mr. Neill is the IISS Shangri-La Dialogue Senior Fellow for Asia-Pacific security, while Mr. Saran is a former Foreign Minister of India.
In the face of continuing protests, Xi Jinping has mobilized the Chinese Communist Party (CCP) to pursue a comprehensive campaign to end the civil disobedience in Hong Kong. At Beidaihe, Xi and the politburo standing committee agreed on a plan of action to work with Hong Kong’s Chief Executive Carrie Lam to attempt to extinguish the territory’s protest movement. The plan has three dimensions:
1. A strategy of attrition aimed squarely at the protest movement.
2. A domestic and international information campaign wielding the full force of the machinery of the Chinese state.
3. Promote the benefits of the “Greater Bay plan,” which aims by 2035 to integrate Hong Kong and the other cities of the Pearl River Basin into a megalopolis to rival Tokyo or California’s Bay Area.
Vice-Premier Han Zheng launched a multi-pronged campaign to underpin the CCP’s legitimacy with Hong Kong’s residents, and rally patriotic sentiment at home and abroad. Beijing has likened the violence to terrorism; so has Carrie Lam in tense press conferences. It is deeply concerned about cross-fertilization of the Taiwanese and Hong Kong independence movements. China’s envoys across the world have been mobilized to counter anti-Beijing sentiment and boost patriotic fervor among the Chinese diaspora and expat community.
Mr. Neill writes that Beijing has adopted intimidating tactics: it deployed the People’s Armed Police (PAP) to Shenzhen; it mobilized China’s state media to promote counter-protest sentiments across all domestic and available foreign social media platforms; companies identified as employing protesters now face retribution; it is pointing the finger of blame squarely at foreign powers like the United States and the United Kingdom, and accusing them of interfering in China’s internal affairs.
Chinese state media are running stories showing Hong Kong-based US diplomats meeting with key anti-Beijing and protest movement figures, and funding activities by the US National Endowment for Democracy (NED). Donald Trump and Mike Pompeo have suggested that any serious surge in violence might affect any forthcoming trade agreement with China. Meanwhile, G7 members expressed their support for Hong Kong’s autonomy, prompting acerbic rebuttals from China’s Ministry of Foreign Affairs.
The final element to Beijing’s strategy is to offer a positive view of Hong Kong’s future prosperity, integrated into the Greater Bay area plan. The Greater Bay area has been touted as a key interface for the Belt and Road Initiative (BRI), particularly for the Digital Silk Road. In Beijing’s view, the reform plan for Shenzhen heralds an enormous economic mega-project across the Pearl River basin, amalgamating Hong Kong, Shenzhen, Guangzhou, and other key cities into an economic powerhouse with a population of some 70 million people.
As for Mr. Sayan, he says that the effects of Hong Kong’s protests are being felt globally. For now, travel, tourism, and retail sales are being affected. However, the unrest is now being viewed within the context of current tensions and the trade war between China and the US. Although Hong Kong is no longer China’s most useful channel for its international economic dealings (it accounted for nearly 50% of China’s external trade in 1997; today it’s down to 12%), there are nonetheless other important aspects in which Hong Kong continues to be of significant importance to China, particularly at a time of US-China trade tensions.
Mr. Sayan points out, for example, the USA-HK Policy Act of 1992. The US accorded Hong Kong separate economic treatment beyond 1997, enabling Chinese companies to evade US trade sanctions by routing exports through Hong Kong. This extended to its Hong Kong-based entities. In case of a violent crackdown on the protests, this special treatment of Hong Kong will almost certainly be withdrawn and exacerbate trade and political tensions with the US.
It would set back China’s efforts to incrementally integrate with the international financial markets and the internationalization of the Renminbi (RMB). According to the Economist, 75% of offshore RMB-designated payments are handled through Hong Kong, as are 39% of all offshore RMB currency dealings. Even today, 63% of the Foreign Direct Investment (FDI) into China and 59% of China’s outward FDI are routed through the territory.
Most of the 1,300-plus multinationals which have their regional headquarters in Hong Kong are mainly engaged in China-related trade. But with production gradually relocating to ASEAN states and the Americas; disruptions in China’s supply chains; exacerbated further by new tariff hikes, GDP growth is expected to drop below 6% per annum. Another dark cloud is Brexit, which is expected to compound the ill effects on China, and especially hurt its citizens who’ve been lifted out of poverty.
Hong Kong has provided value as a testing ground for financial reforms before national adoption. For example, foreign investors are able to use the Hong Kong-Shanghai Stock Market Connect to deal in mainland securities. With Hong Kong losing its attraction as a dependable and stable international financial center, China’s integration with the international financial markets will surely be disrupted. Defenders cite that the Chinese economy’s sheer size and growth would enable it to overcome these challenges (assuming their books and stats are truthful).
The millions who marched through the streets of Hong Kong have displayed enormous courage. China’s carefully constructed image of invincibility has taken a rude knock. In our case, with what’s happening between us and China out there in the South China Sea; the potential threats to internal security posed by its control of our strategic infrastructure and the influx of illegal workers posing as tourists, we need to stay focused on risk management and crisis preparedness.
And so, quo vadis China? Will you play hard ball or shift to a peaceful rise? What would be your destiny?
Rafael M. Alunan III is a former Secretary of Interior and Local Government and chairs the Philippine Council for Foreign Relations.