Hong Kong gets reform agenda rolling

American scholar Andrew Nathan has an interesting piece in Foreign Affairs summarizing what “insiders” say is Beijing’s approach to the crisis in Hong Kong. Though the presentation of this analysis fits too neatly into a US-centric worldview, it helps explain why the Hong Kong government is moving quickly to address the city’s dire shortage of housing: Because the central government believes the protests are being driven primarily by intolerable socio-economic conditions. Fix those, and the rest will take care of itself.

The logic has appeal. While Nathan’s sources are almost certainly wrong to suggest that the country’s senior leadership isn’t worried about addressing the political dimension of the protests, it makes sense to train attention and resources on fixing first what can be fixed easiest. Any capable government would be taking this approach.

This doesn’t necessarily mean that Beijing misunderstands where the protesters’ rage is coming from. The country’s leadership probably knows all too well that the crisis is not going to be fixed with bread alone. But it also likely understands that without a commitment to deep socio-economic reform, no other grievances can be addressed in a sustainable way. Fixing the land issue is about much more than bringing down the cost of living. It’s about changing the way people live.

Fortunately for Hong Kong, it has a government that can move quickly when the political winds fill its sails. There are holdouts, but land is being surrendered by the oligarchs and progress is being made to build more public housing, ASAP. It’s amazing what a difference a few months of chaos can make (read here what the CE, Carrie Lam, said in May last year).

This would not likely be happening so quickly in a country with both a firm foundation of the rule of law and a democratic system of governance. Were it not for Beijing’s ability to strong-arm the oligarchs, the Land Resumption Ordinance would likely have been useless to address this burning socio-economic issue. Crack teams of London-based lawyers would surely have had the Financial Secretary tied up in court for years.

That is not to celebrate Hong Kong’s lack of Western-style democratic norms of governance. It is to state facts that suggest there is positive momentum under way here reaching beyond the land issue. Indeed, a realpolitik-based analysis indicates revolutionary changes are happening in the structure of Hong Kong’s economy. Addressing the housing crisis by taking back farmland is just the first step in what is likely to be a comprehensive overhaul of the city’s economic management. The tax system will have to be changed. Land auctions will have to be made real. An anti-trust commission with teeth will need to be established. And so on.

This is where Nathan’s analysis goes slightly off-track by relying on sources suggesting Beijing has a single, fixed view on Hong Kong affairs. No one in Beijing likely thinks this will be a cake-walk, politically. To accept such an analysis would be to overlook one glaring possibility: that few, if any, of the power brokers in Hong Kong’s economic structure are as loyal to the central government as they might once have been, or even as they might now profess to be. Beijing cannot take a single approach to changing Hong Kong. It needs to step carefully, no matter how firm its intentions are.

Look at the Heung Yee Kuk. Once a key henchman in Beijing’s control apparatus, due to its ability to muster militant farmers in the New Territories, the Kuk recently told the government to go jump in a lake over the Land Resumption Ordinance, and has been absent from view while protests rage on its once-hallowed turf. To suggest, therefore, that Beijing is comfortable with the Liaison Office’s ability to manage Hong Kong politically, once it has the housing crisis taken care of, is to downplay the complexity of the relationship between Hong Kong and Beijing, which has evolved over 22 years of “One Country, Two Systems.” Groups like the Kuk aren’t so easily told what to do.

Recognizing this complexity is not the same as accepting reports of “Beijing’s sensitivity” to meddling in Hong Kong affairs. It’s not that China is concerned with showing the outside world it respects the Sino-British Joint Declaration of 1984. It’s not about reassuring the international financial community that China won’t turn off the money spigots gushing through Hong Kong (although that is a subject for another day). It’s the paradoxically simple truth that China and its Special Administrative Region have changed beyond recognition – socially, economically, and politically – since the 1997 handover, and this makes Hong Kong difficult to govern under the “One Country, Two Systems” framework.

Learning from history

To understand this complexity and, therefore, to understand why Hong Kong has such a difficult time ahead of it, a few key historical facts need reviewing. First, the person who set in motion the drafting of the Basic Law, Deng Xiaoping, is long gone, as are all in the leadership from the time he shook Margaret Thatcher’s hand. Divining what Deng’s generation had in mind for Hong Kong has become not dissimilar to debates in the US between Republicans and Democrats over the Founding Fathers’ intentions for the Second Amendment. There has long been a multitude of powerful voices in any discussion of Hong Kong policy, from the Kuk all the way up to Beidaihe. It just doesn’t make its way into the New York Times.

Second, Jiang Zemin, who presided over the implementation of the Basic Law, and who set up most of the Beijing-Hong Kong elites that still dominate the economy today, did so at a time when Hong Kong was the country’s Golden Goose. Beijing needed these oligarchs back then, as much as they needed the Kuk and the Triads. Today? Not so much. But loosening their grip, especially while Jiang is still alive, can be no easy feat. They control more than land.

Third, Hu Jintao, who dealt with the inevitable practical tests of the Basic Law’s theory after taking over from Jiang in 2002, just before the first mass demonstrations in 2003, had a restricted ability to shape the central government’s response to those tests. He presided over the fastest growth in the country’s history, but also over a wave of corruption that would have made a Sicilian blush. Uprooting that corruption, which has burrowed deep into Hong Kong, can’t happen overnight.

And fourth, the current president, Xi Jinping, has had his “A-Team” in place for only three years. While more powerful than their predecessors, the Politburo Standing Committee (plus Wang Qishan) have been preoccupied with governance reforms affecting 1.4 billion people. Most weren’t in place when Occupy Central (2014) lit the fuse that led to the current protests, and Xi himself was preoccupied at the time with his anti-corruption campaign on the mainland. Now they have the ability to focus on Hong Kong. But it will take time to turn a political supertanker around in a narrow strait and deal with the Hong Kong crisis in an effective, sustainable way.

All of this points to the General Secretary meaning what he said in his speech in Beijing yesterday: that Beijing is going to continue to act with the best long-term interests of Hong Kong in mind. The city has many challenges ahead of it. The most urgent are getting the most attention. The harder are going to be addressed when they can be. In the meantime, Hong Kong will continue to be governed by Hong Kong people (with some guidance) as the clock ticks down to June 30th, 2047. To speculate that Carrie Lam, or whomever comes after her, is likely to deviate from such a well-worn, methodical approach to governance reform is nonsensical.

If only this understanding could bring comfort now. Unfortunately, what this means for anyone reappraising their business or life in Hong Kong is that daily news coverage is likely to get worse while socio-economic structural changes are made that will only be felt years from now. It’s probably best to brace for continuing street violence that could last for many months, if not years. And it will likely worsen. The economy is sure to plunge as tourism dries up and mass layoffs pour gasoline on the protesters’ fire. The police are human, prone to professional errors like everyone else, regardless of what one might assume about their motives, and so gunshot incidents are likely to rise. Personal safety needs to be taken more seriously. Not just the risk of getting caught in a protest, but the risk of becoming a victim of a breakdown in order. (Our editor speaks from personal experience, having last week awoken in the middle of the night to find a burglar in the bedroom.)

Will CNN’s breathless coverage of the violence likely result in the White House stooping to the cries of hedge fund managers, bleeding from their short positions against the Hong Kong dollar, and do something to jam financial flows between the US and China passing through Hong Kong? It’s possible, but this article is not an analysis of what is going on in Washington.

From a Chinese perspective, for those who see Hong Kong as merely a base for operations or investments stretching into China, there is less to worry about from the protests in the short term. It seems highly unlikely that Beijing will delay reforms under the Greater Bay Area masterplan, which will benefit Hong Kong. If anything, these will likely be accelerated.

However, plans for the rise of Qianhai and Nansha as alternatives to Hong Kong for the global financial-services industry should not be dismissed with a wave of the “but we have a convertible currency, free speech and real courts” hand. Those two special zones are on a rocket-like trajectory in reform and opening – not including free speech, but definitely including currency convertibility and real commercial courts. Scenes of carnage in Hong Kong will likely boost their reformist zeal, not to mention budgets.

Moreover, the protests are undoubtedly focusing policymakers’ minds on getting supporting regulations in place for the country’s new Foreign Investment Law ahead of a January deadline. Could they provide more generous incentives for foreign investors to abandon their holding companies in Hong Kong and set up directly on the mainland? It will be instructive to see.

Rest assured, such developments will be well-covered here. And in the meantime, there is plenty of other news to focus on from around the Greater Bay Area. Stay tuned.

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