This is a longer note than I usually write but as I expect it’ll be the last piece I write on Hong Kong for some time I wanted to be thorough. Events in the last couple of years have convinced me the views expressed here will not need much revision.
A self-destructive die has been cast by a vocal minority in Hong Kong and a point where the situation might have been recovered has been passed. A ‘Golden Era’ in Hong Kong’s history is now clearly behind us and the consequences of this, particularly for young Hongkongers, are not good.
A minority in Hong Kong have hijacked the political process and their determination to tilt at windmills, most notably Beijing, guarantee an increasingly harder line from the central government. Authorities, who until recently had attempted to foster Hong Kong’s development, are likely in future to deal with Hong Kong as a problem that needs to be contained; which it now is.
How did we get here and why’s there no going back? I’ll try and explain my thinking below.
Towards a Fully Democratic System; Huh?
Angry Hong Kongers have the Chief Executive Mr. CY Leung presently in their sights as a villain whose purging would change their lot materially for the better; but Mr. Leung is a symptom not the cause of one of Hong Kong’s biggest problems. He is in fact caught up in events he neither started nor can finish.
A large group of Hong Kong citizens believe they were promised a full Western style democratic system after the Brits had packed their bags; but, they weren’t.
Here is the relevant text from Article 45 of the Basic Law and is what was promised. Read it carefully:
‘The Chief Executive of the Hong Kong Special Administrative Region shall be selected by election or through consultations held locally and be appointed by the Central People’s Government.
The method for selecting the Chief Executive shall be specified in the light of the actual situation in the Hong Kong Special Administrative Region and in accordance with the principle of gradual and orderly progress. The ultimate aim is the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures.’
Please note from line two of paragraph one who is doing the appointing? Note also from paragraph two it was always envisioned that a ‘stooge’ candidate would be put up by a ‘stooge’ ‘..broadly representative nominating committee..’ To cry foul on this is to serve an ex post agenda and not a position that represents a stand for natural justice in light of promises not kept.
Clever politicians have managed to whip up a sense of disentitlement among the young particularly because most of them weren’t around so can’t remember the climate in which the Basic Law was promulgated. Or what its overarching intention, stability, was.
Would The Real Villain Please Step Forward?
The Chancellor of the University of Oxford is busy with other things these days but until Hong Kong’s handover in 1997 he was the last British Governor. Then just plain Mr. Patten (he’s since become Lord Patten of Barnes) was appointed in 1992 by Britain’s then Prime Minister Mr. John Major (now Sir John Major).
Mr. Patten was appointed to this sensitive post with the fate of millions in his hands due to his fluency in mandarin, his many years’ experience of dealing with China at the highest levels and his close contacts with high ranking Chinese officials. OK, just kidding.
Mr. Patten was a political operator who was given the job as a reward for helping Mr. Major win the 1992 General Election and losing his own seat in Parliament in the process. He also saw a chance to incubate himself away from what was almost certain to be a loss for his party at the next election. Then a triumphant return and no doubt a run at the top job of Conservative Party boss putting him in the running to be a future Prime Minister.
He arrived in Hong Kong therefore not only with a mandate to manage an orderly transfer to China in 1997; but with a strong desire to increase his profile. It should be remembered that Britain had already substantially agreed to the terms for a hand over as far back as December 1984 when Britain and China had signed the Sino-British Joint Declaration in Beijing. The clear intent of that agreement was that Britain would pass on Hong Kong in good order (there were worries they’d run off with the reserves, among other things) and China would preserve what it inherited for at least 50-years. Pretty clear, no?
For Governor Patten orderly transition would have meant a genteel slide into obscurity so he set about pulling China’s tail, most notably by introducing electoral reforms in 1994 (we’d probably have reviewed the electoral system, with China’s blessing, after 1997 anyhow as it was a fairly moth eaten relic). China, unsurprisingly, went nuts. From then on it became a contest of wills between plucky little Hong Kong versus brutal China with St. Patten the Just leading the crusade.
Here’s the point put simply as I and China saw/see it. Once you’ve agreed to sell your house the purchaser can reasonably expect to take over the property that was the subject of the original negotiation? What Patten did was to introduce a remodeling of the property which he not only wouldn’t have to pay for he also wouldn’t have to live with as he was shortly out of the house anyway. A cavalier and self-serving gamble of the heads I win tails you all lose variety.
Like Topsy
Having let loose the initial virus of last minute constitutional change it began to grow and mutate. Corrupt and inept the first post 1997-administration proved to be a fertile host for the, shall we call it ‘exceptionality’ virus, to spread. Hongkongers had good reason to take to the streets in protest and en masse in July 2003 ostensibly about another bit of the Basic Law (Article 23, the requirement to enact an anti-sedition law. Still not done) but really it was a reaction to the sloppy workings of an inbred ruling class who thought themselves above the law. Sentiment wasn’t helped by a string of misfortune culminating in the outbreak of SARS.
At this point the virus hadn’t mutated into the anti-China strain we see today. In fact, believe it or not back then, China was Hong Kong’s best bud. Not only did they kick out the first Chief Executive following the street protests they stepped away from the one-country two-systems promise, which nobody seemed to mind then, by proceeding to join the economies of Hong Kong and China closer together (to Hong Kong’s great advantage) with a trade deal the Closer Economic Partnership Agreement or CEPA signed in June 2003.
Hong Kong people by 2004 had thus learned two things they began to feel were their right. First you could tell Beijing to take a hike, a la Patten, when it suited and there would be limited consequences and second, if you got enough bodies into the street political change could be effected.
China Progresses
Hong Kong people have grown up with a healthy disrespect for the mainland. Many are the descendants of those who fled after 1947 and have first or very near first hand memories of confiscation of assets. The Great Leap Forward and turmoil of the Cultural Revolution will also have directly affected many in Hong Kong with relatives still in China and a degree of antipathy to all things Beijing-centric has understandable roots.
China however moved on and as it did its citizenry famously improved their lot. When I first came to Hong Kong in 1992 travel to China was strictly for business or familial obligation. It was a hard place (still is in many parts) to negotiate, services were poor or non-existent and leisure travel, from Hong Kong at least, was practically unheard of. For those who did make it to the mainland the shabbily dressed bumpkins encountered were proof positive that Hong Kong was incomparable, in all ways.
Then the bumpkins started to turn up in greater numbers in Hong Kong. Some to gawk but many to shop, not a few to use the medical facilities and increasingly more to work.
An anecdote may help non-Hongkongers understand how attitudes to mainlanders in Hong Kong have changed over time. I asked my mandarin teacher a while back, an enterprising lady from Yunnan who has set up her own business in Hong Kong, what she thought the real root of Hongkongers anti-mainlander sentiment was? Her answer was a shock ‘When a Hong Kong person sees a mainlander in Hong Kong they know they’re looking at someone either richer, or smarter, than themselves.’ Ouch!
People With Shoes
It’s said people without shoes are only poor when they see someone with them i.e. prosperity is relative. As the Chinese economy has barreled along in the last 20-years Hong Kong’s has merely pottered. Per capita GDP in China in the 20-years from 1994 to 2014 increased from U$712 to U$3, 865, an increase of 440%. Over the same period Hong Kong per capita GDP has risen by 60%, or a CAGR of only 2.4%
Hong Kong’s GDP per capita is still (over 8x) multiples of the mainland number but the bald statistics hide the reality of there now being many more well off, some fabulously so, families now to Hong Kong’s north.
Cue jealousy, discontent, anger and frustration in Hong Kong and cue also the raft of irresponsible opposition politicians for whom this situation is grist for nasty mills.
Loyal Opposition?
In the Mother of Parliaments, Westminster, the largest party not in power is referred to as Her Majesty’s Most Loyal Opposition and the phrase speaks volumes about how an orderly, functioning democracy should work. A strong well organized opposition is essential to balance the power of incumbent leaders. It’s essential this group has a clear manifesto of how they would do things differently given the chance. It’s also beholden on them to cooperate with the government on issues of long term policy to ensure both smooth development and transition of power over time.
In Hong Kong there is an opposition; but it’s neither united nor loyal. Within the Hong Kong assembly there are nine separate groups who come under the pro-democracy umbrella and are referred to as the Pan-Democrats or just Pandems; but that’s the tip of an incoherent iceberg. Outside this semi-organized group there are a raft of other groups opposed, in one form or another to the government, and by implication Beijing.
The lack of adhesion among opposition groups became clear in 2014 with the street protests begun in September. The following groups are listed by Wikipedia as having a claim to some part of the proceedings; Scholarism, the Hong Kong Federation of Students, Occupy Central With Love and Peace, the Civil Human Rights Front, the Civic Party, the Democratic Party, the Hong Kong Association for Democracy and People’s Livelihood, the Labour Party, the League of Social Democrats, People Power, Power for Democracy and Civic Passion. Good luck having a dialogue with that lot; and, as it turned out, nobody could.
Beijing Has Had Enough
From the collapse of the street protests in December of 2014 to the riots that took place during the recent Lunar New Year’s holiday the situation hasn’t improved and more groups have appeared who want their voice heard. The scariest of these being several so-called ‘Nativist’ outfits, some of whose members like to wave the old colonial era flag when appearing in public (what, seriously, are you thinking?) and demand complete autonomy for Hong Kong (what, seriously, oh I give up!).
Beijing must have been exasperated for some time by Hong Kong. A bunch of poor little rich kids who not only have no gratitude for the hands-off approach that has been the hallmark of policy since the handover but with a sense of self-worth and entitlement entirely at odds with their status in the broader China gig.
After the recent riots China’s top man in Hong Kong Mr. Zhang Xiaoming was reported to have said (in translation) “We strongly condemn those radical separatists who have become increasingly violent, even (carrying out) activities that showed terror tendencies,” This is the sort of language usually reserved by Chinese authorities for self-immolating Tibetan monks or knife wielding Uyghurs and, given Mr. Zhang’s pedigree, I doubt this was a slip of the tongue. Beijing is now very brassed off.
Where Did It All Go Wrong?
Why do cities and empires decline? It’s usually something to do with not being able to adapt to a changed circumstance and in Hong Kong’s case this was China’s increasing political and economic heft. Hong Kong got rich initially as a manufacturer and then as a gateway to China. Manufacturing left the territory long ago and the go between function has been in steady decline since China has gotten so much easier to deal directly with (for example, there are now three daily London – Beijing flights and four London – Shanghai).
So how should Hong Kong have developed? What could it do that would be valuable in a world of increasingly affluent mainlanders? The invisible hand provided the first response; sell them things. The idea is sound but somehow Hong Kong couldn’t do it nicely. The low point of this fumbling was the governments’ decision to restrict the supply of a commodity not in any particular shortage globally in March 2013, infant formula. Since then reports of nastiness on social media and often directly hostile behavior to visitors has led, inevitably, to a decline in their numbers.
This is to look at the short game. A much more lucrative longer game, one in which government should have taken the initiative, has also been passed up. Mainlanders want to buy Hong Kong goods because they trust the Hong Kong brand. This applies as equally to infant formula as it does to medical and educational services and here’s what I referred to above as the point which has been passed.
The government should have taken the lead in providing the initiative to build schools and medical facilities specifically for mainland Chinese clients. This could have easily been funded with their massive reserves and put on land the government already holds in its inventory. Over time these facilities would have paid for themselves many times over; but? It didn’t. So, we have customers lined up but ration what they can buy and aren’t providing the products they want to buy most of all.
Joshua Wong Has A Point
The poster-child for the street protests in 2014 was Mr. Joshua Wong. A co-founder of the group Scholarism in 2011 Mr. Wong has since carried on his activist career and became, according to Fortune Magazine in 2015, one of the ‘World’s Greatest Leaders’ (I kid not, at #10, four places it should be noted behind Ms. Taylor Swift). Mr. Wong is young, photogenic and despite a tenuous connection to scholastic activity is the go-to guy for press looking to fill out stories about Hong Kong’s disaffected youth.
For all of Mr. Wong’s enthusiastic self-promotion, he and others of the younger generation have correctly identified some real problems for their demographic. Their parents lived in a much more dynamic environment where fortunes could and were made by dint of hard work and application (sure, and a dollop of luck in most cases). The feeling that this is somehow now not possible, that vested interests have carved up the pie and greedy rentiers fill the ranks of Hong Kong’s ruling elite is I believe a not unfair assessment of Hong Kong today. Young Venetians, sometime in the 18th century, probably had some of the same feelings?
Clever politicians have been able to mobilize this group for their own ends and are using them as an instrument for their anti-establishment agendas. Cries of ‘Get rid of CY!’ and ‘Full democracy now!’ glance over the big issue which is a structural not cyclical one. Hong Kong was the right place, at the right time for many but today it isn’t; and no amount of heaving paving stones at policeman will alter this fact.
The correct counsel for Mr. Wong and his generation (to channel the late Mr. Norman Tebbit) is to get on their bikes and find the places where these opportunities do exist. They could start by looking at a map. There’s Hong Kong at the bottom a very tiny place not growing much; and there’s China to the North, vast and still with another 20~30-years of organic growth before maybe approaching physical limits to further progress. Whadyathink?
Easier to kvetch and play the victimhood card at home than do what most of the people who built Hong Kong did; got off their behinds and came to a place where effort could shine. Just as Americans were urged to Go West! in the 1850s unhappy youngsters in Hong Kong should Go North! but they won’t.
Here We Are Today
The only hope for Hong Kong to begin a new Golden Era, the only thing that we could have done to ensure opportunities were created for all and to give Hong Kong people a sense of justified pride in their brand was to embrace China. Had we done so we could have been the #1 destination in China for medical tourism, the #1 destination for all forms of education from secondary to university level and in the process we could have fostered some of the best minds on the planet. We could have doubled, heck quintupled, our sales of quality foods, medicines, luxury goods, you name it; but none of this is now possible.
Would all that have made Hong Kong China’s shoe-shiner? To some perhaps and that specter fuels a lot of anti-China rhetoric; but Hong Kong seemed to function just fine for the 156-years when it was the shoe-shiner of a rather more distant administration.
What Lies Ahead?
I started to write this note with the working title ‘The Death of Hong Kong’ and some way into it realized that was too facile a headline for what is a complicated subject. Hong Kong is not going to ‘die’. In fact I intend to be here for a very long time to come. Its laissez faire business climate will not go away, nor will its safe streets, its efficient administration, its fair law courts and the world-class lawyers who ply their trades within. Its stock market will continue to grow and as a base for many doing business in China the quality of its services won’t be matched anywhere else in the country for the next 10~15-years, at least.
The exceptionalism virus won’t go away either and this will produce that thing most corrosive to all long term financial planning, uncertainty. Beijing has shown its teeth now and how this relationship will develop who can say? The Pandems managed to torpedo the process of electoral reform that was supposed to have produced the first one-person-one-vote election for Chief Executive in 2017 so where does that process go now? Mainland tourist arrival figures fell by 3% last year and that trend is unlikely to reverse in the near future, if ever? Finally negotiations for what lies beyond 2047, when the non-interfere deal from China comes up for renewal, will need to start at some point between now and 2027. One of the many pressing issues at that time will be residential mortgages. Banks will be unable to grant 20-year mortgages from that point if they don’t know what collateral they’re lending against?
In Conclusion
The actions of a fractious minority in Hong Kong have conspired to guarantee an outcome, in terms of Hong Kong’s relations with Beijing, which will hasten the arrival of some of the very things they claim to be working to prevent. Hong Kong will be further marginalized in Beijing’s calculations and a climate of uncertainty will worsen with corrosive effects for many businesses only visible over the longer term (why have HSBC chosen to stay in London? A large part of the decision I’d guess is precisely this uncertainty?).
Opportunities as a result of this will, especially for young people, worsen and the only advice with real currency for them is to leave and seek their fortunes elsewhere. The vocal minority have made sure they’re guaranteed subpar lifetime outcomes if they choose to stay.
A Golden Era may be over but that doesn’t mean life won’t go on. As I’ve already noted most of what makes Hong Kong genuinely exceptional in a China context will endure. After all, there are still people living in Venice. Just not so many as before nor making as much money as in the past.
[A final addendum. To be clear, the above could play out against the background of very strong local stock and property markets which may cloud issues further; but as barometers of local conditions they’re no longer reliable. The former is now mostly composed of direct plays on, and the latter is a very closely linked derivative to rising mainland prosperity. In fact, for many Hong Kong locals, especially non-asset-owners a strong stock or property market will have the effect of twisting a knife in an already open wound.]