Economy, Talking Point

Beyond 2047

Hong Kong snubs Beijing’s electoral reforms – what are the consequences?

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Pro-democracy lawmakers chant slogans after last week’s dramatic vote in Hong Kong’s Legislative Council

In the summer of 1992 Chris Patten arrived in Hong Kong as the last governor of the British colony. He was the first politician to hold the job, and it only took a few months for Patten to come up with a major electoral proposal, one that split Hong Kong society and had Beijing seething.

Patten’s reform package envisaged that more members of the Legislative Council (Legco), the territory’s lawmaking body, would be democratically elected in 1995. The last governor argued that giving Hong Kong a more democratic system, albeit merely two years ahead of its return to China, was vital to instill international confidence in the transitioning British colony.

Beijing counter-claimed that such last-ditch constitutional changes breached the agreements the UK and China had made about the 1997 handover. Lu Ping, the director of the Hong Kong and Macau Office, went so far as to brand Patten a “sinner of 1,000 years”.

When Patten finally tabled his bill in Legco on June 29, 1994, Lu got on the phone and feverishly lobbied lawmakers to vote against the British plan. Some legislators were under such pressure that they locked themselves away and refused to take any calls.

“What is it going to be like after 1997? They won’t have to make phone calls from Peking to get them to vote the right way then. Just a local call,” Patten mused, according to the BBC documentary The Last Governor.

In the event, Patten’s proposal passed with a narrow majority. But his fears on Beijing’s post-1997 influence look, in retrospect, exaggerated. Twenty years later it has turned out that China’s central government couldn’t even force through its own plan to reform Hong Kong’s electoral system. Last week, Legco’s pro-democracy faction successfully blocked a Beijing initiative to elect the territory’s leader by universal suffrage in 2017.

That outcome may sound ironic, but the high-profile vote was anything but a joke. Indeed, it has raised renewed questions not only about the territory’s political future but also its economic wellbeing and why 2017 could prove a key year.

What was proposed exactly?

Patten was appointed by Britain’s queen, but his successor in 1997, Tung Chee-hwa, was selected by 400 Hong Kong representatives handpicked by Beijing. Since then that elite electoral roll – which votes for the territory’s boss, the chief executive (CE) ­– has slowly grown to 1,200 members, most of whom are selected by business or political interest groups.

Hong Kong’s Basic Law – the city’s mini-constitution – stipulates that it is the “ultimate aim” that the CE would one day be elected by “universal suffrage upon nomination by a broadly representative nominating committee”. Likewise, the Basic Law also envisages that all members of Legco would be selected by popular vote at some point of the future. (At the time being 35 members are returned through direct election, while the other 35 are representatives of various business and professional sectors, known as functional constituencies.)

A roadmap for these two “ultimate aims” was finally outlined in 2010, with Beijing green-lighting that a “one man, one vote” electoral system for the CE election could be implemented from 2017, and thereafter all members of Legco might also be elected by universal suffrage.

With this backing from Beijing, the Hong Kong government later proposed a reform package for the 2017 leadership election, which was put to the vote last week in Legco.

The plan: to give Hong Kong’s five million eligible voters the right to choose their leader. However, in accordance with the Basic Law, the reformed electoral system had a caveat: all of the CE candidates would need to be nominated by a 1,200-member committee, a group not dissimilar to the electorate that had picked the very unpopular current incumbent CY Leung in March 2012 (see WiC144). In other words, not just any candidate could stand – only those (at most three) pre-screened by Beijing could face Hong Kong’s voters.

Why was the reform vetoed?

Tensions have been growing in Hong Kong for quite some time, specifically between the pro-Beijing and pro-democracy camps. These feelings burst onto the streets last summer when those advocating “genuine universal suffrage” – as they term it – occupied key roads in the city as part of a mass protest (it lasted months; see WiC244).

The pro-democracy camp have long argued that if they vote for Beijing’s electoral reform, they will be giving a “false” stamp of legitimacy to an undemocratic system. Instead they call for looser barriers to entry, such as allowing anyone to stand for CE who can get 35,000 signatures from local citizens.

Government loyalists – as well as more pragmatic supporters of reform – urged lawmakers that the best option on the table was to take what was on offer. After all, it is unquestionably an improvement on the current system. According to this school of thought, there’s no logic in rushing China: the gameplan should be to negotiate with Beijing for greater democracy after successfully completing the 2017 ‘experiment’. Beijing loyalists also reminded Hongkongers that their city would then make history as the only Chinese territory permitted to elect its leader by one-person, one-vote balloting (excluding Taiwan, of course).

“It is a critical time for Hong Kong,” the China Daily pleaded a day ahead of the crucial vote in Legco last week. “An approval of the reform package means Hong Kong will be on the right track to achieve universal suffrage in 2017, the biggest step forward the city has ever taken in democratic development.”

Needless to say the proposal has been highly divisive within Hong Kong society. Various opinion polls show high levels of support for both camps. To complicate things further, any change to the city’s election law has to garner the approval of at least two third of the 70 lawmakers in Legco.

And when the bill was finally tabled for legislative approval last Thursday, the 28 democrats voted unanimously against the plan. What was stranger was not that the Hong Kong government and Beijing failed to swing enough votes (five were necessary) to pass it. The really bizarre thing was an embarrassing blunder made by the pro-government legislators who walked out while the vote was ongoing. Their idea was to force an adjournment so that a senior member of their camp could return to cast a “historical vote”. But owing to a mixture of incompetence and miscommunication, the walkout failed to produce the numbers required to delay the vote, which instead went ahead without them. This meant only eight lawmakers actually voted for the proposal. This was a serious embarrassment for Beijing (making it look like hardly anyone in Hong Kong supported its scheme).

Will it weigh on the economy?

This is the fear of many Hong Kong tycoons. They claim the economy will suffer because of unending political debates and internal strife.

Early this month senior businessmen, most of them current or former political advisers to Beijing, made last-ditch pleas, hoping that the democrats in Legco would ‘see sense’. Former Wharf chairman Peter Woo issued a statement calling on lawmakers to “stand on the side of public wisdom”. Casino mogul Lui Che Woo, of Macau’s Galaxy Entertainment, also penned an article calling on different sides to seek compromise on political reform.

Lee Shau-kee, the chairman of Henderson Land, one of the city’s top four real estate firms, even predicted that the benchmark Hang Seng Index would top 30,000 should the bill pass Legco, and he would personally donate HK$1 billion ($128 million) every year to charity as a celebration. (As it turns out Hong Kong stocks were little affected by the vote: as of Thursday, the HSI was up 1% on the week.)

Li Ka-shing, Hong Kong’s richest man, said he was “very disappointed” at the reform’s failure to pass. He’d earlier warned that every HongKonger would end up a loser should Legco reject it – given it was unclear when a fresh democratic reform vote would be allowed again.

These concerns were pretty much echoed by official media on the mainland. “Hong Kong is at a crossroad, but pan-democrats and their followers have failed to figure out what this means,” said a Global Times editorial. “If Hong Kong misses this opportunity, it will lead to unpredictable losses and waning social confidence.”

Hong Kong’s incumbent leader CY Leung said that following the setback he would focus on improving the economy and the people’s livelihood. Whether this is achievable is also in question, since his administration has looked to be something of a lameduck since its election (the unpopular Leung is dubbed “689” by Hongkongers, both for the number of votes he won out of 1,200, and because the number “9” sounds like “dog” in Cantonese).

“The filibusters and the non-cooperation campaign by some pan-democrats have already hampered effective governance. The situation may even take a turn for the worse if the animosity continues,” the South China Morning Post warned in an editorial.

HK-China relations to fray further?

That looks inevitable, at least for the time being, as the blame game continues. Hong Kong democrats have accused Beijing of not being “sincere enough” and want Leung’s administration to reopen negotiations with Beijing for more aggressive democratic reforms.

Beijing meanwhile has made it clear no other offer is on the table. “A few lawmakers voted down the package out of personal interest, and obstructed Hong Kong’s democratic progress; they should bear historical responsibility for this,” said a statement from the State Council’s Hong Kong and Macau Affairs Office.

Senior financial officials from Beijing have even said that if political instability persists, Hong Kong’s position as an important offshore renminbi centre could be in jeopardy. Joseph Yam, former boss of Hong Kong’s quasi-central bank the Hong Kong Monetary Authority, wrote in his most recent book that confidence in Hong Kong has been eroding, and he believes Beijing increasingly wants to “avoid relying too much on Hong Kong for international financing activities”.

As things stand, Hong Kong is one of China’s two “special administrative regions”. However, competition has been coming thick and fast from a growing number of free trade zones (in Shanghai and Guangzhou) and special economic zones including Qianhai (see WiC180) and Hengqin (see WiC208). Hengqin, according to the Macau Daily, has applied to the central government this week to become an “onshore-offshore renminbi clearing centre”.

The worst case scenario is that Beijing may reassess the “one country, two systems” principle that has allowed Hong Kong to largely run its own affairs since 1997.

“Beijing has been putting more emphasis on the importance of one country over two systems… With this setback [on electoral reform] it may opt to intervene more directly with Hong Kong affairs,” a columnist wrote in the Hong Kong Economic Journal. Tony Kwok, former deputy commissioner of the city’s anti-corruption watchdog, the ICAC and currently a university professor, also concurred: “Beijing may start to reconsider 2047 the end date of Hong Kong’s high degree of autonomy, and possibly take administrative control over Hong Kong by then, amalgamating it with Shenzhen.”

What else to look out for in 2017?

Hong Kong was promised it could keep its capitalist system and way of life until 2047, or 50 years after returning to China. That is also the year Hong Kong’s constitution, the Basic Law, expires.

Andrew Li, the former Chief Justice of Hong Kong, has suggested that the future of “one country, two systems” needs to be discussed and settled well before 2047, probably around 2030. “The discussion should take place in about 10 to 15 years’ time. The years in the run-up to those discussions will be crucial,” Li opined.

In fact, discussion may heat up quite a few years earlier than that. Many residential mortgages in Hong Kong carry 30-year terms, meaning that the status of Hong Kong real estate post-2047 is going to be a hot topic by 2017. Local newspapers have noted that most banks have still not come up with a policy for mortgages extending beyond 2047.

“In 2017, it is very likely that the issue of 30-year mortgages will emerge. In fact, it can and should be brought up anytime soon, if our policymakers and politicians are more responsible and forward-looking. It is just simple mathematics and nothing mysterious: you subtract 30 from 2047, and you get the deadline,” a political advisor to Beijing wrote in China Daily in April.

A major cause for economic concern: the leases for land sold after 1985 – the year when the Sino-British Joint Declaration on Hong Kong’s handover was signed – will expire in 2047. All land sold since 1997 carries a lease of 50 years (the only exception: Hong Kong Disneyland, which is technically subject to a 100-year lease). In 2047 will these leases just be rolled-over for another 50 years for a token transaction fee (all those Hong Kong citizens who own their apartments will hope so)? Or will the land revert to the government (and in 2047 that will be China’s central government)? At this juncture, nobody seems to know the answer.

“The closer we get to 2047, the bigger the risk of investing in Hong Kong properties,” a Hong Kong University professor wrote in Headline Daily a couple of years ago. If anything, such comments are likely to become more frequent especially in a city that is singularly obsessed with property.

Hong Kong’s been there before. In the 1970s, concerns over expiring land leases (in 1997) became a mortal threat to the British colony’s economic development. Investors hated the uncertainty of what would happen beyond 1997. This, many argue, was the real trigger for the British government’s decision to open talks with Beijing and agree to Hong Kong’s handover.

It’s WiC’s guess that if electoral reform had passed last week, the other ‘2017 question’ would have jumped up the bureaucratic agenda. But with the electoral process derailed, other discussions will stall too, suggesting the tycoons are not wrong when they say that last week’s vote could prove a costly one.

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