Economy, Talking Point

Unintended consequences?

Lam’s bungled bill could derail her broader vision for the property market


She’s sorry: Hong Kong leader apologised twice for handling of the extradition bill that sparked unrest

The transferring of fugitives holed up in Hong Kong back to mainland China wasn’t uncommon in the mid 19th century. There was even a clause inserted into the Treaty of Tianjin – signed after China’s defeat in the Second Opium War – to allow it to happen. However, things started to change when political insurgents fled to Hong Kong where they plotted uprisings against Qing rule. A sympathetic colonial government enacted the Chinese Extradition Ordinance in 1889 to rule out the sending back of political exiles. That included Sun Yat-sen, who went on to help overthrow imperial rule in 1911 and found republican China. The law fell into disuse after 1930 and was ruled defunct by the National People’s Congress after Hong Kong’s return to Chinese rule in July 1997.

More recently the Hong Kong government has been trying to reintroduce a legal framework that handles extradition requests from more jurisdictions, most significantly from mainland China itself. But the legislative proposal has triggered massive opposition, culminating in unprecedented protests over the past two weeks.

Hong Kong Chief Executive Carrie Lam has subsequently decided to shelve the plan. But there are other consequences from the saga: with her authority tarnished, will she still able to force through another controversial idea – a vast and ambitious project designed to tame the territory’s runaway property prices?

The rule of ‘law and land’…

Hong Kong’s population seems particularly watchful when two main issues come up for debate in the former colony.

The first is any situation that seems to undermine the rule of law in the territory, especially if it is a result of perceived interference from Beijing.

The other – in the property-obsessed city – is the direction of home prices.

The interplay of these two elements undermined Hong Kong’s first post-colonial leader. After being crowned as chief executive in 1997, the first thing Tung Chee-hwa did was to speed up the provision of new land supply, promising 85,000 housing units a year. Tackling runaway property prices, he argued, was necessary to bring down business costs and make sure Hong Kong stayed competitive versus other cities in Asia.

The so-called “85,000 policy” was successful if your benchmark was reducing house prices: they dived more than 65% between 1997 and 2003 (a plunge also assisted by the Asian Financial Crisis). The problem was that the surge in housebuilding aroused the opposition of Hong Kong’s powerful property developers and its middle-class homeowners. Tung’s popularity plummeted as the local economy slid into a nasty recession. Half a million people took to the street in 2003 to vent their anger at Tung’s governance. The more ideological reason for the march was to thwart his proposals to force through an anti-subversion bill (known as Article 23). But the state of the property market was a background grievance.

Tung was forced to shelve his anti-subversion legislation and he resigned a couple of years into his second term. His stepping down marked a reversal in the government’s housing policy, with a more restrictive approach to land sales. A 16-year bull market has since turned Hong Kong into the world’s most expensive property market. The Economist calculated last month that Hongkongers live in the least residential space of any major city worldwide, at 15 square metres each or barely the size of two prison cells.

Since becoming Hong Kong’s fourth chief executive in 2017, Carrie Lam reversed course again, believing like Tung that the government had to try to make homes more affordable.

Her strategy includes a plan for an $80 billion artificial island that could house a million people (see WiC432). Her administration has initiated other debates about the best ways to increase land supply (another option is to turn the city’s container terminals into residential land, see WiC437).

Lam’s land and housing policies have also run into stiff political resistance, undermining her popularity in some sectors of the community. And in another unfortunate parallel with Tung, her recent proposal to introduce a new extradition law stoked similar fears about Beijing’s interference in Hong Kong’s legal system.

The row triggered massive protests last week and like Tung before her, Lam is being called on by the public to resign.

Why is an extradition law needed?

Hong Kong’s current Fugitive Offenders Ordinance was passed in early 1997, a few months before the city’s sovereignty was handed back to China. Since then it has set up extradition agreements with 20 jurisdictions including India and the Philippines, but mainland China, Taiwan and Macau are not on the list.

According to Regina Ip, Hong Kong’s former security secretary (who resigned in 2003 after the failed attempt to legislate Article 23), the Chinese government first realised it needed a new extradition framework with Hong Kong when the case of Cheung Tze-keung grabbed headlines.

Nicknamed Big Spender, Cheung kidnapped a couple of Hong Kong real estate tycoons in the mid-1990s, including Victor Li, son of Asia’s richest man Li Ka-shing.

The notorious criminal was arrested in Guangdong in 1998. But without an extradition agreement, the Chinese authorities decided to prosecute Cheung for other crimes such as smuggling firearms.

He was shot after a Chinese court sentenced him to death that year, but the decision caused consternation in legal circles in Hong Kong, where Martin Lee, a barrister and leading pro-democracy politician, described it as “blatantly undermining Hong Kong’s rule of law”.

To avoid a repeat of this Beijing got more creative. According to the pro-Beijing Hong Kong newspaper Wenweipo, the Chinese government “overcame all sort of legal challenges” in the 20 years that followed (a different way of saying “breached China’s own laws”) and deported at least 270 criminals to Hong Kong. But no mainland fugitive has been dispatched in the opposite direction during the same period – despite the open secret that a good number of runaway officials and criminals have been residing in the city (the Four Seasons hotel is one of their favourite residences, see WiC263).

All three of Lam’s predecessors opted not to touch the extradition issue. But Lam decided to “plug the loophole” in responding to a case last year, when a 20 year-old from the territory fled back to Hong Kong after murdering his girlfriend in Taiwan.

He confessed his crime to Hong Kong’s police but without an extradition agreement, the territory couldn’t hand him back to Taiwan. Instead a local court was only able to lock him up for 29-months for stealing the woman’s credit card (he is expected to be released later in the summer and Lam says she has personally apologised to the murdered girl’s parents for failing to bring him to justice in this particular case).

Lam’s administration says this was the catalyst that led to the proposals to amend the existing extradition law, which would allow Hong Kong’s chief executive to transfer arrestees on a case-by-case basis to places where the city doesn’t have a formal extradition treaty – including mainland China.

How the saga unfolded…

Opponents of the new legislation see it as much more than a response to the Taiwan murder case. Some have described the situation as a bigger threat to civil liberty than Article 23, especially in cases of more serious offences such as subversion and treason. The legislation underpinning Article 23 would have required trials in Hong Kong own courts, while the fate of arrestees extradited back across the border depends more on China’s legal system, for instance.

To some onlookers this is a cause for trepidation. One case in point: Swedish activist Peter Dahlin was forced to make a televised confession on Chinese state television in January 2016 for activities deemed a threat to its national security (see WiC311). The Swede was arrested in the mainland although the NGO he worked for was based in Hong Kong. Should the new extradition law be enacted, activists operating in Hong Kong might feel equally insecure.

Lam has stressed repeatedly that the proposed amendment wouldn’t apply to political offenders. All extradition requests would still need to go through several layers of gatekeepers, including the Hong Kong courts. Any decision could also be challenged by judicial reviews.

Yet Lam’s administration – according to her own admission this week – has failed to convey these messages effectively to the public and foreign countries. Amid fears that the planned legislation would see Beijing scoop up dissidents and send them north, political activists have summed up their opposition with a three-Chinese-character slogan which means “Anti Extradition to China”.

Pro-Beijing media outlets are outraged at the disloyalty, scoffing that the slogan could be shortened to simply “Anti China” because most of the opponents of the amendment have never read it in detail, and are simply motivated by their belief that China’s judicial system is far inferior to that of Hong Kong.

The debate soon caught the international community’s attention. Amid the escalating China-US trade rows, a number of Hong Kong pan-democrat politicians were invited to Washington to meet US Secretary of State Mike Pompeo and share their grievances. And ahead of Taiwan’s presidential election next year, the island’s independence-leaning politicians have used the crisis in Hong Kong to warn against closer ties with the mainland.

Both outcomes have upset Beijing and officials have blamed “foreign forces” for stirring up antipathy in Hong Kong’s affairs.

In reality, the discontent was local and real. Organisers said that more than a million people took to the streets on June 9 to march against the bill (police told reporters their crowd-control units estimated that 240,000 were parading). Hundreds of thousands gathered again on June 12 to block access to the city’s legislative building. When some of the demonstrators tried to storm inside, the police fired tear gas and rubber bullets to disperse them. Nearly 100 people were injured during the confrontation, including police officers.

Lam made a major concession on June 15, deciding to shelf the bill indefinitely. However, her administration’s insistence on calling the June 12 stand-off “a riot” angered her critics. Close to 2 million more people (again disputed: police put the turnout at 300,000) took to the streets again on Sunday to vent their anger at Hong Kong’s leader.

Lam duly made a second public apology a day later. But it hasn’t done her much good: the demonstrators want her resignation, and they are threatening to stage more strikes and marches should their demands not be met.

How have the property developers reacted?

“We are not fugitives. Why should we worry?” CK Hutchison’s chairman Victor Li replied when he was asked earlier this year about the extradition bill debate.

Hong Kong’s leading real estate families have not opposed the bill publicly. By the same token their silence has been significant in recent weeks in another respect: none of them has thrown their weight behind the government.

One of them even launched a legal action. Joseph Lau, a property tycoon better known internationally for smashing world records at auctions for diamonds and Andy Warhol art, filed a judicial review challenging the Hong Kong government’s proposal to amend the law (see WiC448). He was worried that he himself might face extradition – Lau was jailed in absentia by a Macau court in 2014 in a bribery case. He only dropped the lawsuit earlier this month after the government made concessions, such as limiting extradition to crimes punishable by seven or more years in jail (up from three years). With a sentence of five years, Lau was off the hook.

A growing concern: the subsequent political unrest, and especially the more violent confrontations, may start to undermine investor confidence in the territory. Chinese developer Goldin Financial fired the first warning shots last week, telling shareholders that it will back off from a plan to buy a key parcel of land in the Kai Tak Development (KTD) project due to “recent social contradictions and economic instability”.

Located at Hong Kong’s former international airport, the KTD has served as the biggest source of land supply in the city in recent years. The entire development covers an area of 330 hectares and it could eventually house about 90,000 people, as well as featuring a cluster of waterfront commercial properties.

The auctions for the KTD’s harbour-front have been smashing land sales records. Yet it seems to be a source of bad feng shui for overly ambitious developers from the mainland. The previously acquisitive HNA Group also tabled winning bids in Kai Tak that were worth $5 billion, although the Hainan firm was later forced to sell all of the projects to local firms as part of a deleveraging effort.

Also highly leveraged, Goldin’s retreat from KTD has been abrupt. It has to forgo the HK$25 million deposit for tearing up its purchase agreement with the Hong Kong government. The decision came after an emergency board meeting called by Abraham Shek. An independent board director, he is also the representative of Hong Kong’s real estate developers in the city’s legislature.

Hong Kong media has been quick to pick up on the political undertones, linking Goldin’s exit to the extradition saga. Others have countered that Goldin was looking for a way out because it lacked the capital to see the project through. Next Magazine noted that Goldin only managed to stay afloat last year with a HK$10 billion bridge loan from Li Ka-shing’s flagship firm CK Hutchison, for instance.

How about Lam’s land policy?

“As for my governance in the future, it will be very difficult,” Lam admitted to reporters this week, when she pledged new policies to improve the city’s economy and living conditions.

For the time being, her administration is trying to take the heat out of the situation. The president of the legislative council proposed this week to “put political issues aside” and postpone other controversial legislative proposals, including a bill that sets out to increase the jail term for insulting China’s national anthem and flag.

Lam has said repeatedly that the quest for new land supply cannot be delayed any longer. But her long term vision for housing may be another casualty of her personal crisis.

The plan to build a vast artificial island in Hong Kong waters is nowhere near to getting started. The government had scheduled a session to ask for legislators’ approval to fund an environmental study on the project.

Originally at the top of the lawmakers’ list, the government has just pushed it back towards the bottom – meaning that the funding request is unlikely to be debated in the current legislative year (which ends this summer).

“This is a pity. Unlike the extradition law, the East Lantau Metropolis (ELM) project has a lot of public support, but now it will suffer further delays,” Chan Kin-por, the chairman of the legislative council’s finance committee, told reporters on Wednesday.

“Carrie Lam is already a lame duck. How could a chief executive as lame as her push forward such a controversial policy,” Alvin Yeung, a pan-democrat and leader of the Civic Party, added.

Delays or outright cancellation of the Lantau project would suit the city’s property tycoons. That’s because a mega project like the $80 billion ELM has the potential to reverse the course of the real estate market yet again by massively boosting supply. Ergo the main winners of the past fortnight might turn out to be the city’s tycoon families. On the one hand, a hobbled Lam will be less able to upset the status quo in the property market by steamrollering opposition to the ELM; on the other, a lapsed extradition bill lessens the risks to investor confidence in Hong Kong, keeping the local businesses of these tycoons humming along nicely.

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