Talking Point

What next in Hong Kong?

We explore four options for how the city’s protests could play out

Carrie-Lam-w

Carrie Lam addresses the press this week: her anti-extradition bill led to a summer of protests

Hong Kong lays claim to being one of the safest places to live in the world, making the sudden disintegration of public order this summer all the more startling.

More than two months of protests have seen hundreds of thousands of people on the march across the city. Some have turned violent, with more radical demonstrators trashing the legislative council building, attacking police stations, blocking roads and besieging the airport.

The range and intensity of the disturbances has been unexpected. But they aren’t entirely unprecedented in the city. In fact, the unrest has drawn comparisons with disorder in the mid-1960s instigated by leftists enthused by the Cultural Revolution across the border in China.

Back then the colonial government brought in emergency legislation to outflank the opposition and also shut down pro-Beijing newspapers in a bid to quell six months of riots and bombings.

Clashes with the police and the British military still resulted in at least 51 deaths, 4,500 arrests and countless deportations.

Yet the events of 1967 also triggered sweeping changes that would help to usher in Hong Kong’s economic transformation over the following decade. The colonial government also tried to appeal to disaffected parts of the population, including younger people, with investment in recreational facilities, and even encouragement of social activities such as dances and camping. Probably more importantly, there were efforts to address broader concerns about quality of life in the city, especially the provision of more affordable public housing and longer-term planning that led to the construction of new towns and country parks.

More than half a century later, the question is what the Hong Kong government is going to do to bring an end to the current crisis of disruption and protest. What options are being considered, and what might happen next?

Option 1: Call in direct support from the mainland

Speculation that Beijing might order the People’s Liberation Army (PLA) to quell the unrest grew louder in the second week of August after some of the worst confrontations between demonstrators and police so far. Tear gas was fired inside subway stations and there were violent clashes at the airport, where protesters beat up a man they accused of being a Chinese police officer and tied another (a reporter for the Global Times) to a luggage trolley.

The airport – one of the world’s busiest – was closed for two days as the police struggled to reassert control.

Beijing officials have also been irritated by the unprecedented attack on the central government’s liaison office in Hong Kong, where the national emblem at its main entrance was defaced by eggs and ink pelted by protesters.

The escalation has triggered warnings from Zhang Xiaoming, director of the State Council’s Hong Kong and Macau Affairs Office, that the protests were showing “clear features of a colour revolution” and mainland authorities wouldn’t “sit idly by” if the situation worsened.

The agitators wanted to “destroy Hong Kong”, the People’s Daily also declared, with Xinhua demanding that the locals oppose the “thugs that seek to create chaos”. The mainland media has also started to run coverage of thousands of the People’s Armed Police gathering just across the border in Shenzhen, with commentary that a convoy of paramilitaries would be in central Hong Kong in a matter of minutes if the order came.

Yet this kind of forceful response seems highly unlikely unless there is a fuller disintegration of public order. Despite the rise in rhetoric in the media, the Chinese authorities are deeply reluctant to be drawn directly into the crisis. The Hong Kong police have also been briefing that there are no protocols for bringing in riot police from across the border. They are insisting that they can handle things themselves, after getting to grips with the demonstrations with new tactics, as well as the arrest of some of the most confrontational activists.

Notably, there wasn’t any violence during the most recent round of protests this weekend, despite hundreds of thousands of people taking to the streets. In a sign that both sides were looking to lower tensions, the government chose not to condemn the rallies either, some of which hadn’t been approved by the police.

Donald Trump warned this month that the ongoing China-US trade talks would be hampered if Beijing resorts to violent means to crack down on the Hong Kong protests.

The wider reality is that Beijing knows that direct action would trigger an immediate crisis of confidence in the city’s economy and almost certainly force a review of the 1992 Hong Kong Policy Act by the US Congress, which treats trade and investment with the city differently to the rest of China. That would have implications that reverberate much more widely than Hong Kong, including the flow of foreign capital into the mainland, with 71.5% of foreign direct investment passing through the city last year, according to data from China’s Ministry of Commerce. More than a thousand mainland firms are listed on the city’s stock exchange as well, accounting for two thirds of its market capitalisation.

Help from the mainland’s riot squad would clear Hong Kong’s streets but it would see investors race for the exits too, sounding the death knell for the city’s longstanding reputation as the safest place to do business in China. And aside from the economic costs, President Xi Jinping’s leadership team will be acutely aware of the lasting political damage, especially in unleashing a generation of resentment across a significant portion of the local population. Media coverage of troops on the streets would also be a humiliation for the Communist Party, 22 years after Hong Kong’s return to the motherland, and it would cast a corrosive shadow over the long-term ambitions to reunify with Taiwan.

WiC’s view is that this kind of reputational disaster will make Beijing more than hesitant about sending in its own troops. Instead local police officers are likely to be tasked with a more confrontational response (more baton charges, plus the deployment of their recently purchased German water cannons) if the unrest persists.

Option 2: Muddle through, and wait for the mood to change

This is the same strategy that the Hong Kong government employed to counter the Occupy Movement in 2014, when tens of thousands of activists took to the streets to demand speedier electoral reforms (see WiC244).

Their idea was to paralyse the central business district and force the government into submission. But rather than break up the blockades by force the police allowed most of them to stay in place for weeks. As the situation dragged on, public opinion began to turn against the pro-democracy camp and the disruption that it was creating. Polls at one point showed that 70% of respondents were disapproving of the civil disobedience, and following an injunction from a Hong Kong court (filed by public transportation groups) the protests withered away.

The authorities will have been hoping for a similar outcome this summer, with disruptions leading the public to turn against the demonstrators. Most Hongkongers are opposed to the violence from the most radical activists and deeply uneasy at how rapidly the situation has degenerated. When demonstrators trashed the legislative council building live on TV at the start of July, some people even thought they had been allowed to do so in the hope that the wider population would be disgusted at the vandalism.

However, hundreds of thousands of people have still been willing to join protest marches in the summer heat, many of which are technically classed as unlawful gatherings. Frustration with how Hong Kong leader Carrie Lam has handled the situation is almost universal and social media footage of some of the police tactics has had an impact too.

Public sympathy for most of the protestors was also revived after a series of attacks from triads on non-violent demonstrators in July, when protection from the police looked to be notably lacking.

That makes it harder to predict the public’s mood and whether it will soon start to pressure more of the protesters to stand down. Clearly, there is opposition to the worst of the disorder and there have been counter demonstrations in support of the police. But, as yet, Lam’s administration hasn’t been able to count on the groundswell of public support that would help to bring the immediate crisis to a close.

Option 3: Issue warnings and offer sweeteners

In such a combustible situation, simply waiting for a swing in public opinion is a dangerous game. So the government has been trying to speed things up by pressing the point that the protests are making Hong Kong poorer.

Chinese internet giant Alibaba has postponed a $15 billion secondary listing in the territory, Reuters reported this week. Tourist arrivals have slumped by more than a third in recent weeks and retail sales have been dropping sharply for months. The number of property transactions is waning and the stock market has lost $500 billion in value since the protests went into overdrive in June.

Emphasising the point that Hong Kong risks losing its reputation as one of the best places to do business in Asia, Lam’s administration has been asking local firms to be more supportive of the government’s position, although there is a strong sense that much of the push prompting the largest companies to support the official line is coming from across the border

For instance, a large group of local executives were called to a meeting in Shenzhen at the start of August, where they were asked for help in restoring stability. Wang Zhimin, director of Beijing’s liaison office in Hong Kong, also urged the delegation to organise rallies to demonstrate the “positive energy” of the city.

The pressure on companies to show support has been greatest at local airline Cathay Pacific, whose chief executive Rupert Hogg resigned suddenly last week, apparently after pressure from central government officials in Beijing.

Before Hogg’s dramatic departure, Cathay had been attacked in the Chinese media for failing to censure staff involved in some of the protests. State-controlled firms told their employees not to book flights with the carrier and the mainland’s aviation regulators toughened their oversight, voicing concerns about flight safety.

Hogg stepped down, acknowledging that Cathay’s reputation had been damaged, and his replacement has been urging his employees to steer clear of the protests. “Right now, we are one of the most watched companies in Hong Kong and indeed the world,” he warned in an internal memo this week. “The way every single one of us acts, not only at work serving our customers but also outside work – on social media and in everyday life – impacts how we are perceived as a company.”

Alongside predictions that the local economy is heading for disaster, the government has also tried a few sweeteners, announcing tax rebates for individuals, electricity bill subsidies and lower administrative fees for small and medium-sized enterprises – relief measures said to be worth HK$19 billion. But the package hasn’t won much applause, with representatives from the opposition camp criticising Lam for trying to buy her way out of the crisis.

Activists are also furious that she has refused to meet any of their five demands (including the formal withdrawal of the disastrous extradition bill, not just announcing it as “dead”). On Tuesday, she again turned down the idea of an independent investigation into the events of the past few months. But she said her administration would set up a platform for dialogue with people from all walks of life. “I sincerely hope this is the start of society returning to calm and turning away from violence,” Lam said.

Opposition groups dismissed the offer as a trap, promising more protests, including another rally at the airport this weekend. Students are calling for a boycott of classes once the summer holiday ends this month as well.

Of course, it took more than a season of government-sponsored beach parties to restore peace in 1967. Back then, the colonial administration also embarked on a massive public housing programme to address social tensions. This included the creation of a series of ‘satellite towns’ in the New Territories, to house the residents of some of more dilapidated districts in the city.

A similar campaign of construction today wouldn’t be a straightforward task – as we have reported before, recent proposals to build thousands of new homes on a $70 billion artificial island have met with political resistance (see WiC457). But that sentiment may change after weeks of turbulence on the streets, much of it featuring young people with little chance of affording their own homes in the current hyper-expensive property market.

Also out this month: new figures from the city’s public housing department, showing the longest wait for a flat in 18 years. Waiting times have lengthened to more than five years and officials admitted that they won’t meet their own targets on building new units, blaming land shortages. Clearly, there’s no short-term solution to Hong Kong’s housing conundrum. But any meaningful response to the political crisis will have to acknowledge that it has a property dimension and a plausible longer-term fix.

Option 4: Reset relations with the rest of China

The fourth tactic is more in the grant of China’s central government than the authorities in Hong Kong. Indeed, Beijing has been making efforts in this direction for a while, especially in looking for greater integration between the city and the rest of China, not only in economic terms, but also socially and culturally.

Some analysts argue that these changes are inevitable over the longer term, spurred by widespread immigration (more than 1.5 million mainlanders have secured residency rights in Hong Kong since the handover in 1997). But another plank in the plan is for a vast, connected economy across the Greater Bay Area (GBA), bringing Hong Kong into closer touch with a series of nine cities across the border in Guangdong.

Differences in the perceptions of the plan say something about the challenges of delivering it, however. Mainland officials see the blueprint as a major booster for Hong Kong, giving it a plum position in one of the world’s fastest-growing mega-conurbations. But many Hongkongers have needed more convincing that the GBA is such a golden opportunity, with some more fearful that it will further erode the differences that have made the city distinct from the rest of China.

How this disconnect is resolved is going to be crucial to Hong Kong’s prosperity, as well as its future status as one of the world’s leading cities.

Nonetheless, China’s leaders will also want to make the point that their patience isn’t unlimited, and that Hongkongers can’t count on favoured status forever. So it wasn’t hard to see a little symbolism in the announcement from the central government last week that Hong Kong’s closest neighbour Shenzhen is being granted elevated status as a “pilot demonstration area of socialism with Chinese characteristics”.

The planning document proclaims that Shenzhen is being tasked with exploring ways of prospering from new flows of capital, people and information, so as to become the “world capital of innovation, creativity and entrepreneurship” by 2035.

It’s easy to laugh off such ambitions as grandiose, although Shenzhen’s rise over the last 20 years has been so rapid that it would be a mistake to dismiss them entirely. But more to the point, the commitments to it serving as a test bed for trading the yuan internationally, the talk of boosting its stock markets, and the promises of more freedoms for local universities in a bid to build a world-class education sector all pose challenges in areas that have been more reserved for Hong Kong in the past.

To many observers the plan sounds like a warning to Hong Kong to get its house in order if it wants to retain its reputation as China’s most prosperous, most outward-looking city.

And although the China Daily was quick to rebuff any “undeclared intention” regarding the motives behind the announcement, the phrasing of the rebuttal seemed to make the point even clearer. “Some suggest Shenzhen will be made an alternative to ‘unruly Hong Kong’ as the key interface between the mainland and the outside world. This speculation may prove to be far-fetched. But a rising and more open Shenzhen does have implications for Hong Kong’s competitiveness and relevance in the nation’s future development,” it warned.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.