Why This Time Was Different for Hong Kong

by BLOOMBERG/ pic by BLOOMBERG

Hong Kong protesters have won a stunning victory. Saturday’s suspension of an extradition bill that would allow criminal suspects to be sent to mainland China followed a day of violent clashes on Wednesday that saw the police use tear gas, pepper spray and baton charges. In 2014, the police also used tear gas against demonstrators, prompting an occupation that paralyzed the central business district for more than two months. Yet the government refused to budge, and the protest was eventually cleared by force. It’s worth asking what was different this time.

The most obvious answer is the role of business. Occupy Central had limited support from companies, and what sympathy there was clearly waned as the weeks wore on and the costs to business mounted. By contrast, opposition to the extradition bill has united various strands of Hong Kong society, from civic and trade groups to religious organizations and the legal profession. That’s even more evident after Sunday’s monumental protest, which organizers said drew almost 2 million people.

Business stalwarts such as HSBC Holdings Plc and Standard Chartered Plc were among multinationals that allowed flexible working hours last Wednesday, when protest organizers had called for a city-wide strike. In 2014, by contrast, the Hong Kong General Chamber of Commerce and several foreign chambers spoke openly against the civil disobedience campaign, warning of the potential effects on the economy.
 

The first signs of cracks in the government’s facade of intransigence came on Friday as pro-establishment figures started to urge a rethink. Among them were Bernard Chan, convenor of the Executive Council, Hong Kong’s de facto cabinet. Tellingly, Chan said that he had underestimated the business sector’s reaction to the bill, in an interview with public broadcaster Radio Television Hong Kong,

A second key factor to consider is the role of China. The 2014 protests called for full democracy and opposed Beijing’s formula for the election of Hong Kong’s leader, which would have left candidate selection in the hands of a committee controlled by pro-establishment interests. In the case of the extradition bill, Hong Kong Chief Executive Carrie Lam insisted repeatedly that the proposal had originated with the city’s government itself rather than Beijing.

While many will assume that the Hong Kong government would not have brought forward such a bill without at least the tacit approval and encouragement of Beijing, the extradition bill didn’t have China’s imprint on it in the same way as the 2014 election proposal. The central government’s liaison office in Hong Kong “supports, understands and respects” Lam’s decision to suspend the bill, the state-run Xinhua News Agency said on Saturday.

Beijing may be grateful for the political cover that Lam’s stance provided. For the threatened damage to Hong Kong’s financial and business environment far outweighed any political benefits from drawing the city tighter into the mainland’s embrace.

The erosion of Hong Kong’s autonomy has been well documented. Many have cited the city’s declining relative importance to China’s economy for the change to a more hard-line, interventionist policy. When the U.K. returned the former colony to China in 1997, Hong Kong’s output was equal to around 16% of China’s economy; that was down to less than 3% last year.

This tells only part of the story, though. Hong Kong remains crucial as a gateway to global capital markets for China. If anything, this role may be even more important as the trade war with the U.S. puts pressure on China’s economy and currency. Since 2012, Chinese companies raised $156 billion from IPOs in Hong Kong, compared with $143 billion on mainland exchanges and around $48 billion selling shares in the U.S., according to data compiled by Bloomberg. Chinese borrowers have also been heavy users of the dollar bond markets through Hong Kong. With funding constrained at home, even obscure local governments have started to sell U.S. currency debt, as Bloomberg Opinion’s Shuli Ren has written.

International bankers trust Hong Kong as a base to conclude deals with Chinese companies because of its independent legal system, relatively clean administration and civic freedoms, including the free flow of information. Anything that detracts from these advantages and encourages businesses and financiers to relocate – even if that begins only as a trickle – is a long-term threat to the viability of Hong Kong’s role as a global financial center.

There’s a message here for the protesters – and for Beijing. It’s easier to preserve the status quo than it is to enact change. The common link between 2014 and 2019 is that the status quo has won in both cases. It was also the result in 2003 – probably the closest direct parallel with today – when a proposed security law was shelved after an estimated 500,000 marched in opposition. This means protesters have a better chance of success when fighting to preserve freedoms that already exist than when agitating for change.

For Beijing, the lesson is that Hong Kong became successful precisely because it has a different system from the mainland. Tampering carries risks. It’s still possible to kill the golden goose.