As the pro-democracy protests in Hong Kong that began last Friday showed no signs of weakening this week, they also made a symbolic statement. October 1 happens to be the Chinese National Day and the beginning of the so-called “Golden Week” of festivities, but the mood was clearly somber, if not tense, in the former British colony. As both the protesters and the government hardened their stances, the focus shifted to the potential longer term impact on the economic relationship between Hong Kong and China.
The protests are essentially political in nature, but there is an economic piece to it, according to Jacques DeLisle, professor of law and political science at the University of Pennsylvania and the director of the university’s Center for East Asian Studies. He said that while China has become less dependent on Hong Kong’s services economy over the past two decades or so, the two continue to have significant economic ties.
DeLisle spoke about the political and economic scenarios that could unfold with the standoff in Hong Kong on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
In the current protests in Hong Kong, tens of thousands of students and others have occupied and blockaded major roads. They are protesting China’s decision in late August to have a 1,200 member committee laden with party loyalists vet candidates for the 2017 election of Hong Kong’s next chief executive (or governor). The protestors see that move as China reneging on its assurance that the 2017 elections will have universal suffrage, and worry that it will have the effect of keeping out pro-democracy candidates. “[These are] people who want to see Hong Kong go democratic, so the anger is there,” said DeLisle.
“Some of the people who are the most vocal and most upset about the lack of democracy are ones who are genuinely discontented.”
The Economic Fallout
At the same time, both sides have economic arguments to buttress their respective cases, DeLisle noted. Hong Kong government officials are saying that the protests will lead to disorder and harm the economy. Already, the protests have led to the shutdown of many banks and schools. The Hong Kong stock market was also down some 3% in the first couple of days of trading after the protests began.
“On the other hand … some of the people who are the most vocal and most upset about the lack of democracy are ones who are genuinely discontented,” DeLisle said. “That includes a lot of 20-somethings who are out of college but are having a hard time finding jobs.”
Hong Kong’s economy is doing well, but it is not as robust as it had been in earlier years, and the influx of people moving there from mainland China has also increased tensions among the local population, said DeLisle. “There is a sense that they are taking some of those jobs. There have been social frictions, so there is some resentment against the mainland and its perceived encroachment on the ‘Hong Kong way.’”
DeLisle recalled that at the time of the Sino-British declaration in 1984 that set the stage for the handover of Hong Kong to China in 1997, the understanding was that it was “a valuable arrangement for China and a viable arrangement for Hong Kong.” Since then, the economic interdependencies between China and Hong Kong have certainly changed, he noted. “China is better able to perform some of the services that Hong Kong has performed, and can do them for less.”
Even so, the two continue to have close ties in several respects. DeLisle pointed out that China is the undisputed economic engine of the region, and Hong Kong has to factor that in. The two countries also have a free trade economic partnership agreement with “huge amounts of traffic across the border.” Hong Kong also serves as “the front office for a lot of the investments that go into China” and provides financial and legal services to Chinese businesses. On top of all that, people in China and Hong Kong have strong cultural and individual links with each other, he added.
Early Signs of Cracks
Beijing has always considered Hong Kong as an economic entity, and not a political one, DeLisle observed. “The mantra was: As long as it is stable, orderly and incomes keep rising, everybody is going to be happy,” he said. “The question on the table now is: Is that starting to crack? Clearly there are more energized people on the street [because of] a political issue than you typically would have seen in the past, but it is hard to read that essentially silent majority in Hong Kong.”
“There have been social frictions, so there is some resentment against the mainland and its perceived encroachment on the ‘Hong Kong way.’”
DeLisle noted that the governments in Hong Kong and in China have seemed to take a stance that if the current protests continue, “there will be disorder, and disorder is bad, and the economy will come apart….” That may result in a strategic move by the government to play a “law-and-order card, and the stability card.”
DeLisle also noted that the business community in Hong Kong has been mostly silent on the protests. “To the extent it has been vocal, it has been pro-Beijing — ‘Keep the order, keep the good times rolling,’” he said. At the same time, he senses some “mild cracks” emerging on that front as well, as some business leaders have called for a dialog between the government and the protesters (which the government has refused). In any event, the students currently squatting on Hong Kong’s streets “cannot occupy it forever,” he added.
While the current situation plays out, DeLisle spoke of what democracy means to Hong Kong. “Ultimately, Hong Kong is … very much at the service end of capitalism; it’s a place about confidence,” he said. “It’s about people wanting to be there, thinking that the rule of law works, thinking it’s a good place to live and all those soft things that may well matter.”