Beijing’s Hong Kong takeover is a masterclass in creating fear
If cash injections do not ease worries about the city’s financial future, coercion will
In Chinese official media, Hong Kong’s new national security law is a huge success. The People’s Daily published a graphic to illustrate Beijing’s strategy: it showed three interlocking gears in which the largest, the law, drove two smaller gears, which represented the economy. Critics on social media pointed out that, as drawn, none of the gears could turn. But as a symbol of politics’ predominance over economics, the since-deleted graphic worked — maybe better than intended. Hong Kong’s stock market has risen through the week since the law was passed on Tuesday. Supporters see this as evidence that the gears are turning after all. Sceptics, though, point to Beijing’s habit of using state funds to boost stock markets around key dates — much as it manipulates Beijing’s weather to generate clear skies during major episodes of political theatre. Cash injections alone cannot erase the growing doubts about Hong Kong’s future as a global financial centre. The city clearly matters less to China than it did. In 1997, its gross domestic product was 18 per cent of a much smaller mainland economy. Today that figure is less than 3 per cent, but Hong Kong has not shrunk. Its economy has doubled since 1997, and it remains a critical conduit for investment flows into China and trillions of dollars of transactions.
Its success has rested on a combination of mainland access, an independent legal system and the free circulation of information without fear of reprisals. Last week, though, was a masterclass in creating fear. Between the law’s announcement in May and its enactment on June 30, prominent Hong Kongers were “encouraged” to sing its praises, despite having no idea what it contained. When the details were revealed, they had little choice but to continue to praise the wisdom of the Chinese Communist party, or stay silent. For the party, either will do. Among Hong Kong’s less enthusiastic, such as the democratic parties that won 90 per cent of the seats in November’s district elections, was the territory’s Bar Association. Lawyers have come to the defence before. They took to the streets in 1999, in 2005, and in record numbers in a 2014 silent protest after China published a Hong Kong white paper, which called for judges to be “patriotic”. This time, they pointed out that the security law contained numerous provisions inconsistent with the Basic Law, the mini-constitution in effect since the UK handed over sovereignty in 1997, and undermined “core pillars of the one country, two systems model, including independent judicial power”. As important is the loss of freedom to conduct research, publish and access information without fear. If that seems irrelevant to Hong Kong’s financial future, recall what happened after President Xi Jinping encouraged citizens to invest in China’s stock markets in 2013.
They responded with such enthusiasm that the Shanghai market more than doubled in a year. The People’s Daily reassured readers the bull market would continue. When the bubble burst, authorities halted trading and pumped in money. When that didn’t work, the collapse was labelled the work of “hostile foreign forces”. Censors banned the term “stock market crash”. They also instructed Chinese media not to “conduct in-depth analysis” or “speculate on or assess the direction of the market”. Chinese politicians may struggle to command markets, but they insist on commanding what investors know. This has become a trend. Independent think-tanks in China that once reported on the economy have been closed. Independent journalists say writing about economics is as risky as writing about politics. In Beijing’s account, “hostile foreign forces” have also been busy during the Hong Kong protests provoked by China’s tightening grip. A protester now found guilty of collaboration with such phantoms may be sentenced to life in prison.
It is unclear how the law will be applied, but Beijing generally avoids red lines: uncertainty and fear do most of the work. Hong Kong’s limited franchise elections will continue, but only proven supporters need apply. This Potemkin version of autonomy chimes with Beijing’s vision of the future in which Shanghai replaces Hong Kong, Macau substitutes for Taiwan, and the Pearl River delta, rechristened the Greater Bay Area, becomes a high-tech economic driver. In Hong Kong, those who can relocate will; those who cannot must conform. Mr Xi’s vision of China’s next 20 years also includes an end to poverty this year, China as technological superpower by 2025, Taiwan “recovered” by 2049, multilateral institutions reshaped or replaced in China’s interest, and global trade patterns reordered by the Belt and Road Initiative.
How China can assume this role in a dollar-dominated global financial system that operates on free capital flows, open information and independent courts is unclear. Its own internal arrangements depend on censorship, capital controls and cronyism. Beijing talks about internationalising its currency. But that cannot happen without reforms the Party does not want to make. Shanghai and Shenzhen are large financial centres, but lack the same international confidence that Hong Kong has had. For now, Beijing counts on having enough weight in the world to prove its critics wrong — or if that does not work, to enforce their silence.