Led by the West, the international community has been vocal in its opposition to the Hong Kong national security law. Naturally, Hong Kong residents themselves have also protested. Yet, there are those among emerging and developing countries that support China’s Hong Kong policy, and in fact Beijing’s policy enjoys quite a lot of support in mainland China as well.
From Hong Kong’s perspective, the Chinese logic of “national security” crossed the Rubicon with the sweeping away of the economic development argument, to be replaced by the expanded application of national security legislation. It certainly appears to be turning point if we recall Hong Kong’s long history as a point of contact between China and the West and between continental China and Taiwan during the Cold War. However, I do not think that the decline of Hong Kong is now inevitable. Rather, it is likely that Hong Kong’s role will reorient towards China, which is why a reinterpretation of “One country, two systems” was needed. Of course, what Beijing wants may not necessarily be what it ends up getting.
The Sino–British Joint Declaration, which became the basis for the return of Hong Kong in 1997, and the Hong Kong Basic Law were both agreements between China and Britain. However, they can also be considered agreements between China and the capitalist West, which had invested in Hong Kong. Moreover, even after its return, Hong Kong continued to function as a point of contact and as a conduit for foreign capital, especially from developed countries, being invested in China. As a result, investments in China via Hong Kong increased and Hong Kong sometimes even took on the role of a temporary evacuation site from China. This was vital for China in its pursuit of economic development based on a model of foreign investment and exports. As a financial center, Hong Kong was key to Chinese economic development.
However, the Chinese economy is now the world’s second largest. Moreover, the most pressing issue for the state has gradually shifted from economic development to national security. On top of this, while the export model for development remains important, the Chinese economy itself now has characteristics that prevent it from relying solely on that model, including rising wages and issues with its economic structure. As a result, the role of direct investment from the West and the export of products to the West no longer has quite the role it once did.
Of course, the free trade system, foreign investment and exports are all still important, but China now has other priorities. As the nature of the economy has changed, Hong Kong has become increasingly important as a jumping off point for Chinese companies’ overseas expansion and the flow of Chinese money to the world. As such, I suspect that Hong Kong will evolve from point of contact between China and the West to a path by which Chinese money and Chinese companies reach the rest of the world, and at times perhaps a temporary place of refuge from different parts of the world. To achieve this, a “rereading” of the Hong Kong Basic Law was also necessary, which I think is what the recent rereading of “One country, two systems” was all about.
Of course, this kind of Chinese policy spells trouble for the people of Hong Kong. It is likewise difficult for the West to accept. Companies investing in Hong Kong may consider leaving. Nonetheless, it would appear that the Chinese government has irrevocably shifted course.
Meanwhile, the influx of capital into Hong Kong has increased amid the chaos, with stock prices rebounding from their March 23 low. The robust performance of the bourse likely owes to both directives from the Chinese government and the influx of capital from continental China, as Hong Kong stocks appeared undervalued. Meanwhile, the flow of capital from Hong Kong to Singapore has unsurprisingly been limited in the last few months. These capital flows offer a glimpse as to what we can expect from a Hong Kong that exists for the sake of Chinese money and Chinese companies; that is, a “Red Hong Kong.”
But for how long will Hong Kong remain attractive and easy to use for Chinese money and Chinese companies? Will China be able to maintain that allure? These are the unknowns. If it was Hong Kong’s allure and functions, as well as the freedoms rooted in a modern legal order and society, that were supporting its economy, then the allure that China feels for Hong Kong may well be rapidly dismantled by China itself before long.
Shin Kawashima is a professor at the University of Tokyo. © 2020, The Diplomat; distributed by Tribune Content Agency, LLC