By Punsarani Jayawardhana
2019 Summer started with sweeping protests from the citizens of one of the most significant financial and trade hubs in the world. Upon the amendment of Extradition Bill legislating the suspects to be extradited to China, the Hong Kong citizens hit to the streets not just demanding the withdrawal of the legislation, but even that of several of such appalling administrative mechanisms of the Hong Kong authority.
On August 18 alone, 1.7 m (Est) people which encompasses ¼ of the Hong Kong population were demonstrating on the streets under pouring rain. Despite this series of demonstrations taking the Hong Kong economy and its administration in complete shock, the international economy itself was tilted due to the impact that Hong Kong alone has over it.
Although the embattled Chief Executive of Hong Kong declared the bill to be ‘dead’ on June 15, protesters are in constant demand for inquiries into allegations of police brutality, amnesty for arrested protesters, electoral reforms to allow Hong Kongers to vote for their leader and for several amendments of malpractices. Hong Kong, being handed over to China in 1997 by the British under the pledge of ‘one country’ two systems’ only mirrors the British legal system being in opposite to the mainland China.
This discrepancy has pierced into the veins of economy and rule of law in Hong Kong that she cannot be parted with freedom of economy, of speech and of other fundamental rights. This higher benchmark on the financial liberty and the rule of law has shaped the small trade city stands tall in the world financial map as perhaps the busiest and the most crucial financial trade hub. Given this economic significance of Hong Kong being deprived of this freedom could ripple into serious undercurrents in the global economy and security.
Such stance on the crisis in Hong Kong is not hyperbolic if both geo-economics and geopolitical facts are analyzed proper and in depth. The grant of freedoms including freedom in economy and that of speech with higher standards of Rule of Law and strategic location allured the foreign investors into Hong Kong. The de facto constitution; Hong Kong Basic Law granted such freedom, enhancing the trust of these investors. Although earlier Chinese leaders have pledged noninterference, recent Beijing administrations have tried interrupting Hong Kong claiming their complete jurisdiction over Hong Kong.
Recent protests which were provoked with the amendment to the Extradition Bill and spilt over into other areas of democracy and freedom have shunned the prosperity in the Hong Kong economy in a large scale. The protests caused the Hong Kong airport to be shut down for two days which resulted in a $76m hit from flight cancellation alone. According to the Hong Kong administration she houses as the regional headquarters for 1530 Multi-National Companies, out of which 290 are American owned.
It’s worth noting that Hong Kong is one of the biggest markets for equity and debt financing. This would demonstrate the gravity of the damage which would be resulted with a Chinese invasion. Such intrusion has the potential of shunning Hong Kong’s stability not just as an international financial center, but also as a gateway for global capital flowing into China. China uses Hong Kong’s currency, equity and debt markets to allure foreign funds and as a channel through which FDIs are flowed to China.
If the legal orientation of Hong Kong is started to be molded as per the wish of PRC, Prof. Morrison observes that there is a chance of Multi-National Companies which are housed in Hong Kong, moving to mainland China owing to its stronger economy. Such stance is not unrealistic as one of the incentives in Hong Kong for foreign investment is its transparent and string rule of law and the legal stronghold.
Hong Kong demonstrations also may intensify the relations of China with the rest of the world, specially about the ongoing China- USA ‘trade war’. Trump had dictated that China must deal with the protests ‘humanely’ if it wants to tranquilize the ‘trade war’ between the two nations. If China takes over Hong Kong, the consequent shock would be rippled through global economy in an unprecedented manner. This would no doubt affect the potential of American companies to do business abroad.
As Prof. Rohlinger pronounces, China may recreate Hong Kong in its whims and fancies, if the chaos led to a political destabilization in the region. Beijing authorities, commenting on the protesters have dictated them to be ‘paid provocateurs doing America’s bidding’. Nevertheless, as it can be determined in the recent declaration of the Premier of the State Council of the People’s Republic of China, Le Keqiang, wishing the Hong Kong authorities to curb the protests and maintain stability and prosperity, Hong Kong being in political turmoil is quite a chaos for Chinese economy and stability as well. This, as aforementioned, essentially is giving China a hard time owing to the looming Trade War of China and the USA.
Economic paralysis in Hong Kong would affect China in multiple ways. As Hong Kong implements a linked exchange rate system, the HKD exchange rate and its monetary policy is closely linked to the USD and Federal Reserve’s Monetary Policy. If not for this, as analysists observe, Hong Kong economy is tempestuous shaking its title as a center of international finance. Moreover, US Congress maintains its Annual Policy Assessment on Hong Kong based on the Hong Kong Policy Act to determine if it is to regard the city as a separate custom territory.
If the city is treated so by the US led global economy, the international community would reassess the freeport status, tariff costs and business environment in the city. The worst-case scenario of such reassessment would be Hong Kong being a normal Chinese city and losing its legacy as a separate and proud hub of global trade and economy.
Such de-escalation has its own course in the mainland China. Despite the economic threat this brings, such a shift would also affect the other areas of the mainland China, specially in regions like Gnangdong – Macau Bay area; areas on which a paralysis in Hong Kong economy would cause a domino effect. Such analysis in terms of both economic and political vein boils down only to the fact that the stability in Hong Kong is quintessential for China in its journey of magnifying both its economy and say in international community and politics. Hence, what is in the best interest to China is still the calm and prosperous Hong Kong.
(The views expressed in this article belong only to the author and do not necessarily reflect the views of World Geostrategic Insights)
Image Source: Bloomberg