China’s Hong Kong Problem Is Just Beginning

By Milton Ezrati

Pro-democracy graffiti at a tram stop. 

Hong Kong protestors scored a big win. 

The city’s Beijing-approved chief executive, Carrie Lam, has withdrawn the extradition bill that would have undermined Hong Kong’s autonomy and that sent millions into the street. 

Hong Kong’s avenues cleared only briefly. 

Leaders of the democracy movement and their supporters have already declared, “too little, too late.”
Something more mundane but perhaps also more compelling will sustain Hong Kong’s discontent and continue to make trouble for Beijing. 

The city faces severe economic problems. 

They will underlay future protests, even if the placards and shouts have a political focus. 

Nor can Beijing play as rough as it did, say, in Tiananmen Square. 

Beijing needs Hong Kong to remain open and prosperous. 

Too heavy a hand would risk destroying that critical character. 

With reason for complaint and some assurance that Beijing will restrain itself, at least by historic standards, future protests seem highly likely. 

They will not only cause Beijing trouble, they will threaten it.
The crucial fact underlying all this is that Hong Kong is more important to China than China is to Hong Kong. 

Before Beijing took possession of the city in the late 1990s, Hong Kong had long prospered on its own. 

To be sure, it was a British possession, but it had operated independently when it came to economics and finance and had turned itself into a powerhouse in both areas. 

When Beijing acquired control, its favored phrase, “one country-two systems,” seemed to many like a concession by Beijing, to smooth the transition and reassure Hong Kong’s residents. 

But it also spoke to a harder reality. 

Beijing was well aware how important the city’s commanding position in global finance was and would remain to Chinese development. 

China’s leaders could also see that Hong Kong, as China’s most prosperous province, helped secure the implicit contract between the Communist Party and the Chinese people, that the population would acquiesce to the party’s special place as long as its leadership made people richer. 

Certainly, Hong Kong’s great wealth has added substance to Xi Jinping’s promise of a “Chinese dream.”
These considerations protected the protestors from Beijing’s wrath and will likely continue to do so. The shield did not stop water cannon or rubber bullets, of course, much less beatings and mass arrests, but it was nonetheless a far cry from how Beijing has treated other resistance movements elsewhere. 

There were police in Hong Kong, not troops or tanks or live ammunition as was so evident in Tiananmen Square. 

Some might paint this relative restraint, and the willingness to back down on the extradition bill, as a more open attitude in Beijing. 

More likely it reflects Beijing’s recognition that Hong Kong has a crucial role and how a heavy hand would destroy the wealth and global position in finance that Beijing needs. 

China’s leadership will have to practice the same restraint if Hong Kong erupts again, and protests will likely emerge for economic as well as political reasons.
Hong Kong’s economic stains have received less attention than its political motivations, but they give that city’s people ample room for discontent. 

Hong Kong has no unemployment insurance. 

Public pensions have left retirees impoverished in this remarkably expensive city. 

Complaints about the city’s healthcare system have increased dramatically. 

Housing is the biggest problem. 

The city’s housing shortage, always severe, has become increasingly acute. 

Property prices in Hong Kong have tripled in less than ten years. 

Salaries have not kept up. 

At last measure, the average Hong Kong rental verged on $2,550 a month, some 22% above the average local salary. 

Meanwhile public housing in Hong Kong, where almost 45% of the city’s residents live, has a waiting list of almost 5.5 years. 

The Beijing-backed local government refuses to build enough to erase this backlog. 

It recently admitted that it will fail to meet its planned, long-term construction target. 

To control demand, officials refuse to raise the maximum salary used to determine eligibility, creating desperation among the city’s working stiffs. 

Meanwhile, the flow of money from wealthy Mainland Chinese, including, scandalously, Xi’s family, has contributed to the rise in housing prices, particularly in luxury buildings but generally as well.
China’s trade war with the United States has complicated the situation still further, intensifying Hong Kong’s problems and further constraining Beijing’s ability to act with its preferred heavy hand. Businesses – both domestic Chinese and foreign – have begun to look outside China, including Hong Kong-based operations. 

The need to supplement these losses has made Hong Kong finance that much more important, but the trade war simultaneously has raised questions globally about the future of Hong Kong-based banking and finance. 

The Hong Kong Monetary Authority has spent billions in just the last year protecting the Hong Kong dollar’s long-standing peg to the U.S. dollar and the basis of the city’s financial dominance. 

Were this peg to go, the flow of business already leaving Hong Kong, largely to Singapore, could turn into a flood. 

Beijing is well aware of this.
Because the authorities – in either Hong Kong or Beijing – have made no effort to address the economic strains on Hong Kong residents, future troubles seem all but assured. 

Since Beijing can ill afford more protests, especially since it cannot readily resort to troops, it would seem that a best course would address Hong Kong’s economic, if not its political problems. 

So far, there is no sign of such action. 

The trade war makes it that much more difficult for Beijing to respond. 

It is a dangerous situation, for Beijing especially.