Playing a long game on Hong Kong

Upon Hong Kong’s return from British to Chinese sovereignty in July 1997, Fortune magazine famously ran a cover story titled “The Death of Hong Kong.” Just as famously, over the subsequent two decades Hong Kong survived the Asian financial crisis, the SARS outbreak, and the Great Recession; doubled the size of its economy; and saw the reputation of its financial sector soar from relative obscurity to general recognition as the #3 global powerhouse behind New York and London. Culturally and materially rich, Hong Kong’s people came to count themselves among the world’s most fortunate global citizens, and they swelled with rightful pride about their safe, well-managed, attractive, and lively city.

This year, Hong Kong’s economy and citizenry are facing their most severe set of challenges since 1997. Beijing’s tolerance for Hong Kong’s acute variances from the form of politics enforced in the rest of China appears to have finally and definitively evaporated. Hong Kong’s political underpinnings had been steadily crumbling for some time. Following the abrupt imposition of a ferocious new national security law by Beijing on June 30, however, the city’s formerly boisterous public is now confronted with a terrible and real possibility: that the crucial qualities that have made their city strong and globally relevant over the past generation will now irretrievably dissipate.

It is useful to consider how events in Hong Kong reached this unfortunate state of affairs, and what if anything can be done about it — either by the people of the city or by their friends overseas.

Autonomy is the word

Outside observers of Hong Kong often bring their own perspectives and experiences to their consideration of Hong Kong’s special characteristics. This leads them to posit the “Hong Kong problem” as a question of democracy amid authoritarianism, or of capitalism amid socialism, or of a cosmopolitan society struggling to preserve its openness, despite now being a sovereign portion of a relatively homogeneous and inward-looking nation.

All of those elements are fair and true characterizations of Hong Kong’s dilemma. But the key underlying principle that is most useful to focus on is the question of Hong Kong’s autonomy. Without autonomy, Hong Kong cannot sustainably maintain a separate or different political system, or economic system, or societal way of life.

Defining and preserving of Hong Kong’s autonomy is the crucial essence and main purpose of the 1984 Sino-British Joint Declaration that arranged Hong Kong’s return to Chinese sovereignty. Establishing a “high degree of autonomy” is also the central feature of the 1990 Basic Law passed by China’s National People’s Congress, which set out the rules for Hong Kong’s future, along with a promise by China’s leaders that Hong Kong’s “previous capitalist system and way of life shall remain unchanged for 50 years.”

Hong Kong versus Macao

There are not many academic studies looking systematically at the question of the success and failure of semi-autonomous territories. One notable attempt is David Rezvani’s book “Surpassing the Sovereign State,” which studies the “wealth, self-rule and security advantages” of “partially independent territories” (which Rezvani expresses no irony in abbreviating as “PITs”).¹ Writing in 2014, Rezvani counts 46 PITs in existence worldwide at that time, stretching from Aruba to Zanzibar, and including Hong Kong. After explaining the advantages of flexible and locally articulated governance arrangements to fit complex social and political circumstances, Rezvani concludes: “PITs in some significant ways tend to surpass the sovereign state.” As manifestly demonstrated in the case of Hong Kong, autonomy equates with success.

Less charitably, Rezvani also identifies well over a hundred cases of what he calls “sham federacies.” These include the United States’ sovereign Indian tribes, the Kachin and Shan States of Myanmar, Indonesia’s Aceh, and all of China’s autonomous regions and minority districts other than Hong Kong, including – significantly — the Macao Special Administrative Region. Rezvani dismisses Macao as a “sham federacy” because the former Portuguese colony has been “nominally allocated a wide range of final decision-making powers without any discernible means to make those powers credible.” In contrast, Rezvani says, “Hong Kong is a PIT since the final decision-making powers that were allocated to it in the 1997 Basic Law are made credible through the political influence it arguably exercises over the Chinese core state.”

Chinese government officials sometimes hold up Macau as an example for Hong Kong to emulate. Macao’s small size, quiescent politics and society, Portuguese historical traditions and single-industry economy, however, all make Macao a very different governance environment than Hong Kong, despite operating under a virtually identical Basic Law. Macao’s rapid economic growth and impressive accumulated wealth are the direct and simple result of the city holding a monopoly on casino gaming in the world’s largest nation. Hong Kong is much more complex — politically, socially, and economically — and its lifeblood flows from its greater degree of autonomy in ways that Macao simply does not, and cannot, emulate.

In fact, comparison to Macao makes Hong Kong look even more like an anomaly. Hong Kong may indeed be the world’s most complex PIT, using Rezvani’s definition, with an overseeing sovereign that is most difficult to live with and with the widest imaginable gap between local traditions and the preferred systems of the sovereign.

A unique Chinese recipe

Being physically and economically close to China has of course been a necessary ingredient in Hong Kong’s economic success. But the city’s most important strengths stem from its differences with China. Until this year at least, Hong Kong has been widely recognized for its strong rule of law, respected independent judiciary, and technocratically sophisticated yet still laissez faire governance traditions. The city’s low income taxes, zero tariffs, lack of corruption, sound infrastructure, and fluid labor markets all stand out as anomalies in the Chinese context, and have earned Hong Kong consistently high global rankings for openness and competitiveness. The foundation for all of these pro-business policies — as well as the personal freedoms that Hongkongers have enjoyed — has been Hong Kong’s common law traditions and its legal separation from China: essentially a situation of London’s individual-centric law operating in state-centric China.

In 2017, the U.S. Consulate General in Hong Kong — which incidentally is one of the United States’ oldest diplomatic establishments in East Asia, celebrating its 175th anniversary in 2018 — started a “USA Loves HK” campaign (using a Chinese character logo). It sought to illustrate what the Americans find compelling about the city — rule of law, relative openness, and respect for freedom of expression — as well as to declare the U.S. hope that Beijing would continue to allow that status quo to be maintained.

Hong Kong’s continued autonomy matters to the United States because Hong Kong is such a central element of the U.S. commercial footprint in Asia and the Western Pacific. It also matters as a beacon of American values: Hong Kong shows China and the rest of the region that a society which is culturally and linguistically Chinese can also be a place with strong personal freedoms and profound respect for the rule of law — while still being enormously economically successful at the same time.

Things fall apart

So what went wrong? Simply put, Beijing — under Xi Jinping’s increasingly assertive leadership — lost patience with Hongkongers’ rising expectations for political participation, and their increasingly vigorous (and disruptive) exercise of their personal and collective freedoms to criticize China’s leadership. Journalists sometimes portray Hong Kong as a city caught between China and the West, usually pointing to the United States. But this portrayal assigns foreign powers too much agency. Maintaining Hong Kong’s autonomy, since 1997, has always been a question of China’s tolerance: of the Communist Party leadership accepting what it does not like about Hong Kong in order to reap the economic benefits of the city’s unique endowments.

The outlines of China’s 2020 clampdown started to become visible as early as 2015. That year — following the high-profile “umbrella movement” demonstrations of 2014 — Hong Kong’s pro-establishment politicians were unable to convince the “pan-democratic” opposition to accept a half-a-loaf proposal for universal suffrage for the chief executive, and Beijing refused to budge to resolve the impasse. More recently, anti-China street demonstrations, sparked by an unpopular and poorly-marketed extradition law proposal, intensified throughout 2019. That then inspired an unexpected landslide victory for opposition candidates in the November 2019 District Council elections, and wheels began quietly churning in Beijing to craft a way to turn the tables in Hong Kong back to China’s advantage. By the end of 2019, Beijing’s leaders had clearly lost confidence in the ability (and commitment) of Hong Kong’s “establishment” leaders to bring the city back into line. The Chinese Communist Party’s embarrassment and concern only deepened after Taiwan President Tsai Ing-wen was reelected handily in January 2020, merely by associating her platform with Hongkongers’ compelling repudiation of China’s approach toward “one country, two systems.”

In the end, after Beijing’s Hong Kong and Macao Affairs Office weighed the political benefits and economic risks of a clampdown, and observed that the rest of world was distracted (particularly by the COVID-19 pandemic), it made a bold recommendation. Doubling down on its preferred strategy since 2015, it recommended using Hong Kong’s legal system (rather than direct force) to quiet the city’s anti-government political voices.

Previous measures inspired by Beijing had leveraged existing Hong Kong legal statutes to try to suppress opposition politics — with such laws enabling legislator disqualifications, the banning of a political party, and the loose application of immigration control powers to expel or exclude undesirables. In 2020, however, Beijing decided that existing Hong Kong law was no longer strong enough. Moreover, Beijing further decided that it not only needed the passage of long-sought Hong Kong national security legislation (which the Hong Kong Legislative Council had failed to produce for 23 years, despite its Basic Law Article 23 obligation to do so). The Communist Party leadership wanted something much stronger.

The outcome was a Hong Kong national security law on steroids, imposed directly on the city without the consent of the Legislative Council, and representing a sort of “shock and awe” campaign to discourage opposition political activity. Violating numerous long-standing “one country, two systems” taboos, the law sets up a separate and parallel system for investigating and prosecuting national security crimes, with direct Chinese government involvement. The definitions of the various crimes under the law were kept intentionally vague, and procedures to be followed are non-transparent. The intended net effect is one of expanded deterrence, adopting the old Chinese adage of “killing a chicken to scare the monkeys” (殺雞儆猴).

Chinese policymakers have a track record of sometimes not being able to distinguish between a scalpel and a sledgehammer when it comes to handling political matters.

The key question now for Hongkongers is exactly how China will apply the new legal regime, and the answer to that question will have a major impact on the future of Hong Kong’s society and economy. Beijing aims to suppress political opposition without suppressing business vitality. But its strategy of intentionally building a high degree of uncertainty into the situation, in order to try to attain maximum impact through minimum direct action, has spooked the international business community, and thus raised the risk for China. The devil will be in the details, and Chinese policymakers have a track record of sometimes not being able to distinguish between a scalpel and a sledgehammer when it comes to handling political matters.

The world reacts 

In this context, foreign governments are rightfully angry and frustrated — angry at China’s broken promises to leave Hong Kong alone, and frustrated by their own inability to deter the Beijing clampdown.

With the United States leading the charge, much of the English-speaking world and Europe, plus Japan, formally and forcefully denounced the national security law. Eight nations have torn up their extradition agreements with Hong Kong, and some have cancelled high-level Chinese political visits, or specifically opened their doors to Hong Kong emigrants who no longer feel safe or comfortable in the city. Washington has thus far sanctioned 11 high-level Hong Kong and Chinese government officials, “de-certified” the city’s autonomy according to the terms of the Hong Kong Policy Act, and taken a variety of bureaucratic steps to dismantle some aspects of Hong Kong’s different-from-China treatment under U.S. laws, such as visa regulations and export control categorizations.

The Trump administration’s steps thus far have had only a minor impact on the practicalities of U.S.-Hong Kong relations, along with a more tangible — but still relatively moderate — negative impact on foreign business views of the Hong Kong business environment. There has been no discernible impact on Chinese policy.

In all cases, foreign governments have explained what they do not like about Beijing’s over-reach and abridgement of Hong Kong’s autonomy, but they have said little about what they want or expect to see in the future, and they have made few attempts to engage or “negotiate” with the Beijing government on the matter.

Indeed, there is a real question as to exactly how much leverage the international community might be able to bring to bear on the “Hong Kong problem.” Some of the tougher measures imagined in certain circles in Washington, such as a concerted attack on the value of the Hong Kong dollar, were rightly rejected by the White House because they could do as much damage to the United States as to China. In the febrile online debates that took place in Hong Kong in May and June of this year, just prior to the imposition of the national security law, some Hongkongers equated their situation to that of West Berlin in the Cold War — an entrapped city to be rescued by the West — forgetting the fact that Hong Kong is a legally incorporated part of the People’s Republic of China.

The best international response: Crafting a medium-term strategy

Looking to the future, the task for the international community of concerned democracies is to craft a Hong Kong strategy that plays to its strengths rather than inadvertently highlighting the limitations of its political reach. Rather than looking to score quick rhetorical points for political purposes, foreign leaders should establish clear benchmarks and prepare to send a consistent message over many years going forward. China is hoping and expecting that the Western world will lose interest in Hong Kong if there is no longer a compelling street drama playing out on televisions worldwide. It is important for the international community to keep up its interest over the medium term.

There is a role for specific punitive actions, such as sanctions. But negative counter-punches at China should not be the sum total of the international game plan — and care should be taken to not implement policies that primarily hurt Hongkongers, or which will boomerang to harm American or other ex-China interests. Rather, it makes sense to take advantage of Hong Kong’s continuing high degree of accessibility and reliance on international engagement to gather and highlight detailed and reliable information about what is happening in the city, and also to maintain a strong and visible on-the-ground presence in Hong Kong affairs.

One good idea would be to set up a Group of 7 (G-7) Working Group on Hong Kong at the ministerial level, with a mandate to meet regularly, and indefinitely, to consider the city’s situation. That group could set specific benchmarks for Hong Kong that are tied to the language of the city’s Basic Law, addressing goals such as: greater universal and direct suffrage for the chief executive and Legislative Council; due process in the common law tradition, including in the prosecution of the national security law; independence of the judiciary; fair and impartial regulatory and judicial decisions for foreign enterprises operating in Hong Kong; and freedom of the media and assembly.

Members of the G-7 group would also take a pledge to keep their doors open wide to accept Hong Kong emigrants, because of the justice of the matter, but also as a strategic way to maintain contacts and influence in wider Hong Kong society. Meanwhile, the working group could try to engage regularly and directly with the Hong Kong government, judiciary and legislature. Beijing may block such approaches, but the offer to engage, which is itself a form of implicit negotiation, should be consistently repeated over time.

This strategy is also the most likely to be welcomed and reinforced by the international business community, which would be heartened to continue to invest in the Hong Kong platform. A strong foreign business presence in Hong Kong is critical to maintaining the city’s regional and global relevance — and to boosting the city’s diminished yet still-positive impact on mainland China of setting an example of the development benefits of economic reform and international openness (regardless of how discouraging China’s progress has been in recent years under Xi Jinping).

Sustained, consistent pressure by the international community may not lead to a sudden epiphany in Beijing, or prompt top Chinese leaders to finally realize that an unfettered and open Hong Kong serves their nation best. But a consistent approach, aimed at the medium term, does carry the best prospects of deterring further degradation of Hong Kong’s autonomy, thereby keeping the city’s hopes and positive power alive.