There’s A 3rd Option In Hong Kong

Part of a short, propagandistic English-subtitled video from China’s official Xinhua News Agency, focusing almost exclusively on how pro-Democracy protests could tank Hong Kong’s economy. (You can watch by clicking on the photo).

Almost everything we’ve read concludes there are only 2 possible outcomes: the Chinese government overwhelms protestors with brute force, or the Chinese government gives in, paving the way for more democracy.

Huge, peaceful protests marked this weekend in Hong Kong, after what was portrayed as much more tumultuous activity shut down Hong Kong’s giant airport temporarily last week.

The Chinese government shows few signs of favoring a violent end to what’s happening, although given its past actions, that cannot be ruled out either. Along those same lines, giving more freedom and more Democracy to Hong Kong’s citizens seems even less of a possibility, especially now that protestors have made it crystal clear they’re committed, and it isn’t just about delaying implementation of a law or removing a single politician.

But the Chinese government has a 3rd option, and that’s to starve out Hong Kong. Not literally, but economically.

In fact, it’s something the Chinese government has already been doing slowly and steadily with Hong Kong for years. The recent protests might give it cause and justification to accelerate. (Just like Trump’s tariffs are accelerating Chinese manufacturers moving production to countries where labor is now cheaper, which they were planning to do eventually anyway).

And China’s making no secret of its willingness, if not intention, to do this. China’s official Xinhua news agency begins a story this weekend by describing how “Hong Kong…faces a dimmed economic outlook”, which seems equally plausible as both a statement and a threat. Last week we talked about how China’s 6.2% economic growth in the 2nd Quarter this year was the slowest in decades, but still really good compared to the rest of the world. But in the same period, Hong Kong barely showed growth at all.

And Trump’s certainly not standing in the Chinese government’s way (not that they’d care anyway), refusing to vow support for the pro-Democracy protestors partly because the U.S. just isn’t in the pro-Democracy business anymore, but mainly because he’s got a trade war to win. Which at some point, somewhere, relies on the good will of China’s President Xi.

Over the weekend however, Trump did say if China does “another Tiananmen Square”, that’d make a trade deal “a hard thing to do”. But he then says any China deal would be structured where he could sign it even without the support of Congress. But then he says he wouldn’t. He also gives himself credit for China not taking violent action so far, saying if they weren’t in the midst of trade talks with the U.S., something more decisive in Hong Kong “possibly…would have happened already, a long time ago”. Here’s that clip (click on the photo to watch):

Chatting with media about China and stuff, before heading back to D.C.

Trump probably isn’t helping himself by telling Xi how to fix the Hong Kong situation, which he did again Sunday, after saying last week the Chinese President could resolve it “in 15 minutes”, with a sit-down with protestors.

At least one top British politician is suggesting that the U.K. grant all Hong Kong residents British citizenship for the asking, since Hong Kong was a British colony for a century (actually more). But Britain’s all mixed up with Brexit right now, and the idea is pretty far fetched anyway.

While Hong Kong no doubt is shrinking, not just freedom-wise but economically, and China’s government might want to make that happen faster, it’s not going to shrivel away. As we saw with the blockade at the airport last week, Hong Kong remains a vital conduit for goods and people and most importantly cash, in and out of the region. In addition, it’s still a top destination for overseas companies doing business in China, and many multinationals still have their Asia headquarters there (although a lot have moved to Singapore, which is considered more stable). Hong Kong’s also got great infrastructure (including the best public transportation system we know of), and a lot of extremely wealthy individuals. Wealth that China may not want to lose.

At the same time, Chinese companies are generally not opening their headquarters in Hong Kong, even those that are outward facing to the rest of the world. Instead, they’re more frequently these days setting up in Shenzhen, which is just a quick 5 miles or so from the northernmost train station in Hong Kong, but part of China proper. Why would they be doing this? Simple. It’s cheaper. According to Hong Kong’s South China Morning Post, average income in Hong Kong is close to US$50,000 a year, while in Shenzhen it’s just a little more than US$14,000. Another reason is not taking the risk of political and social unrest, which would be aimed undoubtedly at mainland companies if they had a huge presence in Hong Kong. Because of that, Shenzhen and Hong Kong now boast more-or-less equally big economies, with giants like Huawei running giant operations there. And just a stone’s throw beyond Shenzhen, the city of Guangdong, which also rivals Hong Kong in economic muscle.

Hong Kong originally was coveted by the British partly because of its deep water port. But even there it’s losing out these days. Hong Kong started out this century as the world’s busiest port. Now it’s fighting to stay in the top 10. When Britain handed Hong Kong back to China, it accounted for 20% of China’s total economic wealth, now it’s about 3%.

So this 3rd option—with some limits—long term, is far more likely, if not inevitable. 

Hong Kong, China