The economic repercussions are difficult to estimate at this point. The Hang Seng equity market index has been rattled but it is hard to distinguish local factors from wider concerns about global growth and trade. The 40 million or so visits to Hong Kong registered annually by Mainlanders will have been affected – group tours were halted during the height of the unrest – while the street protests stopped road and retail traffic. These effects will pass quickly as the basic earnings picture for financial service, commercial and trading companies won’t have been affected much or for long.
On the other hand, Hong Kong’s future status and earnings power may no longer be assured. Robust institutions, including judicial independence and the rule of law, press freedom, good governance, and protection for basic human rights are what make Hong Kong special in China. These will be at risk if Beijing decides that its priority is to keep Hong Kong “in order” and subservient.
In that event, even if Hong Kong continued to be China’s window on the world and a key conduit for capital and investment flows, it may well bleed the skilled and educated labour on which its financial centre status depends. As one country makes two systems increasingly irrelevant, Hong Kong’s prominent financial role, including for the internationalisation of the Yuan, will tend to shift to Singapore, and Beijing’s cultivation of Taiwan may backfire.
There was a telling moment in Beijing during the first week of the protests, captured by staged official pictures of President Xi, Premier Li and other officials at a concert and a banquet with former Presidents Jiang Zemin and Hu Jintao, and others from whom the current leadership has recently distanced itself amid China’s robust anti-corruption campaign. The message was that the Party was united and resolute.
President Xi has been banging the drum of Party unity and solidarity ever since 2012, when the first tiger, Bo Xilai, was accused of corruption, tried and imprisoned. Other senior officials, among the over 180,000 disciplined in 2013, have met a similar fate. The anti-corruption campaign is partly a purge of enemies and vested interests, but it is also designed to “purify the Party” so as to make it more centralised, disciplined and compliant, and more effective in implementing overdue and often radical economic reforms.
The Hong Kong protests were clearly seen as both illegitimate and threatening. It is far too early to tell if Xi’s ambitious campaign will succeed, or if it is even possible to implement radical economic reforms without also carrying out political and institutional reforms, which have been explicitly ruled out. But for now it is clear that Beijing’s will with regard to Hong Kong will prevail.
Yet the effects of the protests could easily cause China’s economic reform programme, already under some stress, to check further. This would exacerbate the slowdown in the economy, which would not be good news for Europe or other countries that depend on a rapidly-expanding Chinese market. Whether the Hong Kong protests might ultimately be less as a moment of repression, but a sign of things to come, not just there but more widely, is something about which we can only speculate. China is becoming more modern, middle-class, wired and aspirational. If Hong Kong’s protests eventually caught on, China’s political and economic system would be destabilised, providing its leaders with the nightmare they dread.
George Magnus is an economist and author