The Battle of Hong Kong

The battle of Hong Kong is still raging. Most savvy commentators on this side of the world see it as yet another skirmish in the great ideological battle between freedom and authoritarianism. After all, Hong Kong boasts of a very large degree of freedom. Mainland China, not so much. The citizens of Hong Kong are protesting to retain their freedom. And yet, Hong Kong belongs to China. It is not an independent territory. And as Cornell University Professor Eswar Prasad wrote  in the New York Times six weeks ago, China no longer really needs Hong Kong the way it used to need Hong Kong.

I posted about it at the time and I continue to believe that this underlying economic reality explains a great deal of what is happening in Hong Kong today. It is good to keep in mind that Hong Kong is not Beijing and therefore analogies between what is happening in Hong Kong today and what happened in Beijing thirty years ago are surely off the mark.

Among those who believe that Hong Kong’s citizens are fighting to keep the city free are Joseph Sternberg. Writing in the Wall Street Journal, Sternberg suggests that the protests are designed to disrupt the local economy. Which would presumably make the Chinese authorities understand how valuable the local economy is. He is suggesting that there is method to the madness, but one still retains some considerable doubts… it feels a bit like cutting off your nose to spite your face. Dare we mention that Chinese leaders do not respond well to pressure. Witness Tienanmen. 

Sternberg’s comments, along with several others, try to measure the impact of shutting down the airport. That is, shutting down a main transportation hub. The shutdown, coupled with the mass protests, has brought much of Hong Kong’s business to a halt.

Anyway, allow Sternberg his point of view:

There is confusion about what this mass popular mobilization means for the economy because the protests are disruptive by design. This week’s airport shutdown called attention to a longer-running decline in travel to Hong Kong in recent weeks. Meetings have been canceled, conferences postponed.

How can this be good for a tiny territory whose main business is doing other’s people’s business—serving as a hub and conduit for trade and finance across a region? And this isn’t the only blow to Hong Kong’s reputation. No firm relishes putting its employees in danger simply by asking them to commute to and from work; no one enjoys sending frequent security updates to staff. Growing numbers of companies have to do both in their Hong Kong offices.

Surely, many business leaders are now questioning their commitment to Hong Kong. Yet, Sternberg suggests that doing business in China is worse, and that the intrusive hand of the Chinese state will stifle initiative in Hong Kong:

This is leading to murmurs about whether Hong Kong remains a viable place to do business. Some leaders in the expat business community warn of “significant” damage to the territory’s reputation from the upheaval. Another common theme is that when it comes to business attitudes, the protests are as bad as the Chinese intrusions into Hong Kong’s legal system that triggered them.

This analysis brought to mind a recent Facebook observation by economist David Goldman, an on-the-ground observation of Chengdu, China:

Just came back from a few days in Chengdu, the capital of Szichuan province. It's a high-tech hub almost wholly rebuilt in the past ten years with new high-rises, subway system, highways and other infrastructure. It's twice the size of New York City and its GDP of $210 billion is about the same as that of Vietnam or Portugal. Not only the high-end malls but neighborhood shopping areas look prosperous. The eight-lane main arteries through town are congested at rush hour. It looks east to the New Sik Road rather than West. And I saw exactly five Westerners during my stay (including visits to the main tourist sites, e.g., the national panda reserve). Hefei, Yangzhou, Nantong and other regional centers are now the epicenter of China's growth, and they are directed toward the 1.4 billion person internal market. I spent some time with the head of a big IT company who said he won't hire Chinese with a B.A. from US universities --- they went overseas because they didn't score high enough on the much-tougher Chinese university entrance exams (PhD's are a different story). The Chinese just aren't that into us, and the US is increasingly less relevant to China's economy. Most of what's happening is happening in places you've never heard of, among people who speak languages you didn't know existed.

It’s great to consider the battle of Hong Kong in terms of the war of liberty against totalitarianism, but an up chose view of the Chinese economy by someone who knows his way around economies, is also useful. I would underscore Goldman’s last point, namely that, however much China has stolen intellectual property from America over the past years, it does not really need very much from America right now. And it probably needs less than we think from Hong Kong.

By and large, Western leaders have not commented on the situation. One marked exception was President Trump’s recommendation that President Xi Jinping sit down to have a conversation with the leaders of the Hong Kong movement.

As interventions go, it was singularly inept. Doesn’t anyone in the White House remember that, during the Tienanmen demonstrations in 1989, the Chinese premier Li Peng sat down on national television with a student named Wuer Kaixi? Wuer was dressed in pajamas and took the occasion to berate and humiliate Li Peng. This contributed to the view in the Politburo that the demonstrators were like the Red Guards and were about to visit mayhem and calamity on the country. You remember the consequences.

Anyway, Michael Van, writing on Pajamas Media suggested that the protests are short sighted and will ultimately damage Hong Kong. They are, as he argues, fighting a losing battle.

Yes, it is very courageous what the protesters are doing. But history teaches us that there is no way they are going to win this battle. Quite the opposite is true. If history is anything to go by -- and it usually is -- these people will end up with less freedom than they currently have.

That's why I'm very critical of the Libertarian Party's and other Westerners' public support for the protesters. Do they actually know what they are doing? It goes without saying that the protesters are extremely courageous. It should also be clear that I hope they'll get what they want. But the sad fact of the matter is that it's far more likely that China will step up its oppression of Hongkongers. This will not end well.

He continues:

As for those who call on Western leaders to voice support for the protesters: again, history has shown that Beijing does not respond well to international pressure. Rather than taking a step back, it only causes the communist leadership to step it up a notch or ten. It's sad -- it's terrible even! -- but it won't help Hongkongers one bit to have President Trump, Prime Minister Johnson, or President Macron condemn China's government. If anything, it'll just make matters worse.

A sobering assessment, indeed.

The same can be said of Raymond Zhong’s analysis, which appeared in The New York Times a few days ago. Zhong was assessing the impact of closing the airport. About which many protesters themselves appeared to have second thoughts. They even apologized for their bad behavior.

Zhong explained, quoting Tara Joseph, president of the American Chamber of Commerce in Hong Kong:

Many of Hong Kong’s most important industries — trade, finance, tourism — depend on ready access to the skies. If the antigovernment demonstrations this summer have tested the semiautonomous territory’s political union with China, then the airport disruptions have threatened something much more basic: the easy accessibility that makes Hong Kong such a valuable gateway to China for the rest of the world.

“People who didn’t have to come were starting to rethink their plans already,” Ms. Joseph said. The turmoil at the airport, she said, “is the icing on the cake.”

All sides in the unrest seemed to take a pause on Wednesday. Online, some protesters circulated apologies about the intensity of the violence at the airport the previous night.

When the protesters closed the airport many local business leaders turned against them. They understood that Hong Kong’s economic viability was being risked.

The demonstrators proved they had the ability to paralyze an important economic artery, but the strong reaction that Tuesday’s chaos elicited from businesses, travelers and the mainland Chinese news media means that protesters may be more careful about trying such tactics again.

Zhong continued:

The instability, combined with the trade war between China and the United States, has already rattled Hong Kong’s economy. The territory’s stock market has plummeted in recent weeks, and forecasters have slashed estimates for economic growth. The local economy expanded 0.6 percent in the latest quarter from a year earlier. The figure was unchanged from the quarter before and is the slowest pace of growth for Hong Kong since the aftermath of the global financial crisis.

Some residents have started considering new contingency plans for their families and their wealth.

Once people start reconsidering their commitment to Hong Kong, and once businesses find that conditions are no longer conducive, the city state will suffer. And it will suffer gravely, even without any military intervention from Beijing. If business move to Shanghai, the damage will far exceed what anyone is now predicting.

Zhong concludes, on a faintly optimistic note:

One factor that has potentially mitigated the economic impact is that the disruptions have not affected cargo flights. The Hong Kong airport handles 5.6 million tons of cargo a year, more than any other airport on the planet. But more airfreight is carried nowadays by wide-body passenger planes, and those shipments have invariably faced delays.

Beijing does not have to punish Hong Kong. Its citizens are doing that all by themselves.