Will the Lustre of the Chinese Crown Jewel Last Until 2047?
Siddharth Ninan Abraham
A week ago, American jeweller Tiffany & Co. declared its global Q2 figures: sales down 3 per cent; net earnings fall 6 per cent. The company’s quarterly profits topped estimates, but the management was concerned about finding itself, to quote CFO Mark Erceg, “below the bottom end of our ranges” if the protests were to continue in Hong Kong, its fourth largest market after the United States, Japan and mainland China. The recent protests against the extradition bill in Hong Kong have not only meant a drop in Tiffany’s earnings, but also sudden store closures and loss of business days. The company has warned this as a sign of a sluggish market going forward. Since Beijing announced that it has the power to declare a state of emergency in Hong Kong as the unrest continues unabated, things have only become bleaker. Once known as China’s crown jewel, it’s almost as if Hong Kong’s lustre is slowly fading away, and one of the most profitable economic systems in the world does not hold the same value as before.
“As good as forever.” This was what Claude MacDonald, the British representative behind the Second Convention of Peking, thought when he secured Hong Kong from China on a 99-year lease to Britain at the end of the brutal Second Opium War. At the end of that lease in 1997, Britain handed over Hong Kong to China on the agreement that China would extend Hong Kong’s political and social autonomy via the “One Country Two Systems” policy for another 50 years. It’s been 22 years into that agreement, and Hong Kong is now fighting for democratic freedom and against China’s refusal to uphold its promise of leaving them be until 2047.
In the 90s, Hong Kong had amassed a GDP valuation equivalent to 30 per cent of mainland China’s entire GDP at the time. Post takeover, China opted to play it safe and decided to not fix what was not broken. Hong Kong was made a Special Administrative Region with its own separate constitution, democratic rights such as freedom of speech and freedom of assembly and its own legal system. So how have Hong Kong’s streets gone from seeing buzzing and dizzying trade to 2 million protestors demanding freedom and rule of law?
A peek into Hong Kong’s history might reveal the answer. In the early 1800s Britain traded silver for tea with China, which was the only nation mass producing tea. But China’s increasing demand for silver led to Britain’s silver reserves depleting immensely. Britain now had to think of another way to continue purchasing tea from China (they really loved their tea!). Soon, they began exporting opium (legal in the UK at the time) to China (where it was illegal) and charged its citizens a certain amount of silver (sound familiar?). This led to the First Opium War, which Britain won, and subsequently asked for Hong Kong, which China agreed to, assuming that it was giving away just a bunch of unusable islands. Hong Kong’s interesting trade-based origins speak volumes of the kind of colony it would soon become.
Throughout the 1800s and 1900s, Hong Kong saw an astronomical rise in trade, representing the West’s entry into the Asian markets. As China framed certain policies which led to Chinese manufacturers moving back to the mainland, Hong Kong saw an opportunity to improve its own industries, focusing more on the labour-intensive export-based ones since their trade network had been already good. But why did Hong Kong continue to prosper while China, which had a much larger area and many more labourers, lag behind? Wars. China was fighting various wars at the time and businessmen saw Hong Kong as the safer and more stable region to grow their businesses. China’s isolation from the economy post 1950 only made Hong Kong’s economy flourish.
A far more important reason for this rapid growth was the Western nations’ preaching of a free economy, complete with low taxes, lax employment laws, absence of government (the laissez-faire situation) and free trade. China, with its aim to promote Communist policies, was unable to provide any of this. This decision to follow the free-economy ideology laid the framework for Hong Kong’s present economic system. Such an economy led to the region’s mammoth GDP figures and seemed to allow for another fifty years of freedom, despite being a part of a country that does not see this as a good model for economic success.
In April 2019, Hong Kong’s market cap touched $ 5.78 trillion and overtook Japan to become the third largest stock market in the world after the United States and mainland China. So why are there protests if Hong Kong is so successful?
The world has changed dramatically since the 99-year lease was signed. Businesses now have hundreds of routes to enter the Asian markets, notably Singapore, South Korea, and China. China now has some of the most profitable business cities as its crown jewels such as Shanghai, Beijing, Guangzhou, Tianjin, etc., which still follow a socialist-based economic model with benefits to businesses, trade and the economy in general. They have found an economic model that works alongside their Communist principles and manages to deliver results, results good enough to reduce Hong Kong’s share in the GDP from 30 per cent to less than 3 per cent.
This begs the question, if these cities can work with such a model, why can’t Hong Kong? Hong Kong is undoubtedly the world’s third largest stock market, but China no longer sees any benefit in keeping Hong Kong as a Special Administrative Region. So, the mainland Chinese way has gradually made its way into the autonomous system. Hong-Kongers cannot vote for their leaders; a 1200-member election committee does that. Since 2014, Beijing not only hand-picks the members for the “democratic” election, it also chooses a few pro-Beijing candidates to stand for the elections. This had led to a series of sit-in street protests known as the Umbrella Movement that started in July 2014. But by December 2014, the protest died a muffled death as a civil disobedience movement when key organizers of the Occupy Central with Love and Peace (OCLP) that had initiated the protests surrendered to authorities and agreed to bear the legal fallout of the protest. Although they were set free, a movement was buried. Many Chinese policies have also been imposed on Hong-Kongers since, as a way to start inducting Hong Kong into the mainland, including the Hong Kong-Zhuhai-Macau Sea Bridge (one of the largest sea bridges in the world), introducing pro-Communist material in schools and showing small snippets of Hong-Kongers following Chinese traditions before every news update. However, the Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill 2019, better known as the Hong Kong extradition bill, is what many experts call the last nail in Hong Kong’s coffin. The bill allows Hong Kong’s fugitives to be extradited to the mainland. After the political freedom that was taken away by the changes made in 2014, the province’s legal freedom is at stake if the law is passed. Since the end of March 2019, millions of protestors have taken to the streets, with 2 million joining in on 16 June 2019, demanding the withdrawal of the bill.
Since the protests started, the world’s third largest stock market has seen a $500 billion drop in value. And, Tiffany’s isn’t the only business affected by the series of protests since the end of March 2019. Retail stores have seen as much as a 50 per cent sales drop. The fashion industry, the tourism sector, the luxury goods sector are all bearing the brunt. While some companies are considering downsizing, some are moving their businesses and money to Singapore. Yet some others are opening more stores in the mainland. While the lure of the mainland has become too hard for many businesses to ignore, for mainlanders, who make up for 80 per cent of Hong Kong’s tourists, a trip to island for shopping has become rather pointless. From being one of the World’s most visited cities (survey by Euromonitor) with a revenue of $29.8 million dollars to facing a sharp drop in tourism due to the protests, Hong Kong is losing a lot of business. With most of the business revenue coming from the purchase of luxury goods by mainlanders and foreigners, businesses have faced loss of working days and lost a good chunk of revenue. All the protests also mean the domestic demand has also reduced greatly. The protests have also lead to cascading effects on the pro-Beijing businesses, which face vandalism, strikes, etc. Cathay Pacific, a known pro-Beijing corporation, has been reported to have fired all the employees rumoured to be a part of the recent protests. This has led to large scale boycotting of the corporation, which ended with their CEO Rupert Hogg resigning.
Aside from the complicated political condition of Hong Kong, various other factors have also led its reducing influence in the Asian markets. With the locals below the poverty line having to face excessively high rents for living spaces smaller than a hostel room in India, labourers have found it difficult to manage all their finances in a city as expensive as Hong Kong. This is a drawback of the free economy system Hong Kong opted to follow. It led to a number 1 ranking on the World Economic Freedom index, but authorities began auctioning out land at very high prices to earn money and the rents kept rising. Businesses now see mainland China’s newly developed cities as a new way to enter into the Asian markets. They also see Singapore, which was second on the same index, although it cannot ever have the advantage of proximity to the Chinese mainland as Hong Kong does.
With alternatives are present, Hong Kong has also begun to lose its relevance. There will always be features about Hong Kong like the extensive foreign business network that China will find very difficult to replicate. As China seems unfazed, considering it has seen many such protests over the years and has managed to quell them all, the Hong-Kongers continue their protests for democracy without much help from the West. As the world order changes, and more and more right-wing forces are being elected to power across the globe, particularly so in the West, the promoters and upholders of democracy, human rights and rule of law are finding their hands tied. As the world watches in silence, will the Chinese crown jewel, Hong Kong, shine through to 2047 or lose its lustre with the emergence of a new world order?