Hong Kong, Democracy and the Chinese Dilemma

NEWS:- Courtesy of STRATFOR & Straits Times

With the Chinese economy coming under increasing strain, the last thing Beijing needs is a challenge to the legitimacy of the Chinese Communist Party administrative policy and governance in Hong Kong. As well as a decreasing trade figures, China also faces yet another incipient banking crisis and the potential for the massive Chinese property ‘bubble economy’ bursting. Now Hong Kong’s students and pro-Democracy activists are challenging China’s governance mandate in Hong Kong.

Up until the October 1 Chinese National Day, the Hong Kong student activist deadline, demonstrations in Hong Kong had been massive and noisy, but largely peaceful. Once the deadline for talks came and went with no resolution, the activists hardened their rhetoric and put some ‘steel’ into their street tactics, with sit ins and civil disobedience . Doubling down the Beijing suspended a second round of public consultations on the proposed political reforms, that many activists considered was mostly for show.

Current developments include:-

  • A reticence by Beijing to roll back promised reforms and rebalancing the Chinese economy away from export and investment driven growth
  • Backing away from any comprehensive reform of the overheated property market in China by eliminating restrictions on home purchases and denying a re-launch of new mortgage initiatives. Beijing appears trapped in its own hubris, and is unwilling to initiate necessary economic changes, least they spark a market correction.
  • Regional largess by Beijing towards Regional governments infrastructure projects. Beijing’s plan to spend their way out of the economic downturn.
  • Large street demonstrations in Hebei and Handan over collapsed financial development schemes.
  • A looming financial correction on the back of significant industrial metrics decline.
  • Fear of an unrestrained heavy landing for an overheated housing market spreading a fiscal contagion to other industries. This fear appears to have spooked Beijing into rolling back necessary changes to China’s fiscal position.
  • An $80 billion injection of capital, into the 5 major Banks, to reinforce production levels and ease the threat of a collapse in the housing market nationally. Overcapacity is a serious threat to the Chinese economy and a fraught housing market could be the trigger that precipitates a general sharp market correction.
  • A return to major infrastructure projects to soak up stagnant labour capacity and keep social pressures under control, for now.

 

Into this heady economic mix, the demands by Hong Kong activists to hold China to the tenets of ‘Two Systems One Nation’ by challenging Beijing’s ‘man’ in Hong Kong. Chief Executive Leung Chun-ying and Beijing’s communist dominated, undemocratic Chief Executive selection committee of 1200 elitist mainlanders.

  • Singapore’s main newspaper (The Straits Times) reports that student and pro-democracy activists that have been mostly peaceful during September are forecase to get more strident after October1.
  • Hong Kong’s growth, powered by China’s logistics, tourism and trade sectors and expressed in a red hot housing market, might have run its course. Property has advanced four fold in the past decade but wages have only risen by a mere 10%.
  • At the same time Hong Kong’s position as China’s ‘shop-front’ has slipped markedly. Shanghai and Guangzhou have supposed Hong Kong as China’s export centres. Five years ago Hong Kong GDP was 25% of China’s. Now it’s a mere 3% of China’s GDP.
  • With the growth of technology and manufacturing on the Mainland rather than in Hong Kong, the rationally that gave Hong Kong its edge is vanishing.
  • China appears to have outgrown Hong Kong’s usefulness, and with little to lose China is cracking the whip to keep Hong Kong’s democratic contagion suppressed.
  • Hong Kong’s Chief Executive $6.4 million payment by Beijing, exposed in the Australian newspaper The Age suggests corruption. Hong Kong’s activists cast the Beijing appointed Chief Executive Leung Chun-ying as a Mandarin interloper,
  • Student activists goad Leung by calling him 689 and reference to the June 1989 Tiananmen Square suppression of Chinese democracy as well as referring to Leung’s 689 polled votes out of the 1200 Beijing appointed elitist selection committee. It is also a Cantonese play on words that reflects badly on Mr. Leung’s manhood.

 

ANALYSIS:-

Between the hand over of Hong Kong to China in 1997 until 2009 Hong Kong was a vibrant well ordered city state, useful to Beijing both as a source of innovation and trade hard currency, as well as a safety valve for nascent stirrings for democratic reform on the Mainland. By 2014 this is no longer the case. Increasing activist violence, triggering more draconian Police crackdowns, the appearance of Beijing controlled counter demonstrations and the likelihood of increases in internal suppression laws, suggests that the current Hong Kong student led pro-democracy demonstrations will be crushed.

By my estimate China will throw Hong Kong under the bus rather than risk the contagion of free democratic electoral choice spreading elsewhere. Likewise China will care not a jot, if the folks in Taipei use the crackdown by China in Hong Kong as a way of exposing the Two Systems one Nation concept, as just empty rhetoric. China is becoming more aggressive and expansionist and probably feels that it will eventually be able to cower Taipei into submission through the threat of brute force coupled to slow economic absorption and integration. Appealing to the greed of the Taiwanese private sector to undermine the rump Kuomintang political and military power structures, is the more likely scenario. China can’t afford to allow the Hong Kong demonstrations to escalate, especially if as economic growth slows, the potential for internal unrest hastens.