Politics and Government in Hong Kong

  • Dixon Ming SingEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-31816-5_2994-1

Keywords

Foreign Direct Investment Academic Freedom Civil Disobedience Global City Democratic Reform 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Introduction

Hong Kong’s Outstanding Economic Development Legitimated Its Nondemocratic System Before Handover to Mainland China

Hong Kong was a former British colony between 1841 and 1997. Soon after the World War II, given Hong Kong’s port, a skilled international trade sector, and extensive shipping links, Hong Kong has accomplished a rapid postwar recovery through entrepot trade and services and acted as a doorway to China. As one of the four renowned Asian tigers, Hong Kong has enjoyed the most spectacular economic development in a single generation via its export-led growth strategy. Between 1960 and 1982, Hong Kong enjoyed an amazing average annual economic growth rate of 7%, which placed it the fifth highest one globally. Between 1980 and 1992, its GDP could still grow at an enviable rate of 6.7% annually (Sing 2009, 2012). Of no less importance, since 1970, Hong Kong has changed its gear, broadening its economic base by its more diversified consumer manufacturing and gradual development into the top three financial center in the world. In 2016, the International Monetary Fund statistics revealed that Hong Kong was ranked 12 in the world in terms of per capita GDP, with US$58,095 in purchasing power parity (Table 1). Besides, Hong Kong has also stood out as a society with an extraordinary degree of global connections. Predicated on the 2012 Globalization Index, which encompasses 60 largest societies by GDP in total, Hong Kong was ranked the top and the most globalized society in the world. The spectacular level of human development of Hong Kong, based on the latest statistics, is shown in Table 1.
Table 1

Various objective indices of human development

Indicator

Hong Kong

Ranking from the top

Human Development Index (HDI) value 2014a

0.91

12

Life expectancy at birth (year) 2016b

82.90

7

Adult literacy rate (% ages 15 and older) 2014c

95.70

NA

GDP per capita (PPP US$) 2016d

58,095

12

Overall globalization index 2012e

7.81

1

Hong Kong’s stunning socioeconomic development and globalization has been accompanied by a low level of corruption. The Transparency International, a worldwide agency assessing the perceived levels of corruption around the world, reveals that only 16 out of 175 societies globally are considered as less corrupt as Hong Kong in 2014, putting Hong Kong as the one of the least sullied societies in Asia (Table 2). In short, the spectacular socioeconomic development and overall level of good governance have legitimated the nondemocratic regime of Hong Kong especially before the reversion of its sovereignty from Britain to Mainland China in 1997 (Sing 2010).
Table 2

Corruption perception index (CPI) 2014

Country

Score

Ranking of 175 societies

Hong Kong

74

17

South Korea

55

43

Taiwan

61

35

Singapore

84

7

Japan

76

15

China

36

100

Source: Transparency International (TI) 2014 corruption perceptions index (CPI) http://www.transparency.org/cpi2014/results

Note: 100 = “highly clean,” 0 = “highly corrupt”

That said, the legitimacy or the mass support for Hong Kong’s nondemocratic system has visibly faltered, in view of Beijing’s increasingly glaring erosion of Hong Kong’s freedoms, judicial autonomy, and its widely reported reneging on its promise of allowing Hong Kong to fully democratize especially since 2003.

Chinese Government Has Repeatedly Blocked Hong Kong’s Democratization

Between 1984 and 1997, the British Government has progressively and vigorously pushed for democratic reforms for Hong Kong. During the period, Beijing repeatedly stalled those democratic reforms with implicit and explicit threats, opinion mobilization, and formation of alliances. Immediately after Chinese Government has become the sovereign power over Hong Kong in mid-1997, Beijing reversed some crucial democratic reforms initiated by London and cemented a nondemocratic hybrid regime by dampening popular participation in the electoral process and changing the electoral system to discourage the ascendancy of the pro-democratic forces. Beijing’s maneuvers have debilitated Hong Kong’s civil liberties and democracy as measured by the Freedom House (Fig. 1). The Chinese Government has enthusiastically rolled back Hong Kong’s partial democracy in order to preclude Hong Kong becoming a subversive base against the one-party rule in China (Sing 2006). At least, Beijing viewed the potential demonstration effect of a fully democratic Hong Kong for the rest of Mainland China with trepidation. Against this backdrop, Beijing, through its anointed chief executive of Hong Kong, attempted blatantly to impose a Draconian anti-subversion law in Hong Kong in 2003. This measure unintendedly deepened the mutual distrust and tension between Beijing and Hong Kong people.
Fig. 1

Ratings of Hong Kong’s democracy from 1992 to 2016 (Source: Freedom House (1992–2016) Freedom in the World, Hong Kong https://freedomhouse.org/report/freedom-world/2016/hong-kong)

The Draconian national security law eventually sparked off half a million Hongkongers to join a mass demonstration for better governance and greater democracy, the largest protest since the handover of Hong Kong to China. The protest attested to a widespread public rejection of Beijing’s ratcheting up of political suppression of Hong Kong and a strong support for greater democracy, in order to safeguard Hongkongers’ freedoms, socioeconomic development, and good governance (Sing 2005). Indeed, public opinion surveys toward universal suffrage have shown a fairly consistent mass demand for real democracy.

Public aspirations for democracy have been greeted by deliberate and repeated procrastination of democratization from Beijing since the handover of Hong Kong (Sing and Tang 2012). Since China has become Hong Kong’s new master, there was a regression to more authoritarian rule in Hong Kong by dampening popular participation in the electoral process and amending the electoral system to deter the participation of pro-democratic forces in elections. Specifically, the Chinese Government reduced the size of the functional constituencies from over two million to around 200,000 for the elections of the 9 new legislative seats reserved for various professionals. It also installed the proportional representation system for selecting the 20 directly elected seats and made it difficult for pro-democratic forces to be represented in the legislature (Sing 2009, 298).

With pervasive perception of dwindled freedoms and worsening governance in Hong Kong, amid Beijing’s repeated reneging of constitutional promises to implement democracy, Hong Kong’s followers of democracy have progressively switched to more aggressive tactics to push for democratization. The escalation in confrontations has coincided with the coming to power of Xi Jinping, a die-hard antagonist to democracy of China. Xi has strengthened Beijing’s determination to scupper not only Hong Kong’s democratization but also to its freedoms and judicial autonomy.

In June, 2014, Beijing publicized the white paper on “One Country, Two Systems.” The Chinese Communist Party asserted, in contravention of Hong Kong’s constitution endorsed by Beijing, that Beijing is entitled to interfering with every internal affair of Hong Kong and controlling the nomination of candidates running for Hong Kong’s chief executive. What was more, in 2014, the Standing Committee of China’s National People’s Congress (NPCSC) had suggested Hong Kong should hold a direct popular vote for its chief executive for the first time in 2017, but an effectively pro-Beijing committee would control nominations for the contest. Confronted with Beijing’s violation of promise of implementing full democracy in Hong Kong, an occupy movement called Umbrella Movement broke out in 2014 to compel Beijing to concede.

The striking Umbrella Movement in Hong Kong has stunned the world and riveted the global attention. It was notable by its long duration, epic scale of participation, and a drastic turn in movement tactics from the past in this global city. The 79-days-long civil disobedience movement participated by 1.2 million Hong Kong citizens, i.e., nearly 20% of the city’s population aged between 15 and 65, signposted the scale of this civil disobedience activity was the largest in Hong Kong’s history. The movement was also salient by its foremost break from the past, when restrained strategies were supplanted by far more provocative acts in the struggle for democracy. The movement has been greeted by many in the world, as many Hong Kong people had the braveries to defy up-front the Chinese Government for democracy. That said, the campaign has hit a stone wall, with Beijing yielding no concession in democratization. What is worse, Beijing and the Beijing-anointed leader of Hong Kong have continued to tighten the screw on Hong Kong’s freedoms since late 2014.

Threats to Freedoms and Judicial Autonomy in Hong Kong Escalated

To obviate another Hong Kong-wide occupy movement, Beijing and its puppet government in Hong Kong have blatantly launched offensives in Hong Kong since the Umbrella Movement to curb Hong Kong’s press freedom, academic freedom, freedom of expression, and judicial autonomy.

Rising Threats to Hong Kong’s Press Freedom

Though Hong Kong’s constitution upholds freedom of press freedom, the Hong Kong and Chinese Government have stepped up their control over Hong Kong’s media (Freedom House 2016).

According to the Hong Kong Journalists Association (HKJA)’s 2016 annual report, the erosion in press freedom has been mirrored by the sagging Press Freedom Index. “The 2015 index dropped 0.7 points to 38.2 for journalists and 1.4 points to 47.4 for the general public” (Hong Kong Journalists Association 2016), indicative of a deterioration in press freedom for a second consecutive year. Besides, 85% of journalists, based on a HKJA’s research, held that press freedom worsened over the previous year. Likewise, in April 2016, an international NGO concerned with press freedom, i.e., the Reporters Without Borders, detailed Hong Kong’s conspicuous fall in press freedom from eighteenth to seventieth between 2002 and 2015. The calculation was based on 43 criteria, including every kind of violation directly affecting journalists (such as murders, imprisonment, physical attacks, and threats) and news media (such as censorship, confiscation of issues, searches, and harassment). The dire warnings from the HKJA and Reporters Without Borders were echoed in January 2016 by the International Federation of Journalists. When the Federation released its annual China Press Freedom Report, it underscored that the “press freedom in China, Hong Kong and Macau deteriorated further in 2015, as the Communist Party of China used every means at its disposal to control the media.” The report also forewarned that “As Hong Kong goes to elections … the party is also using its considerable wealth to consolidate its influence in the region” (UK Foreign & Commonwealth Office 12 October 2016). To explain the decline in Hong Kong’s press freedom, the worsening self-censorship amid the suppression from the political establishment, and the increasing ownership of Hong Kong’s media from Mainland’s capital, have been obviously important causes.

As argued by the HKJA in 2015, journalists in Hong Kong were confronted with both external and internal pressures. Journalists were besieged with the “internal pressure in the form of escalating self-censorship in order to comply with establishment viewpoints” (UK Foreign & Commonwealth Office 11 February 2016). Most journalists regarded self-censorship as very common, particularly regarding stories criticizing the Beijing Government, so as to avoid currying trouble from Beijing (Africa Leader 24 March 2016; Reporters Without Borders 10 October 2014). One case in point has been that in April 2016, a dominant middle-class newspaper of Ming Pao sacked its executive chief editor, shortly after his insistence of releasing an in-depth report detailing the secretive investments and deposits of Mainland’s leaders in offshore banks. “Many were skeptical about Ming Pao’s public explanation that the decision to sack the senior executive was simply ‘cost saving’” (UK Foreign & Commonwealth Office 12 October 2016).

HKJA also highlighted that “71 percent of journalists believed the Hong Kong Special Administrative Region (HKSAR) Government contributed to the suppression of press freedom” (UK Foreign & Commonwealth Office 11 February 2016). HKJA condemned the HKSAR Government’s increasing practice of making major announcements through blogs and other “one-way” form of communication rather than holding press conferences. The HKJA called on the government to raise transparency by enacting freedom of information and archive laws, only to be ignored by the government. Indeed, 89% of journalists agreed in a survey in 2014 that a law on freedom of information should be enacted. Journalists surveyed in early 2016 thought they faced obvious and increasing difficulties in obtaining information vis-à-vis a year before (Hong Kong Journalists Association 2016). Concerns were also raised by some commentators that the pro-Beijing chief executive has restricted information on government officials’ visits to Beijing and refused to hold press conferences or only invited camera operators and photographers in order to avoid question-and-answer sessions (Reporters Without Borders 10 October 2014).

Physical attacks on journalists can be tantamount to trampling on press freedom, especially if they happen mostly on liberal media. Despite the decline in the number of physical attacks on journalists between July 2015 and June 2016, they have been worsening in the last few years (Hong Kong Journalists Association 2016). To illustrate, during the 2014 Umbrella Movement protests, more than 30 journalists were assaulted. Attackers on journalists were mostly released or only had a minor punishment subsequently. In January 2015, the harshest critic on the government and the most liberal media company – the Next Media – had its headquarters and its founder’s home targeted in firebomb attacks soon perhaps for their support of Hong Kong’s pro-democracy movement (Freedom House 2016; Hong Kong Journalists Association 2016). Meanwhile, “the attitude of Hong Kong police toward media and journalists has been hardening in recent years” (Reporters Without Borders 10 October 2014). Arrests of journalists and police misconduct toward journalists during demonstrations have become more frequent.

Since the ascendancy to power of Xi Jinping in March 2013, there has been a visible trend toward escalating media control in Mainland. Arguably, the decline in Hong Kong’s press freedom has mirrored the tightening ideological and organizational control from Beijing.

As underlined in the HKJA’s 2013 annual report, China has endeavored to regain the Hong Kong media since the crackdown of Tiananmen Square movement in 1989. The policy aims at ensuring the territory’s media would become the Chinese Government’s mouthpieces. Beijing’s policy has achieved a success as the Chinese Government or Mainland corporations now have direct control or stakes in 8 out of 26, i.e., 31% of mainstream media outlets in Hong Kong. “These are Ta Kung Pao, Wen Wei Po, Hong Kong Commercial Daily, China Daily’s Hong Kong edition, Sing Pao Daily News, Phoenix Satellite Television, TVB and most recently the South China Morning Post, which came under the control of Chinese internet entrepreneur Jack Ma and his Alibaba group in April 2016” (Hong Kong Journalists Association 2016).

Escalating Threats to Academic Freedom

Academic freedom has also taken a hit during recent years. University professors in Hong Kong have been generally able to write and lecture freely, and political debates on campuses were lively. In the aftermath of the Umbrella Movement, however, concerns began to surface that political pressure was being applied to Hong Kong’s universities, in particular over appointments and general policy. In January 2015, Chen Zuo’er, former Deputy Director of the Hong Kong and Macao Affairs Office of the State Council (HKMAO), said at a forum in Beijing that it was “clear there are problems with the education in Hong Kong along with its development” and that “the ‘national interest’ must be considered when Hong Kong considered its education policy” (UK Foreign & Commonwealth Office 21 July 2015).

A string of incidents in the last 2 years have raised concerns that Beijing is putting greater pressure on Hong Kong’s academic circle. In April 2015, the City University of Hong Kong abruptly closed its creative writing program, whose students had published a number of works supportive of the Umbrella Movement. In September 2015, “the governing Council of the University of Hong Kong rejected a nominee for the post of pro-vice-chancellor, Johannes Chan, who had been unanimously approved by the search committee. The majority of the council members were neither students nor university employees – six were appointed directly by the Hong Kong’s Chief Executive. Chan’s supporters said that his background as a human rights lawyer and prodemocracy scholar made him unpalatable to Beijing” (Freedom House 2016). In December 2015, despite a series of protests, Chief Executive Leung appointed a pro-Beijing scholar, Arthur Li, as the chairman of the governing council of the University of Hong Kong (Freedom House 2016).

Moreover, a liberal and famous academic, Joseph Cheng Yu-shek, a professor of political science at the City University of Hong Kong, also alleged that the pressures on and job insecurity of young academics have incentivized them to be “politically correct” (Denyer 2015). He found the presence of political pressure to adopt a pro-Beijing line among the faculty members if they aspired for promotion. Concomitantly, Beijing encourage loyal academics by granting them valuable honors and posts at Mainland universities and discourage disloyal academics with denial of their access to Mainland to conduct research (Denyer 2015). Likewise, a scholar who joint in 2014 Umbrella Movement underscored that the tendency toward tighter control was quite obvious, as the whole system delivered a crystal clear message that academics “should keep silent and focus on their research” (Denyer 2015). That said, confronted with the erosion of academic freedom, hundreds of scholars signed a petition letter in March 2015 to voice their concerns about “political intervention” in the territory’s universities and a serious threat to academic freedom (Denyer 2015).

Moreover, in 2012, Hong Kong experienced a large-scale public movement protesting the implementation of national education. The movement was significant as it was both successful and broad based, being against Beijing’s attempt to limit students’ freedom of thought and renege on its promise of granting Hong Kong “high degree of autonomy” under the “One Country, Two Systems” framework. In January 2015 Hong Kong’s chief executive stressed that the government would amend the current high school curriculum to deepen students’ interest in and understanding of Chinese history and culture (Steger 2015). Many media reports purported the government was intent on a major policy shift to brainwash students in order to avert another large-scale democracy or occupy movement if students continued to be exposed to liberal and critical ideas including those found in the subject of liberal studies. Pro-Beijing politicians have repeatedly sounded out warnings to water down the subject of liberal studies (Steger 2015). In addition, the Chief Executive underlined that the government would subsidize students to participate in exchange programs with schools in Mainland, but not elsewhere (Denyer 2015). The obvious attempt for Beijing to control the academic freedom and freedom of thought in Hong Kong already backfired on Beijing in a number of resistance movements since 2012.

Threats to Freedom of Expression

Beijing Government’s growing interference with Hong Kong’s human rights can also be gleaned from the erosion of Hong Kong’s freedom of expression. One notorious and internationally reported case concerned five missing booksellers, who published and distributed books critical of the Chinese Government in Hong Kong, especially for Mainland’s tourists. They were all later held in detention in Mainland China (Hong Kong Journalists Association 2016).

Among them, Lam Wing-kee returned to Hong Kong on 14 June 2016, 8 months after his vanishing. Two days afterward, Lam held a press conference, divulging to the press that he and other booksellers had been kept in custody involuntarily by Mainland agents, denied due process, interrogated, required to sign nondisclosure documents, and compelled to make untrue statements. Lam said that he had chosen to risk his own and his family’s safety by speaking out because “this isn’t just something which involves me, but implicates the whole of Hong Kong society” (UK Foreign & Commonwealth Office 12 October 2016). Lam’s press conference raised grave concern and serious doubt about Beijing’s sincerity to grant Hong Kong high degree of autonomy and have its freedoms remained intact as promised in Hong Kong’s constitution. The saga dominated media coverage over the following days, with many arguing that Lam’s revelations showed that rights and freedoms guaranteed by the Basic Law had been undermined (UK Foreign & Commonwealth Office 12 October 2016).

The case of five missing booksellers and the effort by Beijing to quash the publication of critical books have been emblematic of the deterioration in freedoms in Mainland and Hong Kong on the heels of an ideological crackdown in Mainland China triggered by President Xi Jinping. The event has created negative impact on freedom of expression and press freedom in Hong Kong (Hong Kong Journalists Association 2016).The descent in freedom of expression also appeared in the entertainment industry.

On 6 June 2016, it was reported that Lancôme called off an impending concert it had sponsored by a prominent pro-democracy Canto-pop star Denise Ho. Though Lancôme mentioned “possible safety concerns” as the ground for cancellation, the decision came only days after Mainland state-owned media denigrated Ho for her pro-democracy stance and for having met the Dalai Lama. Ho contended “If we were in a free society, a civilized society, political pressure shouldn’t cross the border to affect business decisions.” This event has prompted widespread anger and concerns for freedom of expression (UK Foreign & Commonwealth Office 12 October 2016).

Of no less importance, in February 2016, the Mainland media banned the broadcast of the Hong Kong Film Awards (held in April) after the film Ten Years was nominated as a candidate for the Best Film Award (UK Foreign & Commonwealth Office 12 October 2016). This film, which sought to depict Hong Kong in 2025, portrayed Hong Kong as an authoritarian institution with a bleak future under Beijing’s stringent control. It has attracted much more audience and many more screenings in Hong Kong than expected, despite its minuscule budget. “While the ‘Ten Years’ is a hit, Hong Kong cinema operators quietly dropped it after state media criticized the film” (Radio Free Asia 2016). Many pro-Beijing investors and professionals in film industry also denigrated value of the film. The Hong Kong Film Awards Association acknowledged that after the nomination of the movie, both China Central Television (CCTV) and Chinese Internet broadcaster Tencent had decided not to broadcast the ceremony. This has happened despite that the movie was crowned “Best Film” and has played at cinemas overseas.

Judicial Autonomy

Justice Kemal Bokhary, a Nonpermanent Judge of Hong Kong’s Court of Final Appeal, elucidated a fundamental challenge faced by courts of the global city in April, 2016 – their onus to make the “One Country, Two Systems” principle work (UK Foreign & Commonwealth Office 12 October 2016). Since the handover of Hong Kong, threats of China to its rule of law have surfaced. In 2014, for instance, the White Paper issued by the Chinese Government in June deemed that Hong Kong officials, including judges, should love the country as the basic political requirement. “Many jurists saw it as a demand for loyalty to Beijing and a threat to the territory’s rule of law and judicial impartiality” (Freedom House 2016).

Noticeably, one major source of threat to Hong Kong’s judicial autonomy and rule of law lies in the legal right of China’s National People’s Congress to make final interpretations of the Basic Law. This right curtails the power of Hong Kong’s Court of Final Appeal to maintain political rights and rule of law. China’s recent decision to reinterpret the Basic Law in late 2016 is a case in point.

In November 2016 the Standing Committee of the National People’s Congress (NPCSC) in Beijing reinterpreted Article 104 of the Basic Law, demanding Hong Kong’s elected legislators, on taking the oath of office in Hong Kong, to do so “sincerely and solemnly” (Williams 2016). Anyone who includes sarcasm or implies insincerity in their oath will be excluded from becoming a legislator and cannot retake the oath. Following the reinterpretation, on 15 November 2016, Hong Kong High Court ruled against two pro-independence elected legislators, formally barring them from taking up their seats in the legislature. Besides, four more pro-democracy legislators were sued by the HKSAR government for the purported refusal to take the oath properly.

This latest interpretation of the Basic Law, the fifth one already since the reversion of Hong Kong’s sovereignty, has fueled extensive apprehensions that China is tightening its control over Hong Kong and thereby sparking a series of protests in the city.

Critics contended that the fifth interpretation of the Basic Law attempts to preclude the pro-independence legislators getting a foothold in the local government (Williams 2016) and to silence democratic voices. And it casts a pall on China’s willingness to reinterpret Hong Kong’s constitution for its own benefit (New York Times 09 November 2016). In response, on 8 November 2016, over 1,000 lawyers marched silently through Hong Kong to berate China and support two elected and disqualified lawmakers (New York Times 09 November 2016). Lawyers warned that the latest interpretation would undercut the city’s judicial independence and spell the death knell for Hong Kong’s rule of law (Hong Kong Free Press 09 November 2016).

Hong Kong’s Vital Importance for China Helps Maintain “One Country, Two Systems”

As indicated in Fig. 1, despite the glaring erosion of freedoms in Hong Kong over the last few years, its overall level of civil liberties and political rights still patently outperforms those in Mainland. As argued below, Hong Kong still possesses some strategic and irreplaceable economic advantages over Mainland that have induced Beijing to maintain the limited freedoms and judicial autonomy in Hong Kong to date.

Despite the sagging proportion of Hong Kong’s GDP out of China’s one, the International Financial Centre of Hong Kong remains indispensable to China for several reasons. First, as Hong Kong has outperformed any other Mainland city in terms of its fair, transparent courts and long-established tradition of rule of law, Hong Kong has become the greatest center for equity financing in China. For example, between 2012 and late 2014, “Chinese companies have raised $43 billion in initial public offerings in the Hong Kong market, versus just $25 billion on mainland exchanges. More than anywhere else in the world, Hong Kong has also provided Chinese companies with access to global capital markets for bond and loan financing (Economist 2014).” What is more, Hong Kong is the key hub for investment in and out of China. It accounted for two-thirds of foreign direct investment into China last year, up from 30% in 2005 (Economist 2014). Also, given the resources in Hong Kong, it has become a testing ground for a range of financial reforms for the Chinese Government. In short, China has benefited greatly from the global city of Hong Kong, which is detached from the Mainland but closely associated with it; a territory that is fully integrated into the global economy but eventually controlled by Beijing (Economist 2014). Therefore, if China were to take away Hong Kong’s freedoms and rule of law, or jettison “One Country, Two Systems” entirely, China would have to pay a heavy price. This is especially so, given Hong Kong’s outstanding and stable record in terms of global competitiveness.

Hong Kong’s competitiveness was ranked for the fifth consecutive year in the top 10 of famous Global Competitiveness Index (GCI). The latest 2016–2017 measurement shows that Hong Kong was ranked the ninth in terms of GCI having achieved a strong and consistent performance. “HKSAR features in the top 10 of seven criteria of the GCI. Hong Kong tops the infrastructure pillar for the seventh time, reflecting the outstanding quality of its facilities in various modes of transportation. Its financial sector (4th) is very well developed, highly sophisticated, trustworthy, and stable. Its labor market is among the world’s most flexible and efficient (3rd worldwide). Finally, Hong Kong is hyper-connected and it boasts some of the highest rates of Internet use and mobile telephony penetration” (Schwab 2016). The GCI results reveal that Hong Kong, Japan, and Singapore are the only Asian societies within the top 10 in the GCI for 2016–2017. The structural advantages of Hong Kong over China and the subsequent strategic economic importance of Hong Kong for China can raise the bargaining power of Hong Kong to maintain freedoms and rule of law promised under the rubric of “One Country, Two Systems.” That said, there are increasing signs that Beijing has endeavored to deepen economic dependence of Hong Kong and China so as to tighten its political control over the global city.

Prospect of Hong Kong: Greater Sino-Hong Kong Economic Integration Deepens Political and Economic Threats to Hong Kong

The rising economic integration of Mainland and Hong Kong economy has increasingly raised the threats to Hong Kong’s political stability and economic prosperity, owing to the increasingly palpable financial and economic weaknesses in Mainland, and the political suppression from Beijing on Hong Kong. Based on the International Monetary Fund, at least as of 2012, the American economy overrode the Chinese one in terms of the size of economic impact on Hong Kong’s business cycle (Economist 2015). However, the sharp increase of Mainland’s investment in Hong Kong over the years has enormously integrated Hong Kong’s economy into Mainland’s one (Economist 2015).

Nearly 40% of Hong Kong’s foreign direct investment in 2015 came from Mainland, which rose from about 10% in the late 1990s (Economist 2015). Also, in 2015, 43.6% of Hong Kong’s exports of domestically produced goods, and 53.8% of its re-exports were shipped to China. In addition, in 2016, 77.3% of tourist arrivals were from China, up from 63% 5 years ago (Moody 2016). The quantity of Mainland visitors to Hong Kong surged more than 10 times from 4.4 million in 2001 to 47 million in 2014, taking up more than 75% of all foreign arrivals (Economist 2015).

The rising economic integration between Mainland and Hong Kong has been further boosted by that since late 2014; Shanghai provided access to any foreigner with a Hong Kong brokerage account to its closely safeguarded stock market. In 2015, Mainland also allowed the sale of mutual funds domiciled on its side or in Hong Kong to be sold in each other’s markets, strengthening Hong Kong’s asset management industry. Beijing has also reinforced Hong Kong as the pivotal offshore center for trading the yuan, making it the most important place to internationalize yuan. That said, further integration between Mainland and Hong Kong will likely pose greater threat to Hong Kong’s political stability and economic prosperity.

Conclusion: Further Integration Between Mainland and Hong Kong Harmful to Hong Kong’s Stability and Prosperity

In March 2016, one of the leading international rating agencies, i.e., Moody’s Investors Service, affirmed the rating outlook of Hong Kong was downgraded to negative from stable. The downgrade reflects Moody’s analysis that Hong Kong’s deepening political, economic, and financial linkages with the Mainland would jeopardize Hong Kong’s economy and stability (Moody 2016). Likewise, another renowned rating agency Standard and Poor also cut the credit rating for Hong Kong from stable to negative in 2016, which cited the increasing economic and financial risks to the Mainland government’s creditworthiness (CNBC 2016).

Beijing’s incessant attempts to block Hong Kong’s democratization, suppress its freedoms, and weaken its judicial autonomy have triggered the radicalization of street politics, the outbreak of Umbrella Movement, the unfolding of a pro-independence movement, and the sharply rising confrontations against Mainland. As argued by Moody (2016), over the medium term, the strong political linkage embedded in June 2014 White Paper from China’s State Council – “creates the risk that Hong Kong’s institutions will lose some of their independence over time as China’s influence grows. This would negatively affect policy effectiveness and credibility in Hong Kong and weaken its institutional strength relative to China’s.”

On the other hand, the deepening financial and economic malaises in Mainland, amid the growing significance of China for Hong Kong’s trade, entail that any further economic trouble in China would considerably stifle Hong Kong’s economic performance, both directly through bilateral trade channels and indirectly through China’s bearing on global trade (Moody 2016). Noticeably, other than economic linkages, Hong Kong’s banking sector is also exposed to China. During the third quarter of 2015, the total bank lending from Hong Kong to the Mainland took up 15.7% of total assets. Hong Kong’s banks credit risk would therefore escalate if loan books’ exposure to Chinese corporations continues to mount (Moody 2016).

Based on a gauge of the Bank for International Settlements, China’s credit-to-GDP gap stood at an exceptionally high level of 30.1% in November 2016, scoring the largest figure among all countries since the use of this statistics in 1995 (Panckhurst and Leung 2016). The credit-to-GDP gap shows the scale of credit boom and the risk of trouble brewing. Based on the Bank’s analysis, the credit-to-GDP gap is the single most reliable indicator of looming financial crises. The Bank found in a 2011 analysis of 36 countries that a majority of banking crises followed readings higher than 10% (Panckhurst and Leung 2016). The dire warning from the Bank of International Settlements about the looming economic crisis of China was echoed by the celebrated Nobel Prize Laureate, the economist Paul Krugman, who said that “China in 2016 looks a lot like Japan in 1989 – right before Tokyo headed into a prolonged period of financial crisis known as the ‘lost decade’” (Liu 2016).

In short, should Mainland encounter major economic woes, not only will it spell severe economic distress for Hong Kong but it may also usher in more political upheavals for Hong Kong. The erosion of Hong Kong’s freedoms and judicial autonomy bred under an increasingly authoritarian government within a nondemocratic structure has progressively delegitimized both the HKSAR and Beijing Government. Further economic integration of Mainland China and Hong Kong can unleash colossal economic and political cost for Hong Kong, should China’s economy run into big distress.

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© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.Division of Social ScienceHong Kong University of Science and TechnologyHong KongChina