The end of Hong Kong as we know it

Hong Kong was the place where Westerners took their first steps into the Chinese world, and many Chinese people were able to encounter the West for the first time. That is now over. The national security law was introduced, which in an instant destroyed the confidence in the justice system and made it virtually impossible to rebuild it due to the increasing interference from Beijing. The most important basis for the success of the region, the rule of law, has been undermined. Autonomy will still be formally maintained, but in practice, Hong Kong will be subject to the rigours of a police state. The role of this metropolis is changing from a transnational connector to an international catalyst for the turn in relations between the West and the PRC.

Port of international cooperation

Hong Kong was founded as a British colony as a result of the First Opium War (1839-42). Power was exercised with a firm hand and there was no doubt about who was at the top of the hierarchy. It was the British Empire that guaranteed the rule of law and a number of freedoms. However, the main condition for Hong Kong to function was its special status and its separation from the rest of China. The safety of the city was first guaranteed by the status of a British colony, and after it was handed over to the People’s Republic of China (PRC) in 1997, by extensive autonomy under the formula of 'one country, two systems’.

After the takeover in 1997, there was initially little change. In practice, Beijing took London’s place, but apart from reversing the limited democratic reforms carried out by the last British governor, the Chinese Communists have not interfered with the local balance of power. They have maintained a system of governance dominated by a caste of professional officials and tycoons – oligarchs who control individual sectors of the economy. The bureaucrats guarantee the privileges of the oligarchs, and these provide political support through the electoral bodies which they control by electing part of the Legislative Council (LegCo) of the local parliament.

Beijing has played the role of patron and ultimate arbiter in this deal, but in general, it has given a lot of freedom to local players, provided they retain their loyalty. A number of freedoms, inaccessible to the people of mainland China, have been left, such as freedom of the press, half-free elections and the rule of law based on British customs and patterns. This hybrid political system, which gives Hong Kong autonomy, was guaranteed for at least 50 years by an agreement with the United Kingdom, the so-called 1984 Joint Declaration.

A system doomed to failure

The conciliatory approach of the Communist Party of China (CPC) was a result of economic calculations. In 1997, Hong Kong’s GDP was 18.4% of that of the entire PRC. The city has also been a source of capital, know-how and technology needed by China’s booming economy. Above all, Hong Kong has been the link connecting the state-dominated economy of the PRC to the global financial system. An independent judiciary has given foreign investors a guarantee and a sense of security that they do not have on the continent.

The problem is that the principle of 'one country, two systems’ has never had a chance to succeed. This is due to the contradiction it contains. What should prevail in the conflict of interests between one country and two systems? The principle of 'one country, two systems’ could survive only theoretically, if the 1997 system was put on hold. But that would be against nature. Every community evolves and changes, and the political system must follow. In the case of Hong Kong, society expected both political democratisation and the reduction of drastic economic differences.

At the same time, changes have begun to take place in the PRC. The vision of liberalisation, which was to accompany economic development and the birth of the Chinese middle class, began to dispel, which was finally sealed by the authoritarian Xi Jinping, the elected leader of the CPC in 2012. The aspirations of the inhabitants and the CPC as to the direction of change in the region began to clash.

In practice, Hong Kong citizens would only be able to retain their freedom if they resigned from using it. For years, civil liberties have been eroded. Opposition parliamentarians have been deprived of their seats and many candidates have not been admitted to the elections. Businesses linked to the authorities have started to buy out the media and distribution networks, judges have begun to be politically appointed and there has been pressure to undermine the independence of the courts. As a result of tensions that have been growing since 2019, after several major political crises that Hong Kong has been through since the beginning of this century, a frontal collision occurred.

The future appears to be completely bleak

The result of the collision was easy to predict and ended up with Beijing imposing a national security law. This not only means that it started direct rule in Hong Kong but also that the authorities are given the tools to reconstruct socio-political relations in the city. Despite assurances of maintaining autonomy and even strengthening the principle of 'one country, two systems’, Hong Kong, as we know it, is dying before our very own eyes because the barrier that protected it from the authoritarian political system of the PRC – unable to tolerate any opposition or dissent – has disappeared. Everything also indicates that the COVID-19 pandemic will give the authorities more freedom and speed up the whole process.

In the current international situation, Beijing will seek a rapid pacification of Hong Kong and the elimination of socio-political organisations which the CPC sees as an existential threat. It seems that, despite the rhetoric of Washington, Brussels and Beijing’s propaganda, the fact that the reaction of the West has been much weaker than the capital of the PRC expected, has allowed the authorities to consider themselves free to act.

Especially since the Party has been willing to pay a high price to address the threat it sees in the lack of full integration of Hong Kong into the PRC, which in itself demonstrates both its obsession with control and its lack of security. Formally, autonomy will be maintained, but in practice, the region will be subject to the rigours of a police state, similar to those on the continent.

It seems that Beijing will now, by all means, strive to prevent the opposition parties from winning the next LegCo election. Nor will it accept another humiliation like the triumph of the Democrats in the November district council elections. On 31 July this year, the authorities announced the postponement of elections for one year due to the COVID-19 pandemic. This will give time to break up the Democratic camp.

The neutralisation of the opposition will be accompanied by a reduction in public discourse, including freedom of expression and press and assembly. The introduction of Internet censorship similar to that in mainland China cannot be ruled out. We can expect trials of democratic activists who – under the new law – will be charged with separatism or subversive activities, which are defined so generally that anything but absolute support for the authorities can be considered a crime. The law also allows them to be tried and punished in the PRC.

The authorities will implement long-planned changes in education and curricula as well. The teaching staff will be vetted. Mandarin may replace Cantonese as the language of instruction. There is already an atmosphere of denunciation, intimidation and slander for anyone who opposes change. Hong Kong will undergo re-education and political cleansing, which the CPC has mastered to perfection. Although it is difficult to determine the time span of this socio-political correction, it will be measured in months rather than years.

An economic bill for political dominance

The consequences for the PRC and Hong Kong will be far-reaching, but they will become apparent gradually as the authorities introduce changes. The de facto dismantling of autonomy will hit the region’s economy, but it will also have a negative impact on the PRC itself. Admittedly, in 2019, Hong Kong’s GDP was already only 2.7% of China’s GDP in nominal terms. However, the free movement of capital has made the region the main channel for the circulation of financial assets from and to the PRC. Since the takeover of Hong Kong, a third of foreign exchange bonds of PRC companies (worth USD 829 billion) have been issued here. Three quarters (worth USD 362 billion) of foreign initial public offerings (IPOs) of Chinese companies have also taken place on the local stock exchange. Hong Kong’s special status also opens up the possibility for foreign capital to purchase (through local intermediaries) shares in Chinese companies on the stock exchanges in the PRC, and another programme has given foreign investors the opportunity to purchase Chinese bonds worth around USD 280 billion. In 2018, Chinese companies were only able to raise capital worth around USD 19.7 billion in the PRC, but they raised USD 35 billion in Hong Kong.

It should be remembered that the special status of the region was also a guarantee of security for entities from the PRC. By 2018, state banks from the continent had transferred about USD 1.1 trillion (about 9% of PRC’s GDP). The currency of the region – the Hong Kong dollar – through the exchange mechanism and because it has been linked to the US dollar since 1983, provides access to foreign exchange for the PRC economy. Political changes will lead to the collapse of this specific financial ecosystem, although this will obviously not happen overnight.

However, taking away Hong Kong’s special economic status and treating it as an integral part of the PRC by Washington only heralds trouble. The lack of academic freedom will begin to create barriers to innovation, as can be seen in the PRC. The restrictions on freedom of expression in general will over time translate into a decline in the creativity of Hongkongers, which was the basis for the success of the region.

There is no exaggeration in saying that Hong Kong was founded on bare rock and its only natural wealth is people. The growing climate of political terror and the worsening economic situation are causing people to consider emigration. Many countries, including Australia and Japan already offer them a special emigration path. For half of the Hongkongers, however, the first choice to emigrate is Taiwan. Many citizens of the region have also applied for citizenship of another country over the years, including the richest people and those linked to the pro-Beijing camp. It seems that even they realise that their loyalty is not enough to guarantee their wealth and influence. In total, out of a population of over 7 million, a group that is difficult to estimate, between half a million and one million, already has dual citizenship. Also, some 3 million are entitled to British overseas citizenship, which, thanks to changes made by London in response to the events in Hong Kong, now opens the way to full British citizenship.

Mass outflows of people, if they occur, especially among the richest people, professionals and young people, will further undermine the economy and the general atmosphere in the region. As a result, it will strengthen negative trends and provide an impetus for others to emigrate.

Beijing threatens to make travel more difficult, but this could only be done in practice through further drastic changes in Hong Kong, which would only speed up and deepen the collapse of the socio-economic system.

Far-reaching international consequences

The most important basis for the success of the region, the rule of law, has been undermined. The Law on National Security introduces the possibility of directly applying in the region the PRC’s legislation and judicial procedures, which are not only based on the measures and needs of an authoritarian state but are based on a different concept of a relationship between the state and the citizen. Already today there is no lawyer or public institution in Hong Kong, including the Department of Justice, that could provide a binding interpretation of the law or its scope.

In theory, nothing stands in the way of its provisions being used in commercial matters. However, it is the breaking of the institutional barrier between the legal systems of Hong Kong and the PRC that is causing a loss of confidence. Until now, Hong Kong has been one of the most popular jurisdictions for commercial contracts because of its mercantile law and efficient justice system. The destruction of confidence in the courts is rapid and practically impossible to rebuild in the face of Beijing’s increasing interference in the region.

The failure of the 'one country, two systems’ principle also complicates relations in the Taiwan Strait. Deng Xiaoping, the architect of Chinese economic reforms, formulated the slogan 'one country, two systems’ in the early 1980s as stabilising relations between the PRC and Taiwan. It does not seem that Deng himself believed that there could be peaceful reunification with the island in the foreseeable future, but he needed a way to freeze the conflict and allow the PRC to open up to investment and technology from Taiwan. As long as both sides could pretend that there was the possibility of peaceful reunification in an undefined future, they were able to keep under control the tension growing since the Tiananmen Square massacre in 1989, between a return to authoritarianism on the continent and the deepening democracy and liberalisation of society on the island. Now this fiction has disappeared and it is clear to everyone that the only way to change the status quo is through armed conflict.

With Hong Kong, the hope is dying away that growing China will be integrated into the existing international order and that Beijing will assume its role as a responsible global player. At the time of writing this text, a weak Western reaction has been seen; however, it is the restriction of Hong Kong’s autonomy and de facto violation of the international agreement with the UK that will accelerate the change in Western relations with the PRC.

Polish version is available here.