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The End of Hong Kong?

Podcasts Jun 16, 2020 Minxin Pei and Elmira Bayrasli

For over a year, China has progressively tightened its grip on Hong Kong. Its latest move – the introduction of a new security law – may spell the death of the “one country, two systems,” and thus democracy and the rule of law in the city, but at what cost to the Communist Party of China?

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Minxin Pei

Writing for PS since 2006
100 Commentaries

Minxin Pei, Professor of Government at Claremont McKenna College, is a non-resident senior fellow at the German Marshall Fund of the United States.

Elmira Bayrasli

Writing for PS since 2016
3 Commentaries

Elmira Bayrasli is the co-founder and CEO of Foreign Policy Interrupted and the author of From The Other Side of The World: Extraordinary Entrepreneurs, Unlikely Places.

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j. von Hettlingen Jun 18, 2020

In his interview with Elmira Bayrasli, Minxin Pei says China’s leadership under Xi Jinping sees the 1984 Sino-British Joint Declaration signed between Prime Minister Margaret Thatcher and Chinese Premier Zhao Ziyang, as worthless. Although the agreement was lodged with the UN, and Britain has insisted it be legally valid, and must remain in force, Xi knows that neither Britain nor any third party would forcefully defend it, out of fear of falling out with China, an economic superpower.
Xi is confident that he can get away with upending Hong Kong’s high degree of autonomy – its capitalist system and basic freedoms for 50 years after the city’s return to China in 1997 – as guaranteed under the “two systems” formula. Xi is not going to back down, although Hong Kong has lost its significance. In 1997, China needed Hong Kong – it had not yet been allowed to join the World Trade Organisation, so Chinese exporters had limited access to the global market.
Hong Kong was the solution: It served as a channel for entrepôt trade — goods from China could enter the territory’s ports and then be sent as exports from Hong Kong to the rest of the world, thus evading the trade restrictions imposed by member nations on nations outside the organisation. When China – with Bill Clinton’s backing –joined the WTO in 2001, entrepôt trade through Hong Kong lost its importance. By some estimates, nearly half of China’s trade went through Hong Kong in 1997, today that figure is less than 12%. Since 2011 China is the world’s second largest economy.
However persistent protests in this restive city will hurt Xi’s image of a strong leader, casting doubt on the iron grip that the Communist Party (CCP) maintains on the country. For over a decade after the 1997 handover, China largely honoured the “one country, two systems,” even though it retreated from its promise that Hong Kong could determine its own democratic government in the Legislative Council, and periodically interfered in the city’s politics.
But China-Hong Kong relations started to deteriorate after Xi became president in 2013. He reversed many of his immediate predecessors’ policy changes, insisting on the implementation of Article 23 of Hong Kong’s Basic Law adopted in 1990 by National People's Congress. Article 23 states that the Hong Kong Special Administrative Region (HKSAR) “shall enact laws on its own to prohibit any act of treason, secession, sedition, subversion against the Central People’s Government.”
The HKSAR would also “prohibit foreign political organizations or bodies from conducting political activities in the Region,” while barring “political organizations or bodies of the Region from establishing ties with foreign political organizations or bodies.” Article 23 aims to set the limits on Hong Kong’s autonomy, and to help ensure that China retained control of security, defence, and foreign policy.
British attempts before 1997 to limit the provision’s scope were vetoed by China. And Hong Kong government’s post-handover efforts to implement the Article failed in the face of popular protests. Last year’s protests against the city’s attempt to introduce an extradition law were a thorn in Beijing’s side. Taking advantage of the world’s focus on fighting COVID-19, China’s rubber-stamp parliament bypassed Hong Kong’s own legislature last month, and imposed the national-security law on the city.
Pei says outsiders can not prevent Beijing from implementing the new law on Hong Kong, but the city still has a trump card to play. Despite losing significance in terms of GDP, the city’s stock exchange is home to 250 H-share Chinese companies and another 171 red chip firms that are controlled by the Chinese state. The combined 421 China-related companies have a total market capitalisation of US$1.54 trillion, more than one-third of SEHK’s total market capitalisation of $4.2 trillion at the end of June 2019, compared with only 16 percent at the time of the 1997 handover.
Hong Kong is also at the forefront of internationalising the Chinese currency. It is now the global hub for offshore renminbi business. The city is an international business centre, home to many global, multinational companies. Their trust in Hong Kong’s rule of law is paramount. Pei believes China would tread cautiously, knowing that preserving Hong Kong’s capitalist system is in its own best interests.
- Michael Hullevad Jul 23, 2020
  
  Xi is Lenin re-surrected. The pressure on Taiwan is increasing as well. He is the new emperor in the comunist fatherland. I hope he has overplayed his hand!
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