Hong Kong’s protests have plunged its economy into recession even before the outbreak of the Covid-19. Retail sales and tourist arrivals are falling more sharply than during either 2003’s epidemic of Severe Acute Respiratory Syndrome (SARS) or the global financial crisis. Private household consumption accounts for 72% of GDP and spending by tourists contributes another 4%, meaning the economy cannot recover without reviving them, regardless of how long the the coronavirus outbreak may last. The standoff between the protesters and the government will almost certainly resurface after the outbreak.
The best scenario is for the protesters and the government to immediately begin a dialogue on how to move forward. Given the continued violence and an intransigence by the administration that borders on paralysis, however, this outcome seems unlikely. Both sides seem instead to be digging in for a battle of attrition. In that context, what can be done to revive Hong Kong’s economy, or at least keep it from slipping further?
The answer will depend on a deeper appreciation of the opposing perspectives of Beijing and Hong Kong’s protesters. There is little pressure for Beijing to intervene as long as Hong Kong’s protests continue to have little direct impact on the mainland, economically or politically.
Hong Kong’s relative importance to China’s economy has been diminishing for years, so there is little economic impetus to intervene. Politically, too, Beijing can afford to stand back. When the protests erupted last year, Beijing feared protesters would form a common front with mainland youth to demand democracy and political reforms. Had this happened, China would likely have felt compelled to crush the protest. Instead, protesters attacked China and symbols of Chinese sovereignty, provoking a backlash among mainland Chinese. China was then able to portray the violence in Hong Kong as the work of anti-China troublemakers under the influence of sinister foreign forces determined to block China’s rise. As the fear of contagion evaporated, so did pressure to intervene.
In Hong Kong, conversely, the protests are commonly described as a reaction to Beijing’s tightening grip, a backlash against economic inequality and a defense of Hong Kong’s democracy. While there is evidence that Beijing has intervened more visibly, albeit clumsily, in local affairs since Xi Jinping took over as paramount leader in 2012, blaming the protests on that oversimplifies things. Economic inequality, too, is by itself no trigger; sharp disparities in income have been a fact of life in Hong Kong since it first became a British colony in 1842. Hong Kong’s income inequality now, at 0.53 as measured by the Gini coefficient (the closer to 1.0 the more unequal), is only slightly worse than in 1996, just prior to its handover to China, at 0.52.
Hong Kong’s limited democracy, on the other hand, is a relatively recent development; British colonial rule was nothing if not authoritarian. It was only in the waning days of its rule that London introduced a more representative government, a move Beijing interpreted then as a ploy to sow the seeds of political discontent.
But these explanations overlook another important source of protesters’ ire: the fear that Hong Kong might lose its unique identity. While not denying their Chinese ancestry, most Hongkongers would assert they have their own culture and ways of life that are significantly different from those on the mainland. Being Chinese is only part of their overall identity. Also part of Hong Kong’s identity is its rule of law, independent judiciary and free press, which remarkably have taken deep root without true democracy. Fear that Hong Kong’s government is failing to protect this liberty is fueling the rage against it.
There is a darker side to this anxiety, though. The massive influx of mainland Chinese tourists, residents and investment into Hong Kong in recent years has generated welcome income, but also resentment. Mainland Chinese in Hong Kong are blamed for a wide range of ills, from driving up the cost of living to petty crimes to shortages of daily essentials. Some anti-mainland rhetoric borders on xenophobia. There is, therefore, an element of populism in the protests, akin to the sentiment of “taking back control” behind the rise of xenophobic nationalism in many parts of the world.
The practical way forward is for both sides to step back and create the minimum of conditions necessary for a return to economic stability. To borrow a term from the title of Daron Acemoglu and James Robinson’s new book (The Narrow Corridor: States, Societies and the Fate of Liberty), there is a narrow corridor for Hong Kong to stabilize and revive its economy without attempting to change the unchangeable.
Finding that narrow corridor requires that both sides agree that democracy per se isn’t what’s at stake, but rather the liberties that long ago become an indelible part of Hong Kong’s identity. Protesters should focus on pressuring the Hong Kong government to do the right thing in the defense of liberty, but cease attacking China’s sovereignty over Hong Kong. Hong Kong’s protesters therefore desperately need a leader who can set out a positive vision of Hong Kong as an enclave of personal liberty and economic freedom without threatening Beijing’s sovereignty.
China’s appointment in January of Luo Huining as its new chief of the Hong Kong liaison office, on the other hand, could be a strategic opportunity for Beijing to both affirm the unique status Hong Kong enjoys under the One Country, Two Systems arrangement, and endorse Hong Kong’s liberties as compatible with Chinese sovereignty. This would create a viable and meaningful platform for dialogue, and thereby establish the narrow corridor through which economic stability can return. The famously resilient Hong Kong economy can then begin to recover.