Commentary | 12 June 2019

Hong Kong’s Moment of Reckoning

China’s encroachment on the former colony’s autonomy threatens to undermine the foundations of its economic success.

Originally published in Bloomberg Opinion.

China’s encroachment on the former colony’s autonomy threatens to undermine the foundations of its economic success.

Originally published in Bloomberg Opinion.

Hong Kong is facing an existential threat. A vast protest on Sunday reflects the culmination of angst over changes that are undermining the foundations of the Chinese city’s economic prosperity and its distinct identity. How the impasse is resolved has implications not only for this former British colony and global financial center, but for the future of relations between China and the Western democratic world.

When the U.K. handed back control of Hong Kong to China in 1997, Beijing promised the city that it could maintain an independent legal system, democratic freedoms and a “high degree of autonomy” for at least 50 years. This “One Country, Two Systems” formula has underpinned the city’s success because it allowed Hong Kong to maintain access to global markets as a separate, law-abiding and free-trading member of the World Trade Organization. But as President Xi Jinping has concentrated more power than any Chinese leader since Mao Zedong, Hong Kong’s autonomy – and therefore its economic raison d'etre – has come under ever greater threat.

The proximate reason for the protest, which drew hundreds of thousands of people, was a proposed amendment to the law that for the first time would allow Hong Kong to extradite people to mainland China, and other jurisdictions with which it has no formal extradition treaty. This seemingly technical change has alarmed everyone from local judges to foreign bankers because it lowers the shield that protects Hong Kong’s legal system from the capricious and repressive judicial practices across the border.

The Hong Kong government, while making some concessions, has refused to back down, and the extradition bill will receive its second reading in the city’s Legislative Council on Wednesday. The government’s efforts to allay concerns have failed partly because the extradition issue is just the latest in a long list of threats to the city’s autonomy and rule of law. In the past few years the Hong Kong government has disqualified elected lawmakers, outlawed a political party, jailed pro-democracy protest leaders, effectivel expelled a senior Financial Times journalist, and looked the other way when Beijing’s agents kidnapped a bookseller and a billionaire from Hong Kong.

The violations of One Country, Two Systems have become so blatant that Western governments have warned the city’s success as an international business hub is in danger. On Monday, the U.S. State Department expressed “grave concern” over the extradition law. “The continued erosion of the ‘One Country, Two Systems’ framework puts at risk Hong Kong’s long-established special status in international affairs,” spokeswoman Morgan Ortagus said.

The Chinese government typically dismisses such criticisms as “interference” in its domestic affairs. But the uncomfortable reality for Beijing is that the maintenance of Hong Kong’s autonomy is the basis on which the city gets preferential treatment from foreign governments.

The United States-Hong Kong Policy Act set Hong Kong’s freedoms and “high degree of autonomy” as preconditions for the continuation of the U.S.’s extensive economic relationships with the city after 1997. If Washington deems that Hong Kong is “not sufficiently autonomous,” the law allows the president to suspend by executive order its special treatment.

Diplomats have played down the suggestion that the U.S., or other Western governments, will revoke Hong Kong’s special status on a wholesale basis. Such a move would punish the Chinese state-owned companies, tycoons and officials who use Hong Kong as an entry point to the global financial system. It would also undermine the political and economic interests of foreign governments and businesses in Hong Kong, as well as punish local citizens who would suffer from the inevitable financial fallout. Nevertheless, the pressure to enact some form of sanctions will grow if Beijing keeps squeezing.

As China and the West enter a new era of strategic competition, this is about much more than the rights of seven million people and a host of international investors. Hong Kong is on the front line of the global struggle between an ever more assertive Chinese Communist Party and a world based on liberal democratic principles.

The fight over the extradition law has brought into sharp focus the seeming impossibility of integrating two vastly different political and legal systems. In the early years after the handover, when China was weaker, its leadership less assertive and Hong Kong’s economy much more important to the country, the contradictions at the heart of One Country, Two Systems were easily papered over.

Now the city, the Chinese government and the rest of the world are facing a moment of reckoning. If the extradition law is enacted, investors, businesses, journalists and NGOs may no longer be able to bank on Hong Kong being a safe place to carry out activities that are forbidden in mainland China. That would beg the question: Why stay?