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Vacant harbour

4 August 2016 By Peter Thal Larsen

Hong Kong’s special status is in need of renewal. It has been 19 years since China took back the British colony with a promise to leave it alone until 2047. Though Hong Kong has mostly thrived, an uncertain long-term future is making citizens and companies anxious. The People’s Republic seems to have little interest in offering any reassurance.

The territory of 7 million people has defied predictions of its demise since President Jiang Zemin reclaimed Chinese sovereignty in a rain-soaked ceremony on July 1, 1997. Gleaming skyscrapers confirm Hong Kong’s appeal as a magnet for global finance. Companies raised more money by floating on its stock market last year than in Shanghai and Shenzhen combined. Much of the foreign direct investment bound for China passes through the city – as does much of the money moving the other way.

Millions of mainland tourists visit each year to shop, eat, and snap selfies in front of the famous harbour. Sky-high property prices and a chronic shortage of international school places are testament to Hong Kong’s status as a preferred destination for both Western expatriates and Chinese professionals.

Financial centres draw their success from a blend of ingredients. Hong Kong boasts a long history as China’s nearest trading hub; free flows of capital and information; widespread English; world-class infrastructure; and air that is still cleaner than in most Chinese cities. Its prize asset, though, is its legal system. Companies and investors know that a contract signed in Hong Kong can, if necessary, be reliably enforced in court. The same is still not true in Shanghai, where the judiciary remains subordinate to the ruling Communist Party.

Expiry date

This unique position has an expiry date, though. Hong Kong’s Basic Law stipulates that the “capitalist system and way of life shall remain unchanged for 50 years” after 1997. The officials who helped to draft the mini-constitution assumed that was long enough for China to evolve into something that more closely resembled its small neighbour.

That now looks hopelessly optimistic. While Chinese capitalism continues to develop, the Party is tightening its grip on society. The prospect of the mainland tolerating free speech or even the limited form of democracy permitted in Hong Kong seems more distant than ever. Indeed, it is more likely that the autonomous region’s liberties will be undermined.

This is already happening. Though the Party has no official role in Hong Kong, it exerts influence through local politicians, boardrooms, the media and other, well-funded organisations. The detention earlier this year of Hong Kong-based booksellers by Chinese agents was a blatant challenge to the region’s autonomy. A recent poll by the Chinese University of Hong Kong showed that citizens identify “judicial independence” as the region’s most important “social value”, ahead of press freedom and greater democracy.

This makes resolving Hong Kong’s long-term status all the more pressing. Unfortunately, there’s little public discussion about what, if anything, will happen when the 50-year transition ends. Some scholars argue the Basic Law is worded in such a way that many freedoms will remain in force. But it is not clear whether China agrees.

Eighties throwback 

In some ways, Hong Kong today is in a similar position to the 1980s and 1990s, when the looming 1997 deadline undermined investment and tens of thousands of citizens left every year for Canada, the United States and elsewhere. Though 2047 is still a long way off, the timetable will soon weigh on longer-term decisions. From next year, for example, Hong Kong banks offering 30-year mortgages will need to take a view about the enforceability of their claims after the era of “one country, two systems” ends.

Yet anyone hoping for early reassurance from Beijing is likely to be disappointed. For Chinese leaders grappling with a slowing economy and complex geopolitical tension, Hong Kong’s future is hardly a top priority.

The city’s leaders are also ill-equipped to press their case. Unlike other Chinese provinces, Hong Kong has few high-level supporters in Beijing. Leung Chun-ying, the territory’s chief executive, lacks the mandate to sell any kind of settlement to the population. Local politics is gridlocked and society split – divisions that spilled onto Hong Kong’s streets during the 2014 “umbrella movement”.

This state of affairs matters most for local citizens and businesses. But it is also an increasing case for concern among the international banks, fund managers and law firms that have established their regional operations in Hong Kong. Even large, sophisticated financial centres can fade into irrelevance. For every London, which reinvented itself after World War II and again in the mid-1980s, there is a Venice or New Orleans – once-thriving financial hubs left behind by political and economic shifts.

Hong Kong has beaten the odds before, and there is no reason why it cannot do so again. Yet the city’s long-term status depends on China. Right now that is far from reassuring.


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