Xi Jinping’s First Real Crisis: The Hong Kong Challenge

"For Xi Jinping, the onset of major demonstrations in China’s premier financial center constitutes a major potential challenge to his rule."

As the world turned its eyes to the mass protests in Hong Kong, it focused primarily on how the territory will elect its chief executive. The people who have taken to the streets of Hong Kong’s central business and government districts are ostensibly protesting Beijing’s decision to dictate the slate of candidates for which the citizenry of Hong Kong may cast their vote.

But such a framework is far too narrow. It implies that, if only some solution could be found to the issue of selecting a slate of candidates, all would be easily resolved. In reality, the situation is more complex for Hong Kong than just the matter of selecting a chief executive (although this is, in fact, a major issue). It is also complex for China, presenting Xi Jinping with his first real crisis since taking office.

Deteriorating Relations

When Hong Kong reverted from British control to Chinese in 1997, the territory was clearly economically superior to its larger neighbor. As of 1996, Hong Kong was:

  • the world’s seventh largest trading entity and seventh largest stock market
  • the world’s fifth largest banking center in terms of external financial transactions and fifth largest foreign exchange market in terms of average daily turnover
  • the world’s fourth leading source of foreign direct investment
  • the world’s busiest container port, and
  • one of the world’s most prosperous economies, with per capita GDP of US$24,500 comparable to all but the wealthiest industrial countries.

Since then, Hong Kong’s preeminence has receded, in no small part because of the relative gains made by the People’s Republic of China (PRC). Whereas in 1997, Hong Kong’s GDP was 18 percent that of China’s (despite a population that was only 0.5 percent of the mainland’s), today the territory’s economic output is only 3 percent of China’s GDP. While Hong Kong’s GDP per capita remains substantially higher than China’s ($38,000 to $6,800), the gap has been narrowing there as well.

As important, the gap between the two societies has also shrunk. As China’s middle class has grown, the demand for higher end goods and services has also increased. This, in turn, has led more and more mainland Chinese to see Hong Kong as a shopping and services destination—at times to the detriment of the local population.

For the last several years, for example, a growing number of mainland Chinese have visited Hong Kong essentially as medical tourists. Wealthier Chinese women go to Hong Kong hospitals to give birth. Their children, being born in the Hong Kong Special Administrative Region (HKSAR), receive a HKSAR passport, which entitles them to live and work there. (The children may also not be counted against the one-child limit.) These amounted to some 44,000 births in 2013, accounting for perhaps half of all births in Hong Kong hospitals. This, in turn, has imposed significant stress on maternity wards and hospital facilities.

A similar phenomena has resulted from “locust” tourists—groups of mainlanders who come to the territory mainly on shopping sprees. These tourists are believed to comprise the bulk of the 40 million tourists from China who came in 2013—nearly eight times the population of the territory itself (7.18 million). While some of these “locusts” have focused on purchasing high-end luxury goods (which are substantially cheaper in tax-free Hong Kong), many more have been mainly buying staples, especially baby formula. Due to fears about consumer product safety in the mainland, many mainland mothers prefer Hong Kong-sourced milk powder and formula over those available in China, even if it is the same brand. Consequently, supplies in the territory (especially near the border) are often short and sold at inflated prices. The massive influx of “locust” tourists also affects the locals’ access to mass transit, taxis, restaurants and so on, to the point that even the Beijing authorities have recognized that this is a problem.

These tensions reflect a broader unease that has been growing within the Hong Kong populace, as Beijing seeks to remake the territory more like the mainland. Such concerns date back to the hand-over and before, as local Hong Kong citizens rushed to learn Mandarin (the language of Beijing) to supplement the local Cantonese dialect.

While Beijing initially sought to minimize its impact, its measures now have become more intrusive. In 2012, Chinese efforts to inject more “patriotic education” into the Hong Kong school curricula precipitated large-scale protests, as students and teachers resisted what they termed “brainwashing.” In the end, the Hong Kong and Beijing authorities rescinded that decision, allowing Hong Kong’s school system to set its own curriculum. But Beijing has clearly become more intent on bringing the territory to heel.