China’s One Way Out of the Hong Kong Crisis

December 20, 2019 Topic: Security Region: Asia Tags: ChinaHong KongDemocracyOne ChinaPolitics

China’s One Way Out of the Hong Kong Crisis

Hong Kong requires a political solution that addresses long-standing social grievances and the prickly issue of local autonomy. Failing to do so could lead to a repeat of the current situation at best or an outright “Northern Irelandization” of the region at worst.


HONGKONGERS’ ULTIMATE fate will be decided in Beijing. After all, Hong Kong simply cannot survive without mainland China—literally, if one considers that the region imports 80 percent of its freshwater supply and almost all of its fresh food from the mainland. Yet despite Beijing’s already sizeable influence over Hong Kong, it has—as stated earlier—gradually and consistently extended its control (direct or indirect) over the region. There are a number of reasons for this, but there are two that are important to note.

First, we must remember that China is not a traditional nation-state. Rather, it is a political entity made up of fifty-six officially recognized ethnic groups (including the dominant Han Chinese) speaking an estimated 297 living languages (including the dominant Mandarin Chinese). In other words, China is—as it has always been—a multiethnic empire held together by a strong central authority from an imperial capital. And like most multiethnic empires, China’s imperial center has long grappled with the constant challenge of managing regional divisions and ruling distant peoples. The Chinese have their own proverb for this: tian gao huangdi yuan (“the mountains are high and the emperor is far away”).


The greatest fear any Chinese ruler has is if the region enters into open rebellion against the capital and plunges the nation into conflict. Worse, a single rebellion often inspires other rebellions, usually resulting in the disintegration of the empire. Chinese history is filled with such instances of division, from the Warring States period (475–221 BC) to the Warlord Era (1916–1928 AD). Even more terrifying though is when a foreign power, sensing weakness in China, seizes the opportunity and invades, resulting in an age of darkness and oppression. The most recent such period (the Warlord Era, followed by the Chinese Civil War) is still a fresh memory for China’s elites.

This historical context explains why China’s leaders are particularly sensitive to anything that can impinge upon their country’s sovereignty: a single “rebellion” or similar challenge to Beijing’s authority could eventually result in yet another full-scale disintegration of the empire. This is why the Chinese Communist Party is ready to resort to extreme measures to subordinate and forcefully assimilate the Tibetans of Tibet and the Uyghurs of Xinjiang. It is why the PRC insists that Taiwan is one of its provinces, and has made it clear that it is ready to mount total war if Taipei were to ever dare to formally declare independence. And it is why Beijing, though mostly abiding by the “One Country, Two Systems” principle, cannot help but try to further politically and institutionally assimilate Hong Kong into itself.

The second reason why Beijing seeks to extend its control over Hong Kong is because of economics. Put simply, the presence of a nearby trusted international financial center—with its own common law legal system, stable currency and free-flowing capital—is crucial for the mainland Chinese economy. Around 75.5 percent of yuan-denominated transactions, for example, are processed in Hong Kong. Over 54 percent of funds that Chinese companies raised via initial public offerings last year came via listings in Hong Kong’s stock market. Slightly over half of the $2.226 trillion in international claims that Chinese banks report (at least as of March of this year) were actually booked in Hong Kong. In fact, most Chinese banks run their overseas business through Hong Kong, where their assets have risen 500 percent over the past ten years, accounting for half of the growth of the city’s banking industry.

Hong Kong also serves a financial function that is just as important though not as often discussed: it is where Chinese elites can launder and move their money out of China. For instance, the 2018 Panama Papers revealed how a significant amount of the city’s high-end luxury real estate is actually owned by relatives of prominent Chinese political leaders—including Presidents Xi Jinping and Hu Jintao, former Beijing mayor Jia Qinglin, Chairman of the Standing Committee of the National People’s Congress Li Zhanshu and others. Many of these properties were bought with cash, making it hard to verify the money’s source. For those seeking to move smaller sums, Hong Kong’s Apple store at one point had bill counters at the register, allowing Chinese mainlanders to buy a great deal of expensive electronic equipment with resale value using only cash. Other examples exist, but the point stands: Hong Kong is an excellent place to turn cold hard cash of unknown origin into “something else.” Ideally, this “something else” is eventually resold and the realization from such sales is moved abroad, outside of the reach of the PRC.

In summary, Hong Kong is the interface by which China’s relatively closed capital markets interact with the rest of the world. Most investments from the outside world made into mainland China are channeled through Hong Kong. Likewise, most investments out of mainland China (including those of a dubious nature) are made through Hong Kong. Without the city, the Chinese mainland would be far more exposed to the currents of the international global economy than it is now.

ON NOVEMBER 24, Hong Kong held its district council elections. These councils are relatively unimportant decisionmaking bodies—they “serve as a line of communication between citizens and the government, handling community-level affairs such as transport and public facilities across the city’s 18 districts.” Nonetheless, the occasion was seen as a “de facto protest referendum” by practically everyone involved. It was a chance for Hongkongers to measurably speak out about current events, and Beijing was fairly confident that the result would indicate support for the government and “the hope…that the chaos will not continue.” Such a victory, from Beijing’s perspective, would have been grounds to crack down and stop the disruptive protests that had brought the city to a virtual standstill.

Instead, it was the pro-government/pro-Beijing camp that was put in its place. With the highest turnout ever, the pro-democracy camp won 389 out of the 450 seats up for election, tripling its holdings overnight. The establishment was shocked by the results. These clearly demonstrated what should have been apparent from the beginning: that the general public is the protest movement, and that if given a choice, the public would overwhelmingly prefer to run their own city.

WHAT IS to be done? At this point, the protest movement simply cannot be ignored, and the Hong Kong police can do little now that it’s painfully clear that the protests have widespread public support. A political solution of some sort is the only viable option.

Lam will have to resign as a start, but what comes afterward is up to debate. Beijing could try to buy off the public by tackling social problems that have gone unaddressed, including the city’s lack of affordable housing and its severe income inequality. But while this might satisfy some elements of society, it does not address Hongkongers’ clear desire for autonomous rule. Public sector reform, along with some concessions to the protestor’s demands, may be necessary. Hardliners in Beijing would likely push back against this, but it is hardly the worst option. After all, the decision could be publicly spun as the fulfillment of Article 68’s promise ahead of schedule. And if the PRC can publicly tolerate what is essentially a de facto independent and democratic Taiwan, it could quite possibly tolerate a Hong Kong that is given autonomy so long as it toes the party line when necessary. A spokesperson from the Hong Kong and Macau Affairs Office has already made clear what Beijing considers to be its three main red lines: “no harm to national security, no challenge to the central government’s authority and the Basic Law, and no using Hong Kong as a base to undermine China.”

The only other alternative for Hongkongers, should a political resolution fail, would be a dramatic push for independence. That would be a nightmare scenario for Beijing: since national security and cohesion trumps almost all other concerns, Chinese elites would face the prospect of needing to militarily occupy Hong Kong. That would come at a colossal cost. The validity of all existing commercial agreements would enter into question, especially if the city’s legal system were to change. Furthermore, if a relatively autonomous international financial center like Hong Kong can be subordinated to Beijing’s will, how could any commercial enterprise be confident about foreign investment in mainland China itself? And how will Chinese Communist Party elites grapple with the prospect of losing many of their presumably ill-gotten gains, along with the capacity to launder any future gains? Finally, wouldn’t the violent suppression of a highly-visible international city like Hong Kong paint the PRC as a pariah in the eyes of the world, resulting in an overnight international coalition against Beijing’s aggressive behavior?

And this is all without giving consideration to the tactical situation within an occupied Hong Kong. While the Chinese People’s Liberation Army would certainly succeed in putting down the protest movement, Hongkongers are more than wealthy, capable and well-connected enough to the outside world that they could put together a counter-insurgency, possibly (in a fulfillment of Beijing’s worst nightmares) with covert assistance from Western governments. As Americans can attest after almost two decades in Afghanistan and Iraq, fighting a dedicated counterinsurgency in an urban environment can test even the mightiest of armies.