An Ageing, Worried Hong Kong Marks 20 Years Out of UK’s Clutches

Twenty years on from the end of British colonial rule of Hong Kong, it would be hard to argue that the territory’s relative position in the world has improved. Indeed, the optimism felt at the time of the handover that the city could be beacon of freedom, prosperity and democracy in the region and the Chinese world has faded.

Hong Kong 2017 still has many attractions both for mainlanders and foreigners who can enjoy the business, social and academic freedoms of which it can still boast. But there is little doubt that the rapidly ageing society is full of self-doubt. Frustration with its government and with Beijing have combined with uncertainty about how best to sustain its prosperity as mainland cities compete more fiercely and international linkages eroded by focus on Chinese identity.

For sure, Gross Domestic Product per head has continued to grow but so too have income and wealth gaps which have thus added to other discontents linked to lack of democratic development and interference from Beijing.

It was inevitable that the yawning gap between Hong Kong and mainland incomes would narrow as China continued on its rapid growth path, replicating that of Hong Kong itself and others such as South Korea in earlier decades. That growth also had the effect of reducing the attractions and utility of Hong Kong for Beijing – though not for mainland companies and individuals who sought its low taxes and freedom from foreign exchange controls.

Hong Kong’s key financial services and tourism industries became increasingly reliant on mainland-generated business. At the same time local resentment of this dependence has grown, especially among those who did not benefit from it.

Nor was Hong Kong’s perceived relative decline just vis a vis the mainland. Although the handover boasted the phrase “Hong Kong people ruling Hong Kong,” progress towards fully representative democracy stalled due both to Beijing’s ingrained hostility to western-style liberal democracy and the vested interests of business and bureaucratic elites. These became even more entrenched than they had been under colonial rule.

Beijing-driven opposition to liberal democracy intensified after Xi Jinping became president and his focus on Chinese nationalism and ethnic identity clashed directly with Hong Kong’s yearning, especially among large sections of the youth, for more, not less autonomy and the preservation of Hong Kong’s separate identity as defined by its history and the Cantonese language. This lack of democratic progress contrasted starkly with that of Taiwan, and even made Singapore’s system appear relatively accountable.

Hong Kong’s ossified political system has also had wider consequences that contributed to its failure to match its peers in several ways. One was in provision of housing at affordable prices as government, beholden to the property-developer cartel and concerned to maximize its own revenues, starved land supply. Low interest rates after the 2008 global financial crisis and an influx of mainland money also contributed to another property price boom which created discontent among the many have-nots, the young in particular.

Vested interests in the Executive and Legislative councils also ensured that Hong Kong fell far behind Singapore, Taipei, Seoul, Tokyo and the major European cities in addressing urban ills – air pollution, waste limitation and management, public versus private transport, the primacy of public goods etc. In Taiwan and South Korea democracy had helped to spur change in these areas while Singapore’s leadership was driven by a desire to be seen to be modern and on the cutting edge of technological solutions. Hong Kong, once seen on the cutting edge, seemed increasingly old-fashioned.

For sure, on a per capita income basis its economy has continued to keep up thanks to its financial sector but it has lagged badly on other measures of social and technological advance. It invested massively in costly infrastructure projects of dubious economic value to connect more closely to the mainland but neither in smart systems nor adequately in the future health care requirements of a rapidly ageing society.

Huge fiscal surpluses have piled up, based largely on inflated land prices, effectively a tax on society as whole for the benefit of the landowners. Hong Kong could regard itself as fortunate that it could also generate revenue from mainland companies routing profits through low-tax Hong Kong.

As for future demographics, it has lagged Singapore in two respects. Firstly, in-migration has been modest and as much burden as benefit. Permanent inflow from the mainland has remained at the same daily level as in previous decades but selection was not by Hong Kong and was mostly of low-skill people from Guangdong directly to the north. There has been a surge of professionals and business people from the mainland but mostly on a non-permanent basis.

In contrast Singapore has followed a proactive immigration policy that has more than compensated for the challenge of a similarly low birth rate. Singapore has also used immigration as a tool to enhance its role in the global economy by accepting people from India, Europe and elsewhere as well as China. Hong Kong’s increasing focus on Chinese ethnic identity has ruled this out.

Thus though foreigners have continued to move to Hong Kong for business, the territory’s international linkages, particularly those with southeast Asia and the Indian subcontinent, have waned. Official interest in these areas was almost nil until Beijing announced its One Belt One Road policy and even then has been muted. Beijing’s demands that Hong Kong people be “patriotic Chinese” has not sit well with the city’s large non-Chinese minorities. Other worries surround the independence of judges given Beijing’s view of the primacy of the executive, and the influence of the government over senior academic appointments.

None of this is to write off Hong Kong. Backed by popular expectations, its freedoms and legal system, so important to its international role as well as attraction to mainlanders, may yet survive the erosion evident in past three or so years. These may attract enough talent, foreign and mainland, to bring new service and creative industries aimed at China and regional and international markets.

The property bubble should subside and attract to Hong Kong business of all sorts and loosen the grip that the property/utilities/retailing combine has had over the domestic economy.

Possibly incoming chief executive Carrie Lam, despite being a career bureaucrat, will show more imagination in addressing problems, and more willingness to talk back to Beijing, to be a channel to, not from Beijing, in contrast to the outgoing Leung Chun-ying. An early test may come with the wording of a long-delayed law on “treason, secession, sedition and subversion” against the central government. Will it inhibit freedom to write about or discuss issues such as Taiwan, Tibet and the South China Sea?

Possibly Beijing will learn that its uncompromising attitude to Hong Kong’s autonomy sentiments and nostalgia for the past have backfired. After all, there was a time when China was admired for keeping its hands off the territory. It was Hong Kong’s government itself which had encouraged interference by appealing to the National People’s Congress for rulings to reverse the judgment of Hong Kong’s Court of Final Appeal which were inconvenient to the bureaucrats.

If Beijing maintains the same hard-line course of the past three years – the course that prompted the 2014 Umbrella protest movement – it will be hard to imagine Hong Kong in another 20 years as being much more significant in Asia than Monaco with its casino, low taxes and fancy yachts is in Europe. The better bits will be a playground for China’s rich, the rest absorbed into a Greater Shenzhen.

But China is known for sharp policy reversals. As for poor standards of top level decision-making resulting from a skewed political system, personal and business freedoms are more than adequate compensation.