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How Are the Hong Kong Protests Affecting China’s Economy and Foreign Relations?

Sep 30, 2019

Hong Kong, the world’s most densely populated region, is a special administrative region of the People’s Republic of China. Hong Kong’s economic and governing affairs are self-regulated due to its special status. Hong Kong has its own legal system and judiciary, and rights and freedoms not seen in mainland China. This special status is due to end in 2047.

Recently, pro-democracy protests broke out in the city in opposition to the The Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill 2019, escalating quickly from a “limited, student-led opposition to a proposed extradition law into a broad-based, fully fledged challenge to Beijing’s rule.” More than ten weeks in, the protests are challenging China’s control over the region, and Chinese president Xi Jinping’s authority. All this has led foreign affairs commentator at The Guardian to ask, “…if a harsh military crackdown is ordered, and people begin to die in large numbers, what will Britain and the west do?” This question becomes even more relevant as we consider that the chief spokesperson for the Ministry of National Defense was quoted as saying the “behavior of some radical protesters…absolutely cannot be tolerated.” The Chinese ambassador to the UK hinted that Beijing would get involved if the protests were not quelled.

With record-breaking numbers of protestors on the streets, foreign powers have begun to take note. John Bolton, national security advisor to Donald Trump, spoke up on August 14th, warning that a crackdown on protestors would be “a big mistake”. The recent, sudden threat of an additional 10% tariff against Chinese imports in the US, and the ongoing blacklisting of Chinese telecom giant, Huawei, as well as the conflict between Washington DC and Beijing over the militarization of the South China Sea only add to the threat of crisis. The Trump administration is also openly critical of China’s continued support for North Korea, and suspicions of the wide-spread Belt and Road Initiative across Asia and Africa are not easily forgotten. This breakdown in relations is not unprecedented, but comes after decades of mutual cooperation of economic and technological policy and trade. According to Ho-fung Hung, a professor at Johns Hopkins University, this is deliberate, “an easy scapegoat”.

To further strain foreign relations with China, an employee of the British government in Hong Kong was detained when returning from a conference in mainland China, and Canada has expressed concern about China detaining two Canadian citizens. From China’s end, the protests have been presented as a ‘color war’, and blaming the US and Britain for adding fuel to the fire. Tung Chee-hwa, first chief executive of Hong Kong, accused the US and Taiwan for the protests, according to The Guardian, claiming that they were “working to incite fear of the people of Hong Kong and undermine the relationship between the mainland and Hong Kong.” Additionally, Chinese ambassador Liu Xiaoming made a statement telling Britain to “keep its hands off Hong Kong” and Hua Chunying, from the Ministry of Foreign Affairs said, “It is, after all, the work of the United States.”

A struggle over control of Hong Kong would have widespread impact, not the least of which would be a shock to already-volatile financial markets. Allen Morrison, a professor at the Arizona State University, predicts a drop in consumer spending, as well as significant impact from interruptions in the functioning of the Hong Kong International Airport, which contributes 5% to the region’s GDP in the short term. In the longer term, businesses may begin to move their offices to the mainland, as its economic strength grows, and the “outflow of capital and loss of talent” will be a major hit to Hong Kong’s economy. Examples of this are already visible. According to the South China Morning Post, a commercial plot purchase of approximately US $1.4 billion was cancelled two days after the first major demonstration, citing “social conflict and economic instability”, and Financial Secretary Paul Chan Mo-po has spoken out warning the onset of recession. Japanese and South Korean government officials have expressed concern for both their citizens and businesses in the city, and US President Donald Trump warned that a crackdown would make a fruitful end to the trade war impossible.

With local recruiters reporting an increasing number of candidates asking to relocate, and businesses postponing investments and expansion plans indefinitely, it is clear that the world, and especially the global financial market, is watching Hong Kong carefully, and looking to safeguard their interests in case the region goes belly up. Whether or not foreign powers will step in to quell the protests or the Chinese government’s response to them depends in large part to how deeply their financial interests are threatened. For now, all eyes are on Hong Kong and Xi Jinping.

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