In an article published in the Fall of 1997, seasoned China scholar Kenneth Lieberthal noted that, “the stakes involved in Hong Kong's reversion [handover] to Chinese sovereignty are tremendous for China.” In contextualising further the importance of Hong Kong to Sino-American relations, he adds, “Hong Kong's successful reversion will move American images of China in directions favorable to a closer, more trusting relationship across the board.”
Twenty-five years on from Hong Kong’s handover to China, many questions linger over the special administrative region’s future. Some posit that the halcyon days of Hong Kong are now over – that its lure as an economically liberal and open financial nexus has been vastly dented, and that it would strain to persuade departing firms and talents alike to return to the lush greenery and urban jungle straddling the two sides of the Victoria Harbour. Others, however, suggest that with the recent sweeping changes to the city’s legal and political structures, Hong Kong is heading towards a state of greater political stability and genuine efforts aimed at redressing socioeconomic inequality.
Rather than speculating over the fate of Hong Kong and its 7.4 million people – itself no mean task – I’d like to devote this article to exploring the question, does Hong Kong have a role to play still in mediating Sino-American relations? The answer, in my view, is an unreserved yet conditional yes.
The obvious virtues of Hong Kong go without saying. As of now – and for the foreseeable future, it remains a highly critical hub of finance and commerce in Asia. Hong Kong is the only jurisdiction on Chinese soil that adopts the internationally recognized common law system, with backing and support from globally sourced judges staffing the city’s Supreme Court. It is also the largest off-shore RMB center, processing 75% of all RMB transactions worldwide as of 2022. The city’s low tax rates and highly business-friendly legal climate also provide financial megafirms and corporations across the region a pivotal base for operations; Hong Kong is a prime location for initial public offerings (IPOs) and a leading stock market in Asia.
For international companies seeking to broaden their access to capital; banks and funds hoping to capitalize on Asia’s rapidly growing markets, Hong Kong – as of 2022 – remains the go-to nexus. These firms obviously include both mainland Chinese and American companies alike, as Hong Kong’s institutional merits render it hitherto a mutually agreeable location where capital consolidation and fundraising can be done.
Of course, it is not without any challenges; Hong Kong could ill-afford to rest on its laurels. International firms have found the pandemic-induced travel restrictions and uncertainty looming over the city’s governance substantial deterrents prohibiting them from doubling down on investment in the city. Hong Kong’s financial innovation – while promising – is lagging behind its counterparts in New York, London, and even Singapore. What is needed here is a dose of healthy adventurism and willingness to engage talents from the rest of the world, beyond merely North America and Europe.
The city should also step up its efforts in developing financial innovation, ranging from cryptocurrency, Web 3.0, to the employment of finance as a tool of supporting public infrastructural and sustainable objectives, via public financing and ESG bonds. Much of this allows for the bridging of value-centered differences between both sides of the Pacific.
Yet I have also come to view Hong Kong through a slightly different lens – one oriented around its ability to serve as a bellwether of the changes that are due in the mainland. The city’s laissez-faire, pro-trade, low-tax environment had long served as a pioneering exemplar for market reforms and economic liberalization in the mainland. It also equips visitors and entrepreneurs alike with invaluable insights into the trends and headwinds shaping the mainland at large, whether it be through the uniquely free-flowing conversations on Chinese economy and the state of society that occur behind closed doors in the city, or the highly internationally interconnected nature of the city’s movers and shakers. For American firms seeking to make sense of a precipitously impenetrable and enigmatic China, there are few better places than Hong Kong – the frontier of where East meets and enmeshes with West.
The reverse could be said in terms of facilitating mainland Chinese firms in their international forays. The city is endowed with highly versatile, veteran human capital that understands the cultural and ideological disparities and overlaps between China and the West – and, through its expanding role as a regional arbitration and mediation hub, is suited to serve as a site for resolution of commercial and legal disputes. Provided that Hong Kong reopens its borders to the rest of the world with promptness and swiftness, its status as where China and the rest of the world, especially the United States, come to meet – as the freest city within China – should in theory remain broadly intact.
Of course, such a mantle comes with great challenges and responsibilities. Can Hong Kong stave off the exodus of communicators, intellectuals, entrepreneurs and lawyers – and will those who have left the city return? Alternatively, could the city continually integrate into the Greater Bay Area without thereby foregoing its distinctive institutional and legal features, which have historically rendered “One Country, Two Systems” a visionary governing principle that is very much aligned with China’s vision of internationalization? These are not questions that could be answered on paper alone – much will depend on whether Hong Kong’s political leadership over the upcoming five years can muster the resolve and audacity to implement broad-based, wide-ranging reforms targeted at restoring the city’s international reputation.
It is on that note that we turn to the final way in which Hong Kong could still play a part in shaping Sino-American relations. We live in an era where vast, structural misperceptions have come to characterize how Beijing and Washington, as well as their respective peoples, view each other. The cultural and arts scene in Hong Kong, paired with its cosmopolitan and eclectic demographics, serve to bolster China’s international standing at large – as well as its image, especially to those whose cursory understanding of China would be otherwise restricted to newspaper headlines and front-page stories in their domestic media.
The Pearl of the Orient has always performed best in accelerating and complementing China’s rise – when it is allowed to blossom as a different facet to the same ‘China story’. In other words, a vibrant, progressive, and pluralist Hong Kong is the best version of the story that China could tell to the world; as Lieberthal argues, should China “demonstrate its ability to deal with a complex, modern society in a fashion that nurtures success,” it could only stand to gain from the rest of the world. In contrast, should Hong Kong lose its allure as a preview of the China that is to come for the century ahead – not only would this vastly diminish the city’s importance and prospects, it would also be to the detriment of the 1.4 billion people in China.