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May 2020
Insights/Hong Kong’s Summer of Discontent 2.0

Hong Kong’s Summer of Discontent 2.0

By Nardello & Co.

Last week’s opening of the annual plenary meetings of the National People’s Congress (“NPC”) and the Chinese People’s Political Consultative Conference included an unwelcome surprise for Hong Kong: the announcement that the NPC will enact national security legislation in the semi–autonomous territory.

Coming on the back of last year’s often–violent protests against the central government’s tightening of its grip on Hong Kong, Beijing’s move risks further undermining faith in the “one country, two systems” model by which it has governed the territory since Hong Kong’s reunification with the mainland in 1997. While the central government’s top–down intervention poses apparent risks for Hong Kong’s pan–democratic opposition, the implications for its international business community are less clear, and will depend in part on the response it elicits from the Trump administration.

Why now?

Under Article 23 of Hong Kong’s de facto constitution, the Basic Law, the territory’s government is duty bound to pass national security legislation, which must be approved by its parliament, the Legislative Council (“LegCo”). However, government efforts to do so have been put on hold since 2003 when half a million Hong Kongers took to the streets in an unprecedented peaceful weekend protest. Mindful of openly abrogating its constitutional commitments, Beijing continued to play the long game with respect to Hong Kong, exerting behind–the–scenes pressure on the territory’s political leadership and its tycoons to toe the line, while fostering the integration of the two economies. However, in the wake of last year’s protests triggered by Hong Kong Chief Executive Carrie Lam’s introduction of an ill–starred extradition bill and recent filibustering in LegCo by pan–democrats seeking to stymie the introduction of legislation they claim would further undermine Hong Kong’s autonomy, Beijing’s patience has clearly snapped.

Under Xi Jinping, who was appointed general secretary of the Communist Party of China in 2012, Beijing has increasingly bristled at Hong Kong’s reluctance to embrace the mainland. The pro–universal suffrage “Umbrella Movement” of 2014, though ultimately unsuccessful, paralyzed Hong Kong for months and spurred Beijing to accelerate the process of bringing the territory into its fold. Last year’s protest movement, which saw an estimated two million Hong Kongers march peacefully against the Lam administration’s extradition bill on a single day in June before descending into months of violent street battles, served a humiliating public rebuke. As such, China may have calculated that national security legislation could never have been enacted locally without further unrest, and that foisting a fait accompli on Hong Kong was the least disruptive course of action.

The timing of Beijing’s decision to directly intervene in Hong Kong is important. The NPC’s Standing Committee will finalize the legislation with implementation expected by as early as late summer. Conveniently, this timetable would serve to blunt the political repercussions of September’s LegCo elections, in which the pan–democrat camp is expected to win an unprecedented number of seats. By bypassing LegCo, the top–down approach could neutralize the possibility of local democratic obstruction altogether. This time, however, public opinion will count for nothing—no governing authority in Hong Kong has the power to withdraw national security legislation originating from the NPC.

Hong Kong’s warring factions

In the wake of the NPC’s announcement, Beijing and the Lam administration have attempted to calm a rattled Hong Kong public as well as Hong Kong’s international business community. They have insisted that the national security legislation would only apply to spies, independence advocates, and those seeking to subvert China. Such assurances engender deep–seated unease among members of Hong Kong’s pan–democratic opposition and its sympathizers, who fear the subjective elasticity of Beijing’s definition of subversion. Even without national security legislation, the pan–democrats have seen its ranks repeatedly targeted, most recently with 15 high–profile pro–democracy veterans arrested in April.

In contrast, Hong Kong’s pro–establishment camp, while historically somewhat diverse in opinion, has revealed itself to be seemingly unified in the wake of the NPC announcement. Dissenting voices, should they exist, do not appear willing to publicly break ranks with Beijing. Ironically, though they may appear more unified than ever, the pro–establishment camp finds itself at the nadir of its influence vis–à–vis its political benefactors in Beijing. Thus far unreported has been the fact that Beijing’s announcement appears to have caught many pro–establishment figures, including some of Hong Kong’s most prominent tycoons, completely by surprise, a further indication that Beijing has lost faith in its traditional mechanisms of influence in the city and now favors a more directly interventionist approach.

In the wake of the surprise announcement, pro–establishment heavyweights in Hong Kong have followed Beijing’s lead, voicing public support for the theory that last year’s protests were stimulated by “black hand” foreign interference activity, primarily orchestrated by Washington. Perceptions of foreign interference have also taken root among segments of Hong Kong’s embattled police, who have been assigned the impossible task of applying a law and order solution to a deeply rooted political problem. Once one of Hong Kong’s most admired civil service groups, the force is widely believed to be suffering from extremely low morale. Frontline officers expect that the NPC’s national security push will only further alienate the force from the public, with resurgent protests exhausting their ranks.

Meanwhile, the choice confronting members of the Hong Kong public still sitting on the political fence has become increasingly stark and fraught with consequence.

Summer prospects

Though unrest this summer remains possible—even likely—Hong Kongers’ arguably most effective democratic tool, peaceful mass marches, may be stymied by a local government that has grown increasingly bold in its use of tactics to close off avenues of peaceful protest and to disadvantage Hong Kong’s pan–democratic camp. The extension of COVID–19 social distancing measures to early June has thus far precluded the approval of any mass marches in response to the national security legislation. A further extension of social gathering restrictions, or restrictions of some other legalistic means, cannot be discounted as the Hong Kong government increasingly leans on a targeted “rule by law” approach to head off opposition.

Ultimately, even peaceful mass marches broadcast around the globe are highly unlikely to sway the machinations of mainland officialdom in Beijing. To change course under public pressure from the Hong Kong public—not to mention criticism from numerous foreign governments—would mean incurring a loss of face that is simply unthinkable to Beijing.

Business implications and US retaliation

While much has been written this week about the demise of “one country, two systems,” it is far too early to predict the long–term implications of Beijing’s national security push. Certain measures that have been floated by the central government have raised concerns among the public, such as the prospect that mainland state security agencies could establish official offices in the city, a prospect whose legality under the Basic Law has already been questioned by Hong Kong’s legal community. Reports also indicate that the new legislation will prohibit foreign judges who sit on Hong Kong’s Court of Final Appeal from hearing national security cases. But while there is reason to be concerned about a steady encroachment on the integrity of Hong Kong’s rule of law, a key foundational plank of its attractiveness as a regional business hub, Beijing is ever the pragmatist, and is unlikely to undermine the commercial viability of its legal system.

Moreover, international businesses have invested considerably in Hong Kong, whose commercial and financial infrastructure offers—and is likely to continue to offer—unparalleled access to mainland China and its capital. While political uncertainty may drive some business and capital away from the territory, no ready China–focused regional substitute exits. Hong Kong will inevitably continue to play an important role by virtue of its geographical location but it may lose its sheen as “Asia’s World City.”

What may play an outsized role in determining Hong Kong’s future as the region’s foremost business hub is the means by which the US responds in the coming days and weeks to Beijing’s national security push. The Trump administration, which is populated by a number of prominent China hawks whose influence is clearly in ascendance, has already floated the idea of revoking Hong Kong’s “special status” as a trading a partner with the US. If rescinded, all goods passing through Hong Kong to the US could be subjected to the same tariff levels as mainland China, a potentially devastating blow to US exporters operating in the territory, not to mention the competitiveness of Hong Kong’s shipping industry. Beyond its direct commercial impact, a revocation of Hong Kong’s special status would have immense symbolic importance and could lead other US industries, including prominent technology firms, to move or reduce their operations in the territory. It is evident from US Secretary of State Mike Pompeo’s statement on Wednesday that “No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China,” that the Trump administration is poised to pursue a hard line. Although status revocation would not in theory have a direct impact on the city’s viability as a global financial hub, other potential US measures, such as the sanctioning of Chinese entities who are deemed complicit in Beijing’s growing interference in Hong Kong, could lead to penalties being levied against international financial institutions who do business in the territory.

With the US and China both assuming a neo–Cold War footing, Hong Kong is in the unenviable position of being caught in the middle. All signs point to a second sweltering summer of discontent and unpredictability in Hong Kong.


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