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The Issue in Hong Kong Is Not Autonomy from Beijing, but Growing Economic Inequality

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Han Zhu, Sr. Fellow Chunqiu Institute for Development and Strategic Studies; co-author "Sino Power." This article is distributed by the Guancha Syndicate.

On the 17th anniversary of the elimination of British colonialism, Hong Kong saw another big demonstration when tens of thousand people marched against the local government and central governments in Beijing. Despite having established an even closer economic relationship with mainland China since the handover, anti-Beijing sentiment has now become prevalent in the Special Administrative Region. From calling mainlanders -- an average of 100,000 of them tour the city every day -- "locusts" to advocating for a "city state," the people of Hong Kong seem to be upping the tension with China.

It should not have been like this. To be fair, Beijing has been adhering to the "One Country Two Systems" policy on Hong Kong since 1997. The central government has neither interfered in any particular affair in nor sucked out any economic benefit from Hong Kong. Instead, Beijing has offered tremendous assistance and support to Hong Kong during difficult times. There's no conflict of interest between the people of Hong Kong and their mainland counterparts. So, how did this unfounded tension come about?

In my view, the so-called "contradiction" between Hong Kong and mainland China was manufactured by those who want to shift the focus away from some real conflicts within Hong Kong society itself. In the past decade, Hong Kong's economy has become increasingly marginalized in the wave of globalization. Domination by big businesses, the gap between rich and poor, and social injustice have all gotten worse. Taking advantage of such internal conflicts, some local politicians has sought to shift the blame to Beijing and the mainlanders. No solution to Hong Kong can be found if this real picture isn't being recognized.

1) Hong Kong's economy marginalized in globalization

From 1949 to the late 1970s, Hong Kong benefited greatly by providing a key trade channel between China and the outside world. Manufacturing, once employing 20 percent of the working population, was another pillar of Hong Kong's economy. As globalization and China's market reforms took off, Hong Kong's manufacturing sector started being hollowed out as factories moved up north. Two grave consequences from the hollowing out process followed:

  • Manufacturing diminished: From about one million in the early 1980s, the number of Hong Kong workers in the manufacturing sector has dropped to about 20,000 in 2013. While hollowing out is a common problem for all developed economies, Hong Kong suffers much more than its Western counterparts for one reason -- the West, with its leading position in high technology and luxury brands, is still making high profits globally. Whereas in Hong Kong, low-end jobs in retailing, food and beverage, logistics, and transportation have become the only opportunities for the ordinary working class.

  • Property price have been pushed up: Thanks to China's cheap land and labor costs, moving north enabled Hong Kong factory owners to expand their operation very swiftly and to reap huge profits in the 1980s and 1990s. The profits, however, didn't stay in China and flowed back to Hong Kong, mostly into real estate. Almost with no exception, local businessmen who made their fortune in China have purchased luxury housing in Hong Kong, creating a rising wave of property prices.

As a result, Hong Kong has become polarized, with gigantic businesses and low-end workers on both ends. The middle class is disappearing.

2) Mainland tourists a mixed blessing for the economy

When Hong Kong was devastated by SARS in 2003, Beijing, aiming to boost the local economy, kicked off an Individual Visit Scheme letting mainland tourists visit Hong Kong on an individual basis rather than in group tours. In the past decade, Hong Kong has received a total of 124 million mainland tourists. The scheme has bolstered four key industries in Hong Kong: tourism, servicing, finance, and transport. It also has provided plenty of low-end employment opportunities and surely plays a significant role in keeping the current unemployment rate low at 3 percent.

However, the scheme contributes only marginally to economic growth. In 2012, while mainland tourists spent a total of HK $261 million in Hong Kong, it translated to only 1.3 percent of GDP. In other words, the scheme does prevent massive unemployment that otherwise would have resulted from the hollowing out process, but the jobs it helps to create remain mostly low-end, not a significant contribution to economic development. The real winners are Western luxury brands, which mainland tourist flock to buy, and local landlords benefitting from skyrocketing rents.

While the number of mainland tourists has increased four times in the last 10 years, the rent of commercial property has also jumped several fold. Hong Kong's commercial rent ranks at the top globally, with some premises charging as much as HK $30,000 per sq. meter each month. The disappearance of small shops has a great impact on the local population.

In a nutshell, the scheme is a mixed bag for Hong Kong's economy. On top of this, the sheer huge number of tourists is also affecting Hong Kong's original way of living, breeding resentment among some local citizens.

3) Big business domination and widening gap between rich and poor

Land domination is nothing new in Hong Kong. According to Forbes' ranking in 2013, the top four richest men are all property developers. The Big Four developers held a market share of 55 percent by the end of last century, leaving almost no room for any new player to enter the market. Making astounding profits, big developers subsequently purchased many public utility services. Nowadays, Hong Kong's transportation, energy and even supermarkets are concentrated in the hands of big developers.

Polls conducted by the University of Hong Kong in the past decade always reflected a same result -- "fairness" has been the most lacking among all existing features in the society. For example, when asked in a 2011 survey to choose the most important element a society should have, Hong Kongers indeed chose "fairness" over "prosperity, free of corruption, freedom, or welfare."

Meanwhile, as the middle class keeps shrinking, the real income of ordinary people has been decreasing. The nominal income of most people remains unchanged since the handover -- a university graduate earned about HK $10,000 per month 10 years ago; now it is basically the same. However, everything else -- property prices and rents in particular -- has increased sharply.

As the real income of ordinary folks is falling, big developers keep reaping huge profits and accumulating more and more wealth. This sharp contrast has caused strong discontent among the population.

4) What has changed and unchanged since the handover

According to the Sino-British Joint Declaration and the Basic Law, Hong Kong's political system shall remain unchanged for 50 years. In fact, it has not been exactly the case since the handover.

Granted, one thing has remained unchanged in the last 17 years -- the central government adheres to the promise of not imposing socialism in Hong Kong. Nevertheless, Beijing, when drafting the Basic Law, did promise to allow a change in Hong Kong's system -- transitioning from a system under which the governor controlled everything to a more democratic one. Under the Basic Law, the power of the chief executive and the makeup of the Legislative Council are very different from those under the colonial system.

Before the handover, the governor had all the power with both the Executive Council and Legislative Council firmly under him. The chief secretary used to be merely a chief secretary and a key advisor to the governor. The Legislative Council was more or less an advisory and not a legislating body. The governor controlled the appointment of the legislators and the agenda of the legislature. Members could only have a general debate on bills and didn't have the power to move any motion. In the Special Administrative Region, the executive branch has become a weak government hindered by a much more powerful legislative branch.

Another major political change since the handover lies in the role of the sovereign power in Hong Kong. The British government could fully exercise its political will in Hong Kong. For example, when London demanded Hong Kong bear half of the expenses of the British military stationed in Hong Kong, the colony could never say no. After the handover, while the central government holds the final governing power in Hong Kong, this power has been delegated to the local government.

Beijing doesn't interfere in Hong Kong's domestic affairs and Hong Kong also doesn't have to bear any cost of the stationed People's Liberation Army. If you compare how Beijing and how London governed Hong Kong, the differences couldn't be starker.

Those who are now waving the Union Jack to accuse Beijing of interfering in Hong Kong's freedom are not rational in their comparison of the degree of autonomy before and after the handover.

The crux of the matter is this: the opposition in Hong Kong, not satisfied enough with the changes since the handover, is trying to do away with the Basic Law and the Constitution of the People's Republic of China. They want to negate the central government's ruling power and give Hong Kong complete "autonomy" separate from China. That's the fundamental reason why the radical opposition is promoting a "contradiction" between Hong Kong and China by trying to shift the blame of Hong Kong's internal conflicts onto the central government and the mainlanders.

Contrary to the promise of keeping things unchanged for 50 years as stipulated in the Joint Declaration, the political change in Hong Kong has gone too far.

While Hong Kong does need reforms, such changes can't ultimate result in breaking away from the central government, destroying the economy, inciting infighting, and splitting the society into chaos.

Hong Kong doesn't need any political movement to provoke internal conflict. What Hong Kong needs is economic reforms that can deliver it from its economic marginalization caused by globalization. What the elites in Hong Kong should be thinking of includes: How to maintain the good legal tradition? How to find a position in the globalized economy? How to resist economic domination by big businesses? How to make the society fairer? How to revitalize the economy like the 1970s and 1980s?

In a nutshell, what Hong Kong needs is economic reform and not shifting internal conflicts elsewhere.

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