Thousands of protesters attend a rally outside the government headquarters in Hong Kong as riot police stand guard
Thousands of protesters attend a rally outside the government headquarters in Hong Kong as riot police stand guard on Sept. 27, 2014 Tyrone Siu— Reuters

Hong Kong's Protesters Are Fighting for Their Economic Future

Sep 29, 2014

The conventional wisdom about Hong Kong’s pro-democracy protests is that they are bad for business. Hong Kong has become one of the world’s three premier financial centers (along with New York City and London) because the city has been a bastion of stability in an ever changing region, the thinking goes, and therefore the tens of thousands of protesters who paralyzed downtown Hong Kong on Monday are a threat to its economic success. The Global Times, a state-run Chinese newspaper, used just such an argument to try to persuade the protesters to clear the streets. “These activists are jeopardizing the global image of Hong Kong, and presenting the world with the turbulent face of the city,” it said in an editorial on Monday.

That worry isn’t merely Beijing propaganda. Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, said one of the big questions facing Hong Kong over the long term is “whether the political standoff eventually impacts domestic and foreign perceptions of Hong Kong's stability and attractiveness as an investment destination.” The fallout for Hong Kong's financial sector from the Occupy Central movement was immediate. The stock market dropped, banks closed branches, and the Hong Kong Monetary Authority, the de facto central bank, had to reassure the investor community that it would “inject liquidity into the banking system as and when necessary” to overcome any possible disruptions.

But the real reason why Hong Kong has been so successful is that it is not China. When Hong Kong was handed back to Beijing by Great Britain in 1997, the terms of the deal ensured that the former colony, ­now called a "special administrative region," or SAR, of China ­would maintain the civil liberties it had under British rule. That separated Hong Kong from the Chinese mainland in key ways. In China, people cannot speak or assemble freely, and the press and courts are under the thumb of the state. But Hong Kongers continued to enjoy a free press and freedom of speech and well-defined rule of law. The formula is called "one country, two systems."

That held true in the world of economics and finance as well. On the Chinese side of the border, capital flows are restricted, the banking sector is controlled by the state, and regulatory systems are weak and arbitrary. Meanwhile, in Hong Kong, financial regulation is top-notch, capital flows are among the freest in the world, and rule of law is enshrined in a stubbornly independent judicial system. Those attributes have given Hong Kong an insurmountable advantage as an international business hub. Banks from all over the world flocked to Hong Kong, while its nimble sourcing firms orchestrated a global network of supply and production that became known as "borderless manufacturing." While there has been much talk of Shanghai overtaking Hong Kong as Asia's premier financial center, the Chinese metropolis simply cannot compete with Hong Kong's stellar institutions, regulatory regime and laissez-faire economic outlook.

Photographs of Hong Kong’s Umbrella Revolution

Protesters sit behind a government building as the standoff continues Oct. 5, 2014 in Hong Kong.
Protesters sit behind a government building as the standoff continues Oct. 5, 2014 in Hong Kong.Paula Bronstein—Getty Images
Protesters sit behind a government building as the standoff continues Oct. 5, 2014 in Hong Kong.
Protesters walk along the protest site on a quiet night as the standoff continues Oct. 5, 2014 in Hong Kong.
A pro-democracy protester sleeps on a concrete road divider on a street outside the Hong Kong Government Complex on Oct. 5, 2014 in Hong Kong.
People try to prevent a man from removing a barricade set up by pro-democracy protesters blocking a main road at Hong Kong's shopping Mongkok district Oct. 4, 2014.
Policemen try to get a man to let go of a fence guarded by pro-democracy demonstrators in an occupied area of Hong Kong on Oct. 3, 2014.
A local resident breaks through police lines and attempts to reach the pro-democracy tent on Oct. 3, 2014 in Mong Kok, Hong Kong.
A student protester is injured after being pulled off and hit by residents and pro-Beijing supporters while local police are escorting him out of the protest area in Kowloon's crowded Mong Kok district, Oct. 3, 2014 in Hong Kong.
Students and pro-democracy activists leave the protest site as local police hold back local residents and pro-government supporters on Oct. 3, 2014 in Mong Kok, Hong Kong.
A man walks past a barricade as protesters continue to block areas outside the government headquarters building in Hong Kong, Oct. 3, 2014.
Pro-democracy demonstration in Hong Kong, Sept. 3, 2014.
Student protesters raise their hands to show their non-violent intentions as they resist during change of shift for local police but backed down after being reassured they could reoccupy the pavement outside the government compoundís gate, Oct. 2, 2014 in Hong Kong.
Police stand guard outside the government headquarters in Hong Kong on Oct. 2, 2014, as pro-democracy protesters remain gathered for the fifth day in a push for free elections of the city's leader.
A taxi driver gives a thumbs up to pro-democracy protesters as he drives past the protest site in front of Hong Kong's Chief Executive Leung Chun-ying's office, Oct. 3, 2014 in Hong Kong.
Protesters sleep on the road outside the Police Headquarters building on Oct. 2, 2014 in Hong Kong, Hong Kong.
Students from various universities continue their protest in the streets of Hong Kong, Oct. 1, 2014.
A protester holding an umbrella stands on the street close to the Hong Kong Government Complexon Oct. 1, 2014 in Hong Kong, Hong Kong.
Joshua Wong, leader of the student movement, delivers a speech as protesters block the main street to the financial Central district, outside the government headquarters building in Hong Kong Oct. 1, 2014.
Protesters react as Joshua Wong, leader of the student movement, speaks to the crowd outside the government headquarters building in Hong Kong Oct. 1, 2014.
Tens of thousands of pro-democracy demonstrators, some waving lights from mobile phones, fill the streets in the main finical district of Hong Kong, Oct. 1, 2014.
A protester sleeps on the streets outside the Hong Kong Government Complex at sunrise on Sept. 30, 2014 in Hong Kong, Hong Kong.
Pro-democracy demonstrators rest during a protest in Hong Kong on Sept. 30, 2014.
Protesters relax on the streets outside the Hong Kong Government Complex on Sept. 30, 2014 in Hong Kong, Hong Kong.
A pro-democracy protestor speaks to the crowd in front of the government offices in Hong Kong on Sept. 30, 2014.
A couple wearing protective masks and ponchos walk through Admiralty district as part of pro-democracy protests in Hong Kong on Sept. 30, 2014.
Protesters sing songs and wave their cell phones in the air after a massive thunderstorm passed over outside the Hong Kong Government Complex on Sept. 30, 2014 in Hong Kong, Hong Kong.
Pro-democracy demonstrators gather for the third night in Hong Kong on Sept. 30, 2014.
A businessman stands in front of a road block set up by protesters at the main street of the financial Central district in Hong Kong Sept. 29, 2014.
A protester raises his arms as police officers try to disperse the crowd near the government headquarters in Hong Kong, Sept. 29, 2014.
Umbrellas used to shield demonstrators from pepper spray and the sun are displayed during a pro-democracy protest near the Hong Kong government headquarters on Sept. 29, 2014.
Residents on scooters bring supplies to protesters camped outside the headquarters of Legislative Council during protests in Hong Kong on Sept. 29, 2014.
Police walk down a stairwell as pro-democracy demonstrators gather for a rally outside the Hong Kong government headquarters on Sept. 29, 2014.
Protesters gather in the streets outside the Hong Kong Government Complex on Sept. 29, 2014 in Hong Kong.
Pro-democracy demonstrators hold up their mobile phones during a protest near the Hong Kong government headquarters on Sept. 29, 2014.
Pro-democracy demonstrators are sprayed with pepper spray during clashes with police officers during a rally near the Hong Kong government headquarters on Sept. 28, 2014.
A pro-democracy demonstrator wearing a mask and goggles to protect against pepper spray and tear gas gestures during a rally near the Hong Kong government headquarters on Sept. 28, 2014.
Riot police launch tear gas into the crowd as thousands of protesters surround the government headquarters in Hong Kong, Sept. 28, 2014.
A protester walks in tear gas fired by riot policemen after thousands of protesters blocking the main street to the financial Central district outside the government headquarters in Hong Kong, Sept. 28, 2014.
A pro-democracy protester confronts the police during a demonstration in Hong Kong on Sept. 28, 2014.
Pro-democracy protesters demonstrate in Hong Kong on Sept. 28, 2014.
Policemen confronts protesters in Hong Kong during a demonstration on Sept. 28, 2014.
Riot police fire tear gas on student protesters occupying streets surrounding the government headquarters in Hong Kong, early on Sept. 29, 2014.
A pro-democracy demonstrator pours water over a man's face after police fired tear gas at protesters during a rally near the Hong Kong government headquarters on Sept. 28, 2014.
Pro-democracy protesters put their hands up in the air in front of the police in Hong Kong on Sept. 28, 2014.
Some of the protesters sleep as they block the main street to the financial Central district outside the government headquarters, with other demonstrators in Hong Kong, Sept, 29, 2014.
Policemen rest following pro-democracy protests in Hong Kong on Sept. 29, 2014.
Protesters sit behind a government building as the standoff continues Oct. 5, 2014 in Hong Kong.
Paula Bronstein—Getty Images
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What happens if Hong Kong loses this edge? In other words, what happens if Beijing changes Hong Kong in ways that make its governance and business environment more like China's? Hong Kong would be finished. The fact is that Hong Kong's economic success, the nature of its institutions and the civil liberties enjoyed by Hong Kongers are all inexorably entwined. If Beijing knocks one of those pillars away, ­if it suppresses people's freedoms or tampers with its judiciary, ­Hong Kong would become just another Chinese city, unable to fend off the challenge from Shanghai. Foreign financial institutions would be forced to decamp for a more trustworthy investment climate.

That's why the Occupy Central movement is so critical for Hong Kong's future. So far, Beijing has generally abided by its agreement with London and left Hong Kong's economic system more or less unchanged. But when China's leaders made clear last month that Hong Kongers would be able to choose their top official, known as the Chief Executive, from 2017 onward only from candidates who have the approval of Beijing, it became obvious that Hong Kong was going to face tighter control by China's communists over time. That raises the specter that Beijing will at some point dismantle "one country, two systems" and along with it the foundation of the Hong Kong economy.

By fighting for their democratic rights, the activists in Hong Kong are fighting for an independence of administration and governance that will perpetuate their city's economic advantages. Beijing should realize that ultimately a vibrant Hong Kong is in its own interests. China has benefited tremendously from Hong Kong over the past 30 years. It was Hong Kong manufacturers that were among the first to bravely open factories in a newly opened China, thus sparking the mainland's amazing economic miracle. Chinese firms have been able to capitalize on Hong Kong's stellar international reputation to raise funds and list shares on the city's well-respected stock exchange. Even now, China continues to upgrade its economy by seeking Hong Kong's expertise. The stock markets in Hong Kong and Shanghai are in the process of being linked to allow easier cross-border investment.

Of course, Hong Kong's economy is far from perfect, and here, too, the importance of Hong Kong's democracy movement can be found. The SAR suffers from a highly distorted property market and one of the widest income gaps in the world. Such ills have bred more resentment in the city toward Beijing. Yet right now many of the people of Hong Kong simply don't trust their Beijing-chosen leaders to resolve these issues. Hong Kong requires a popular administration that commands the support of the people in order to implement the reforms necessary to tackle these critical problems. Thus the battle unfolding on the streets of central Hong Kong is a contest for the city's very survival. Perhaps Hong Kong's pro-democracy activists will disrupt the usually sedate financial district for a few days. But that's a tiny sacrifice compared to the long-term damage Hong Kong faces if its citizens do nothing.

Schuman reported from Beijing.

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