China concerned of ‘Scotland situation’ with Hong Kong

Transcript

‘Hong Kong is not ready for democracy’ reads the party line of China. But tens of thousands of people on the streets of the city disagree. Beijing’s announcement in September that candidates for Hong Kong’s next leader must be vetted by the Communist Part of China has sparked widespread condemnation and mass protests in one of the world’s financial powerhouses. World Finance speaks to Kerry Brown, Director of the China Studies Centre at the University of Sydney, to discuss what the future holds for Hong Kong.

World Finance: Kerry, Chinese officials often liken Hong Kong to an insolent child, and mainland China as the wise mother. But Hong Kong is an economic powerhouse which has run successfully for decades, so why does China want to meddle in that?

Kerry Brown: Well, I think that the dynamics have changed so much since 1997 when the handover happened.

Then, China was the ninth, tenth biggest economy in the world, and it probably didn’t expect to be so quickly the number two, and be so dominant.

And so I think Hong Kong has become less important, in a way, to Beijing. And what we’re seeing now is a Beijing government that feels more confident and assertive.

The Hong Kong economy is about 10 percent of the Chinese economy. It’s kind of an area of its sovereign territory which may be very disruptive, and have democratically elected leaders. Its mindset is obviously not prepared for that, and so it’s acted very assertively lately.

I think the problem really is that the chief executive of Hong Kong now, CY Leung, has proved really incompetent

World Finance: Will they just encourage the communist party to be even more stringent when it comes to vetting governmental candidates for Hong Kong?

Kerry Brown: I think the problem really is that the chief executive of Hong Kong now, CY Leung, has proved really incompetent. He’s meant to represent the interests of Hong Kongese in Beijing, and he obviously hasn’t.

And it’s also meant that Beijing has not really been able to speak to the people of Hong Kong, because nobody’s really listening to CY Leung there. Although the protestors have said they will start a dialogue with him.

There may well be compromises, but not until people get off the streets. And what we have to do is, we have to look at Hong Kong now as being a very politicised place.

World Finance: Economically speaking, how much do Hong Kong and mainland China rely on each other?

Kerry Brown: Beijing now is really tactical. They have big interests in overseas investment going via Hong Kong. They appreciate the rule of law in Hong Kong, and the fact that it is a very stable, open finance centre. So for those things Beijing I think still values Hong Kong, and wants to preserve them.

But if it’s an issue of it accepting these because it has to accept a political system that it obviously isn’t prepared to accept at the moment – a universal franchise that might throw up leaders that might be as fractious and difficult as, for instance, the Scottish leadership in the UK!

I think Beijing looks and thinks, we do not want a special administrative region in Hong Kong that could have a leadership – a very popularist leadership – elected, that could then be absolutely defiant.

World Finance: So what knock-on effect is this causing?

Kerry Brown: Well, the Hang Seng index has lost the value that it’s accrued over the last few months, so short-term, yes, it is having an impact.

There’s a simmering resentment, and that will erode confidence in Hong Kong eventually

There’s a simmering resentment, and that will erode confidence in Hong Kong eventually. It’s in no one’s interest to have so many people feeling that they’ve really been done down.

This is not an issue about the UK or America or others getting involved. They have no real big role in this, they already said their bit in the colonial period. So I think really, it’s about the people of Hong Kong , realising that they’re kind of on their own, and that they have to speak directly to the leadership of Beijing.

And the one thing they have is economic importance, and Beijing doesn’t want to jeopardise that. So I think that for the protestors they will need to work with constituencies, business constituencies in Hong Kong, to bring them over to say: we need a better deal than the one we’ve got at the moment, for the future prosperity of this amazing international centre.

World Finance: So you don’t think this might be the start of Hong Kong losing its crown as one of Asia’s main financial districts?

Kerry Brown: Well I think it’s already very competitive in Asia. Shanghai is being very assertive as the portal to the domestic finance market in China. It’s growing and expanding, yet no one pretends that this is at the moment up to the global standard, but Shanghai’s aspirations can’t be taken lightly.

And so you could say in Beijing, well if Hong Kong really wants to walk off a cliff, then we do have a ‘Plan B’.

I don’t think it does want Hong Kong to walk off a cliff: clearly it doesn’t. But there is a world outside of Hong Kong for the Beijing leadership now, unlike in 1997. Really Hong Kong is not a super-big priority.

World Finance: Well finally, is this good news for Europe? As banks we once feared would move to Hong Kong might now reconsider? Or could it go the other way, and maybe that will be the final push towards Shanghai?

I don’t think it does want Hong Kong to walk off a cliff

Kerry Brown: I think it’s a big problem in Europe, because for investors they really really do look at Hong Kong as a place of reassurance, a place of law and regularity. And it’s not a great thing that it’s now so full of uncertainty.

I think many will be scratching their heads thinking, this is kind of like a ‘do or die!’ Either we have to walk into this great uncertainty and get more involved in Shanghai, or we really do have to step back and reconsider our greater China strategy.

For many people engaged in the China market, they’re going to have to think much harder about who they work with, where they go, how they do it, and the Hong Kong reassurance is not quite as strong as it was even a month or so ago.

It can get that back: it depends on what sort of political deal is done. But all this talk about Hong Kong being a place for business, a place for economics, and that’s all that matters? No. Hong Kong is a political issue now.