How coronavirus can save Hong Kong

The coronavirus has enforced a hiatus in Hong Kong’s widespread political unrest with worries about transmission stalling protests. Dissatisfaction with the government still festers, fuelled by the mishandling of the health crisis - all the ingredients are there for protests to reignite. But the lull in the unrest gives the Hong Kong government and their counterparts in Beijing a window of opportunity. It is imperative that the British government encourages all sides to grasp the next few months as a moment for reconciliation.

President Xi Jinping has been busy using this space to reshuffle the officials overseeing Hong Kong from Beijing’s side by appointing loyalists Xia Baolong and Luo Huining. The new officials must decide whether to seek reconciliation or continue to take the hard-line approach that has caused the situation to spiral out of control.

The signs are not good. On Tuesday, Hong Kong bookseller Gui Minhai was sentenced to ten years by a mainland Chinese court. Gui was one of five booksellers abducted from Hong Kong in 2015. He has since been disappeared,  forced to confess and kept in incommunicado detention before this sham trial. This is a Swedish citizen and Hong Kong resident held captive for a total of fifteen years for publishing books critical of the Chinese Communist Party: hardly an olive branch at this sensitive time.

The record of Xi's new men in Hong Kong is also ominous. While presiding over Zheijiang province, Xia received international condemnation in 2014 and 2015 for waging an ideological war against Christians in Zheijiang province while he presided over the region, tearing down 2,000 crosses and demolishing entire churches.

But adopting this type of approach would be an act of self-harm. Hong Kong remains irreplaceable as a financial hub and China’s major source of foreign capital as well as a key springboard for Chinese firms seeking international exposure.

Chinese firms rely heavily on Hong Kong as a key source of foreign funding. As a new Hong Kong Watch report out this week shows, the city is home to the largest number of initial public offerings by Chinese mainland firms by a considerable margin – with 73 per cent of IPOs taking place in Hong Kong between 2010 and 2018. The Hong Kong-Shanghai Stock Connect scheme is increasingly the preferred means by which Western investors access the mainland stock market, and Hong Kong is the largest offshore centre for bond sales by Chinese companies. The city mediates nearly two-thirds of direct investment into and out of China.

Hong Kong matters to Britain too. The publication of HSBC’s accounts last week illustrates the point. HSBC is not only one of the UK’s largest employers in finance but pays a substantial amount to the Treasury each year in tax, and yet HSBC’s business in Hong Kong also makes up the bulk of its global profits before tax and in recent years has covered the bank’s losses. In 2019, it accounted for over £9.2 billion out of a total of £13.3 billion of profits worldwide.

A further deterioration of the rule of law and freedoms Hong Kong currently enjoys would have a direct impact on HSBC’s business and profits, the bulk of which finances its operations and employees across the world. There are many other businesses that contribute considerable amounts to the public purse who will suffer if the political spiral in Hong Kong continues.

Why does Hong Kong play this role?  The city’s history gives it an advantage. Hong Kong’s financial professionals have decades of experience sitting at the apex between China and the rest of the world. They have expertise and knowledge of markets that give the city a huge comparative advantage.

However, Hong Kong retains its status for a range of other reasons. The Hong Kong government has made deregulation and free movement of capital a priority. All participants in the Hong Kong stock exchange and financial markets have access to transparent and accurate information. Its autonomy from mainland China facilitates this. Hong Kong is not within the ‘Great Firewall of China’ and many leading news organisations base their Asia Pacific headquarters in the territory.

Another advantage for Hong Kong is its common law system, which aside from being both highly respected and reliable also shares synergies with other key financial hubs such as Singapore and London, as a result of the common law link and the presence of international judges. This ensures that contracts are reliable and easier to sign with other key jurisdictions.

Finally, the combination of autonomy and the rule of law continues to mean that Hong Kong is treated qualitatively differently to other mainland cities by the United States and international governments. Through the US Hong Kong Policy Act, the US Congress makes the US-Hong Kong relationship contingent on the city remaining autonomous and the one-country, two-systems principle retaining its integrity.

Hong Kong is the only Chinese city which enjoys the rule of law meaning it can serve a unique function to both China and the world. So, the new Communist Party officials charged with overseeing Hong Kong cannot afford to overstep and plunge the city into permanent political crisis without shooting themselves in the foot. This is a point that the Foreign Office must stress to its Chinese counterparts.

Breaking the political logjam is in the interests of all parties, including Britain, which has an important role to play in encouraging China to use the coronavirus ceasefire in Hong Kong to seek reconciliation.

This will require three steps: truth, amnesties and reform. There will be no reconciliation of Hong Kong’s divided polity without truth. So an independent inquiry into events of the last nine months is badly needed – with a mechanism for holding those responsible for the shocking police brutality accountable. There will be no reconciliation if young, peaceful protestors are sent to jail for years based on broadly applied and outdated rioting charges. An amnesty package should be negotiated.

Finally, political reform is the only sustainable solution. For as long as street protest is the only means of representation trusted by Hong Kong’s disenfranchised populace, there will be no way out of the gridlock. Hong Kong’s future as a world financial centre and Britain’s second largest trading partner in Asia hangs in the balance.

Benedict Rogers is the co-founder and Chairman of Hong Kong Watch; Johnny Patterson is the Director of Hong Kong Watch