Hong Kong is being squeezed … into China
It is easy to forget that while Hong Kong is slightly drugged up prior to Christmas and New Year, China is still hard at work. As I learned during my time as a spin-doctor, this is the best time to “bury the bad news”.
The twist in the dragon’s tail last week was the announcement that the Chinese will be permitted full sovereign authority over not just a quarter of the massive new West Kowloon rail terminal but also the trains on the 26km line to the border. To add twists to the contortions, the Chinese will sub-lease the land from a territory held under a head lease over which the Chinese landlord has complete sovereign powers anyway.
Now, this should not be big news at all. Co-location of immigration controls is practised all over the world. The Channel Tunnel co-locates French and UK immigration officers on each other’s borders and this will not change with Brexit. However, the twisting tail begins to flail if you consider that the acquisition of sovereignty is completely unnecessary – co-location has nothing to do with territory swapping.
The move allows China to acquire a bridgehead of sovereign territory within Hong Kong, like a sword through its heart. It could only have been initiated by Beijing. The tail of the dragon is curling around Hong Kong and squeezing it like a boa constrictor. The autonomy of the Special Administrative Region is being subjected to a death by a thousand cuts.
If business assumes that the tail will only squeeze tighter, it is important to plan ahead. A good analogy might be to look at Hong Kong converging with the Shanghai Free Trade Zone.
Alas, this zone has promised much but delivered little since its very public commencement in 2013. It is not hard to see why. Most FTZ’s around the world are artificial politico-economic constructs – and in China it is especially difficult for politicians to keep their hands off.
Shanghai’s reputation is not helped by policy mis-micromanagement and broken promises. Nothing has been done about the hoped-for freeing up of the yuan’s convertibility. Indeed, when the currency weakened, restrictions to convertibility increased. Capricious regulation is anathema to the free Hong Kong business environment.
For all its free-trade pretensions, the Shanghai FTZ still boasts a large “negative list” that bans investments by foreigners. Hong Kong of course is very foreigner-friendly – we don’t care as long as we get your money.
So as part of our “Shanghaisation”, we are likely to see less tolerance of foreigners, and their views, and more restrictions on the setting up of businesses that are politically incorrect or unacceptable. New rules and regulations about what can be traded and by whom are likely to appear. By 2023, it will be tough to see organisations like the Falun Gong survive in Hong Kong, and we may see bans on trade with Taiwan, or with countries that have recently been nice to the Dalai Lama.
The Bar Association is duly concerned about recent squeezes by the dragon as an independent judiciary provides the stability required in the fair settlement of disputes. Business needs consistent rules to remain confident. While the extraordinary anti-corruption drive in China can only be positive, the speed and opacity with which companies like Dalian Wanda and founding billionaires, like Jia Yueting of LeEco can be brought down, can only intensify an atmosphere of unease and uncertainty.
Is it any wonder that Li Ka-shing’s companies are now domiciled in the Cayman Islands?
The free internet access promised in Shanghai has not materialised, and by 2023 the likelihood is that some websites here will be blocked. That will have important implications for global newsrooms in Hong Kong like the BBC, Bloomberg, CNBC and CNN. Singapore is waiting for their business.
As the Basic Law fades into history, we could see an imposition of taxes, capital and customs controls to “protect Hong Kong” dollar and fit in with China. The anti-subversion law, Article 23, will most likely be enacted before 2023, further restricting the free flow of ideas regarded as healthy for a World City economy.
Do those of us who love living with Hong Kong’s iconic freedoms fight, take flight or accept? Probably a little of each. I have seen Hong Kong change over the last five decades through economic evolution. The tightening tail of the Chinese dragon now makes that evolution political. Our privileged economic freedoms will be restricted. We will have to learn how to live with the new rules – while hoping the dragon reforms faster.
Richard Harris is a veteran investment manager, banker, writer and broadcaster – and financial expert witness