Source:
https://scmp.com/comment/opinion/article/3013895/extradition-law-wont-be-worth-resultant-loss-market-confidence-hong
Comment/ Opinion

Extradition law won’t be worth the resultant loss of market confidence in Hong Kong

  • As long as Hong Kong’s status as China’s premier international financial centre is valuable to Beijing, local officials should be mindful that they will be making a grave mistake in pushing through the legislation
Hong Kong Chief Executive Carrie Lam and Secretary for Justice Teresa Cheng on their way to a media briefing a day after a massive protest against the extradition bill on Sunday. Photo: Sam Tsang

“People are concerned about the possible withdrawal of foreign capital from Hong Kong. But so long as our policies are appropriate, capital that leaves Hong Kong will return … China will courageously face this catastrophe.” Deng Xiaoping said these words in September 1982, just before Hong Kong’s markets took a dive amid jitters over Sino-British talks regarding the territory's future.

Today, a similar loss of market confidence would be far more damaging. Hong Kong, China’s largest centre for international finance and services, and its fourth-largest trading partner (after the US, Japan and South Korea), is considering revisions to its extradition law that could see fugitives transferred to mainland China for trial. If passed, these amendments could threaten confidence in Hong Kong’s values and business. This could, in turn, negatively affect China’s stability and economic growth, which are important sources for the central government’s continued hold on power.

In spite of the challenges Hong Kong has sometimes faced from Beijing, it remains autonomous. In fact, Hong Kong has such a degree of autonomy that outside institutions, like the World Bank, view its norms, such as the rule of law and low levels of corruption, as being on par with places like Sweden and Canada. This precious condition is what makes the territory a magnet for business.

Protecting the autonomous systems that deliver such advantages is in China’s vital national interests. Hong Kong is by far the largest source of foreign direct investment into the mainland. For the first 10 months of 2018, for example, Hong Kong contributed (or channelled) about 69.3 per cent of FDI inflows into China.

It is widely known that mainland authorities use repression to maintain authority. But more than repression, their hold on power (and China’s rise as an economic superpower) has been facilitated by making economic growth and stability the centrepiece of the country’s post-1979 reform-era strategy.

There have been cases in China where leaders who made policy errors were purged or forced to resign. Hong Kong’s first chief executive Tung Chee-hwa, for example, was forced to step down after a series missteps, including the debacle over Article 23 national security legislation.

It is hard to imagine how mainland authorities will deal with current Chief Executive Carrie Lam Cheng Yuet-ngor and officials of the central government’s liaison office if their push for the extradition bill weakens public confidence in their top international financial centre.

China is obviously not a democracy; its leaders are not chosen by an electorate. Rather, its leaders are selected by lower-level elites in the Communist Party and military, known as the “selectorate”. During the post-Mao era, China’s selectorate amassed vast wealth, much of which is tied up in Hong Kong’s colossal markets. Some of this includes more than half of the US$5.78 trillion market capitalisation of Hong Kong’s stock exchange that is made up by China’s largest private and state-owned enterprises.

When lower-level leaders in the selectorate perceive that the bungled policies of higher-level leaders threaten the country’s economic fortunes, they see their own personal fortunes, their positions under Communist Party rule, and the country’s overall stability all under threat. Under such circumstances, they often shift their loyalties to other leaders who will better defend their interests – as they have repeatedly done during the reform era.

The firms that have decided to invest in and do business through Hong Kong have not done so because of the height of the city’s skyscrapers, the efficiency of its infrastructure, or the cultural ties of its population to China. Other Chinese cities have such features.

Instead, they have done so for one reason: trust. Trust that, in the main, mainland leaders would not allow anyone – whether it is Beijing appointees like Carrie Lam or foreign governments – to undermine the autonomy that has been critical to the magnetism of its chief global financial centre.

Mainland leaders should know that the loss of business confidence can gravely weaken strong economies (like the US in 2008) or precipitate stock market crashes (like that in China in 2015).

Some pro-Beijing politicians in Hong Kong may see the extradition bill as a big win for prosecuting fugitives. But, with such efforts, they may be dealing a terrible blow to the mainland’s more dominant objectives of stability, economic growth, and selectorate loyalty, which are the backbone of the Communist Party’s continued hold on power.

David A. Rezvani is the author of “Surpassing the Sovereign State: The Wealth, Self-Rule, and Security Advantages of Partially Independent Territories”. He teaches at Dartmouth College, US