In this episode, your nerds explore the most recent developments out of Hong Kong. Protests are sweeping the streets, and China’s new national security law threatens to illegally remove all of Hong Kong’s autonomy, while the international response led by the US may lead to a huge shift in the global economy. Learn how these events will shape the future of Hong Kong and US-China relations.
INTRO
RAMYA:
So before we get started, we wanted to share some good news. We shot way past our second milestone of reaching 1,000 downloads! Thank you so much to everyone who has supported our podcast and for all the valuable feedback you’ve provided over the past few months. We couldn’t have done it without you. And we’re excited to talk to you guys about many more topics to come.
RYAN:
For today’s episode, we will be talking about Hong Kong. Since 2019, many of you have probably seen or heard news about mass protests lighting the city on fire. And let’s just say this was.. an interesting topic to research. The situation with Hong Kong has been rapidly changing as we were writing the episode. This past week has seen a number of developments— from massive protests in the streets to major changes in Hong Kong policy from both the US and China. Most of all, Hong Kong as we know it, as the world knows it, is falling apart and may soon cease to be.
HUNTER:
In light of these events, we’ll dig deeper into the case of Hong Kong. What exactly is happening in Hong Kong, and what is the global impact of these events? What makes the city so special? Let’s break it down.
BACKGROUND
HUNTER:
Let’s start with a background on Hong Kong. What makes Hong Kong so unique?
RYAN:
Hong Kong is an island city in Southeastern China that serves as a major trading hub for the entire world. It is classified as a Special Administrative Region of China (SAR for short), meaning that it does not function under the exact same laws and practices of the Chinese mainland.
In general, the island enjoys a semi-autonomous status, with its own partially democratic government and different legal and financial systems.
HUNTER:
Why is it a Special Administrative Region of China?
RAMYA:
The answer to that question lies in the history of the city. After winning the first Opium War with China, Britain took over Hong Kong and other surrounding islands in 1842.
The British set up Hong Kong as a colony under a semi-democratic capitalist system. They used Hong Kong as a way to indirectly trade with mainland China and ship goods across the Indo-Pacific, and over the course of a century, Hong Kong became one of East Asia’s strongest economic actors because of its high-technology industries.
RYAN:
Right. Hong Kong was leased to Britain until 1997, which was solidified by the Sino-British Joint Declaration in 1984. The thing was, Hong Kong’s development and economic growth was different to that of mainland China, and the Declaration stipulated that Hong Kong would retain its semi-autonomous status till 2047.
So China classified the city as an SAR, and allowed it to keep some of its colonial framework. This would be codified by former head of state Deng Xiaoping, where he came up with the principle of “one country, two systems”.
HUNTER:
So with Hong Kong operating under a different set of rules than the rest of China, how does that work out for China?
RAMYA:
Well, both China and the rest of the world benefit from the current system in place.
As of 2018, over 50% of foreign investment, or FDI, coming into China was through Hong Kong.
Chinese banks use Hong Kong’s banking system to hold over a trillion dollars, and China’s financial actors trade billions on Hong Kong’s stock exchange. Not to mention, the city is a free port, meaning no taxes or tariffs on importing and exporting, through which a significant number of Chinese state-owned enterprises ship their goods.
To put it simply, China uses Hong Kong to moderate trade with Western countries.
However, China has grown considerably since 1997, and does need to rely as heavily on the city’s economic returns as it used to. That fact will play a large part in the current events that are transpiring.
HUNTER:
How does that work out for foreign investors? And why does Hong Kong receive so much FDI?
RYAN:
Foreign investors view Hong Kong’s democratic legal and governance systems as more reliable than China’s, because China’s systems are subject to the rule of the CCP. Really, it lets them invest in China and reap the benefits without actually dealing with the unpredictable nature of the CCP.
Remember those extra liberties that Hong Kong enjoys? Well, those freedoms give Hong Kong the ability to negotiate trade and investment agreements without approval from Beijing, which works out great for foreign investors.
And that’s not to say all of Hong Kong’s investments come from outside China. In fact, China makes use of Hong Kong’s unique system just as much as the west does.
HUNTER:
And how does China do that?
RAMYA:
Well, China uses Hong Kong’s reputation and markets to attract funds from western companies, which allows the companies to use Hong Kong as a springboard into the mainland Chinese economy.
More importantly, China can use Hong Kong’s special status to skirt around any and all international sanctions against it.
HUNTER:
What does that mean for the rest of the world?
RYAN:
Here’s the thing. Hong Kong is the gateway for many western businesses to trade with mainland China. And with China being as important to world order as it is right now, Hong Kong is a vital intermediary to promote free trade in the world. It’s an important channel for countries like the US, Japan, United Kingdom, and even Taiwan, to trade with China.
Without the city, western companies would lose the only Western-oriented business center within Chinese territories. And their business interests will no longer be well protected by the British-style common law jurisdiction. For instance, Hong Kong firms do not have to pay the tariffs that the United States is imposing on China as part of the ongoing trade war.
HUNTER:
So let’s fast forward to the present day. Guys, what started the protests?
RAMYA:
This May, China submitted a proposal for a new national security law that would affect the citizens of Hong Kong. The law would make illegal all acts of secession, subversion, terrorism, and foreign interference for Hong Kong.
The wording on the bill is so vague that any act of protest could be seen as violating one of those crimes, and it would allow Chinese institutions to enforce the law. It’s clear that the law’s intention is to bring the anti-China protests to a resounding halt. Thousands of protestors took to the streets, and were met with tear gas from the Hong Kong police.
HUNTER:
Do these protests have anything to do with the huge protests going on in 2019?
RYAN:
Those protests were sparked by a proposed extradition bill that would allow China to extradite Hong Kong criminals to the mainland to be punished under the harsher Chinese laws. Even though that bill was shelved, the protests never actually ended, because the current pro-China Hong Kong government has not relented on any of the five key demands the protestors have made. Those demands include the emancipation of arrested protestors, the resignation of Hong Kong’s Pro-China Chief Executive Carrie Lam, an investigation into the rampant police brutality during the protests, and the ability to vote for pro-Democratic politicians in elections. The 2019 protests were revitalized by the brazen new national security law out of Beijing.
HUNTER:
Tell us about the recent developments.
RYAN:
Well, the situation between the protestors and the government is about to dramatically change. Two events happened on Wednesday and Thursday that completely altered the course of events.
RAMYA:
First, US Secretary of State Mike Pompeo declared on Wednesday, May 27th that Hong Kong is no longer autonomous from China, and that the US is considering revoking Hong Kong’s special economic status, which would affect tariffs and national security policies, not to mention the hundreds of American companies there.
RYAN:
Then on Thursday, May 28th, the National People’s Congress (think the highest legislative body in China), passed the national security law, effectively bypassing the Hong Kong government. The move will cut down Hong Kong’s autonomy in one fell swoop.
HUNTER:
What made China take such actions against Hong Kong, if they have benefited so much from the way things were under the SAR?
RAMYA:
There are two factors that come into play. First, China’s historic reliance on Hong Kong is no longer necessary. The rise of mainland Chinese financial sectors like Shanghai and Shenzhen makes losing Hong Kong’s foreign investments hurt less. The second factor is that XJP has nationalist policies and goals that supersede the economic benefits of upholding the Joint Declaration.
RYAN:
From illegally building islands in the South China Sea to the recent border skirmishes with India, XJP has been pulling every string in an effort to create a China that lives up to its legendary past. The years between the British occupation of Hong Kong and China’s rise on the world scene is known in China as the century of humiliation.
XJP wants to return China to its former glory and erase the effects of that era in Chinese history.
RAMYA:
To that end, Hong Kong and the protests represent a key division in Chinese society and a vestige of a shameful past that cannot be tolerated in a totalitarian regime like the one the CCP runs. And XJP doesn’t have long, because the closer it gets to 2047, the more likely Hong Kong will try to resist integration with China. XJP is willing to take the financial hit now in order to promote overall security for his vision of China.
HUNTER:
What is the West doing to help the people of Hong Kong?
RYAN:
In the overall scope of the matter, western countries can’t face the problems going on in Hong Kong head on. This is due in part to China’s status on the Security Council of the United Nations, which makes it nearly impossible to coordinate a strong international response against it. They have veto power over any strong measures, and the influence to deflect smaller ones. And previously, any sanctions leveled against China were deflected thanks to Hong Kong’s special economic status.
RAMYA:
The US is the only country with the power to stand against China, and the US’s actions as of late definitely display a willingness to take on China on the Hong Kong issue.
When the US announced that Hong Kong is no longer autonomous, the hope was to force China’s hand by threatening to remove Hong Kong’s special economic status, and in effect, China’s ability to evade US sanctions. However, the next day, China passed the national security law, basically doubling down on the US’s threat.
Now, the US is scrambling, leveraging allies like Canada, the UK, and Australia to appraise Hong Kong’s autonomy themselves and take their own economic actions. After China passed the controversial law, all three issued a joint statement decrying it, calling it a violation of the Sino-British Joint Declaration and therefore illegal in the eyes of international law.
But, it’s not likely that they will go further than this due to fears of escalation with China. The most we can expect are sanctions against Chinese officials who are overseeing the crackdown on the protests.
RYAN:
And as we said before, China can weather losing Hong Kong’s special economic status. The real question is whether US and western businesses in Hong Kong can. Revoking Hong Kong’s special economic status will certainly strike a chord with the CCP, but it may also endanger the 1300 American companies who rely on Hong Kong for tax free shipping and banking systems designed to be favorable for foreign companies. All of those luxuries would be gone with the revocation. So it’s not a foregone conclusion that the US will move forward with it, or that China will face real repercussions for disregarding the Joint Declaration.
TAKEAWAYS
HUNTER:
So I think we should wrap things up by telling our listeners why what’s going on in Hong Kong is such a huge story. Guys, what’s important to remember here?
RYAN:
May 2020 has marked major new developments in the ongoing democratic crisis in Hong Kong. China’s proposed national security bill that sparked massive protests and drew international ire from the US and others was signed into action on Thursday May 28th. The bill will effectively remove all of Hong Kong’s autonomy from China and will bring the city directly under Beijing’s control, which will have a massive effect on Hong Kong’s status as an international economic trading hub. Many countries like the US, UK, Canada, and Australia have denounced the law as breaking the Sino-British Joint Declaration that guarantees Hong Kong’s freedoms until 2047. Basically, it is yet another instance where China is breaking international law in pursuit of its own goals.
RAMYA:
The situation in Hong Kong is the most recent development in the escalating tensions between the US and China, and is an indicator of how XJP views this conflict. He is willing to take the economic hit and international backlash in order to keep Hong Kong from dividing Chinese society.
The current response from the US, Canada, Australia, and the UK will likely prove to be ineffective at curtailing Beijing’s crackdown on the Hong Kong protestors, and the removal of Hong Kong’s special economic status will likely hurt the US more than it hurts China. May 2020 is perhaps the time that Hong Kong as we have known it since 1842 ceases to exist as a result of XJP’s nationalistic pursuits.
OUTRO
That’s it for our episode today. If you liked this episode please rate and subscribe on Itunes, Spotify, or however you’re listening. Stay tuned for a three part series on the Indo Pacific starting next week, and for future installments of Security Sundays. As always thank you for listening, this has been geopolitics…rundown