Stockholm (Ekonamik) – After 20 weeks and now in its fifth month of protests, Hong Kong was gearing up this weekend for rallies in the heart of its financial centre, the Central District, and in the neighbouring Kowloon District, following events last week in which violence between police and protesters escalated further, this time from the police side. A police water cannon truck shot bursts of blue-dyed water at people outside a Mosque in the last round of protests, forcing a rare apology from both the police and the city’s administrator, indicating new lines are being crossed and higher stakes are being played.
Hong Kong Chief Executive Carrie Lam last week finally formally scrapped the extradition legislation that triggered the protests in the first place. The legislation would have allowed the transfer of criminal suspects under Hong Kong’s jurisdiction to areas that do not have extradition agreements with Hong Kong – most notably China. Critics feared the Beijing-directed bill would undermine the independence of Honk Kong’s legal system and put citizens at risk by allowing suspects, including from Macau and Taiwan, to be sent to China for trial. But this was too little too late, as the protests have now become about the government, and China. Ms Lam has also now invoked emergency powers– among other things, imposing curfews and disabusing protestors of the right to cover their faces, possibly portending a full martial law-type clampdown.
The violence and vandalism in Hong Kong has escalated to such a degree that the two sides may have reached a point of no return: demonstrators refuse to return to the peaceful dissent that marked the beginning of the protests for as long as the police is not reined in by authorities, while the increasing violence from protesters gives Beijing the excuse it needs to crack down harder. With protesters crossing a line from demanding the protection of rights to overthrowing the government outright and authorities crossing the line from restoring order to violence itself, the question is whether Hong Kong on the brink of becoming a police state, or a vigilante state.
Meanwhile, the turmoil is causing Hong Kong’s economy to suffer. Hong Kong may register negative growth for 2019, according to Paul Chan, Financial Secretary of China’s Hong Kong Special Administrative Region (HKSAR) government. “It seems that it is extremely difficult to achieve the forecast of 0 to 1 percent of the annual economic growth,” he wrote on Sunday. The government will announce an Advance Estimate for Q3 economic growth this Thursday, but Mr Chan revealed the economy had continued to contract and “significantly expanded its negative growth rate,” signalling a technical recession. The value of Hong Kong’s total exports dropped by 7.3 percent year-on-year in September, it was revealed last week.
Capital Economics, an independent macroeconomic analysis firm, wrote in a note last week that Hong Kong is an anomaly among mass protest movements in terms of their impact on growth in emerging markets. Business confidence in Hong Kong sank to a seven-and-a-half year low in September, according to the Financial Times, in part due to U.S.-China trade tensions and in part due to the length and severity of the Hong Kong protests. While this is to be expected, protests “often have very little impact on growth, with GDP about as likely to expand as it is to shrink. The same goes for equity prices.” One reason for the Hong Kong anomaly, according to Capital Economics, is likely Hong Kong’s heavy reliance on tourism.
In accordance with this reading, rival financial centre Singapore has so far been the main beneficiary of Hong Kong’s troubles, with hotel occupancy rates at an all-time high, a pickup in luxury home sales and in gold storage and foreign currency deposits, according to the South China Morning Post. With Singapore’s economy slipping towards a recession amid fears of an imminent election, it is unexpectedly benefitting from economic growth at a time its exports are slumping, with increasing total deposits from both Hong Kong and the United States.
But the most pressing question for Hong Kong is which hand Beijing is going to play, and when. Ms Lam’s overlords are likely to have lost patience with her completely at this stage, following months of indecision and loss of control over the city’s security forces, other shadowy groups, such as the triads – Chinese organized crime syndicates stirring up third party trouble – and the protesters. Ms Lam could have scrapped the extradition legislation much earlier, and her primary challenge now is to reform the police force, which is increasingly seen to be the problem and not the solution, amid protests themselves and looming local elections due to be held on November 24.
Ms Lam’s dithering and indecisiveness in the face of the exploding crisis mean she has likely crossed the point of no return in Beijing’s eyes. The question for Beijing in the short term will be how to replace her, under which circumstances, and when, and whether any replacement will have the authority and credibility to reduce tensions permanently. According to the Financial Times, such a plan is already under way, suggesting that at this point, Beijing feels it has nothing left to lose. In the longer term, China’s leaders will be assessing when and whether they have sufficient cause for an outright invasion.
Meanwhile, Hong Kong protesters also rallied in support of Catalonian independence late last week, reflecting solidarity with other independence and protest movements that are currently exploding worldwide– developments that are likely to both incense Beijing, and hasten its response.