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Can China’s Government Replace Hong Kong?

A ChinaFile Conversation

As the Hong Kong protests enter their fourth month with no end in sight, on August 18 Beijing announced that the nearby Chinese metropolis of Shenzhen would again become a new type of special economic zone. In a clear message to Hong Kong, the plan claimed Shenzhen would serve as “an example of law and order and civilization.” Hong Kong has long been China’s financial and trade gateway to the region and the world. But that status may be eroding.

How much does Hong Kong matter to the economic health of mainland China, and how has that changed recently? What economic benefits do Hong Kong’s relatively free and independent media, court system, and financial markets bring to the rest of the country? In what ways might Shenzhen and Shanghai supplant Hong Kong? And what about Singapore? —The Editors

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“The dragon must have two eyes.” This was the inevitable, hopeful refrain whenever I interviewed Hong Kong businessmen in the 1980s, during the long and tortured handover negotiations. Their point was that while Shanghai might flourish, Hong Kong’s sophistication and internationalism would always give it a prime place in the firmament.

As we approach the halfway mark in the 50-year period of the high degree of autonomy Beijing promised the people of Hong Kong, is the dragon of China really two-eyed, or it is more like a monstrous cyclops, overwhelming and dominating the city?

During the 1997 handover, Hong Kong’s GDP was about 20 percent of China’s—quite a significant marker of the territory’s then vital role as middleman and translator between Western capitalism and socialism with Chinese characteristics. Today, it’s less than 3 percent, due to China’s stunning rise, Hong Kong’s own stagnation, and the inevitable disintermediation that accompanies maturation.

But GDP is only part of the story. As China builds up nearby Shenzhen, the once tiny village that now boasts 12.5 million people, and dreams of connecting a whole linked and futuristic conurbation in south China, Hong Kong’s own place in that economic and social world looks uncertain, even leaving aside the political fissures exposed and then magnified during the past months of protest and unrest.

Already Shenzhen, for all that it lacks in beauty and sophistication, seems far ahead of Hong Kong as a center for entrepreneurship and innovation.

What, then, are Hong Kong’s advantages, and can they be replicated elsewhere? The city remains a financial center, but that is a fragile and illusory title. It is relatively easy to open a bank account, and with that moving funds in and out takes a matter of seconds, compared to the achingly bureaucratic weeks remitting foreign exchange can sometimes take in China itself. However, the very ease of electronic funds transfers means that Singapore or Tokyo could easily substitute as the Asian money center for almost any business.

The Hong Kong markets have been major money-raising centers for Chinese businesses, both in equity and debt. For the bluest chip companies, though, the world is welcoming, sometimes with even more attractive terms. The ingenuity of bankers means that even as Hong Kong loses its appeal, other centers will be quick to build up their systems and connections to grab the China business.

Hong Kong’s ease of entry and relative simplicity of starting a business is a big advantage, but it is hardly unique. What was left as a crucial advantage was the one thing that this year of bad policies, missteps, and discontent has most threatened: a strong and independent rule of law and justice system sitting on the southern tip of China. The damage done to that by a poorly drafted and clumsily proposed extradition bill, uninvestigated police brutality, the seeming impunity of Triad gangsters joining in the fray, and the prosecution of dissident leaders is the greatest tragedy of many.

Hong Kong’s prodigious status is eroding in many respects. Questions have increasingly arisen about its free media and freedoms of expression, the importance of its financial system, and even the impartiality of its vaunted legal system. Beijing has only itself to thank for this sad situation. Indeed, the gravest wounds are self-inflicted. Yet Hong Kong will remain essential to China and the world until at least 2047, when “One Country, Two Systems” is scheduled to end. Hong Kong’s death, which some predicted before its 1997 Handover, is even further away.

Shenzhen’s rise has been remarkable. When I first passed through in 1972, en route from Hong Kong to Beijing, it was the proverbial sleepy fishing village of approximately 20,000 poor people. Now it has almost twice Hong Kong’s population, housing many wealthy people and an expanding middle class in comfortable residences in a variety of attractive locations. It is not only industrially impressive, but also increasingly prominent commercially and financially. Were it not for the People’s Republic of China’s repressive government and young Hongkongers’ growing fear of China’s security police, more of them, frustrated by economic realities at home, would be happy to work and live across the dividing line—and not merely shop in its gleaming markets, visit its five-star hotels, and party in its bars.

How will Hong Kong and Shenzhen relate to each other in the future? I don’t think Shenzhen will supplant or overtake Hong Kong. Gradual integration has been under way for years, and more is in the cards for them as key parts of the evolving Greater Bay Area, which also involves other nearby mainland cities. The ambitious new vision for Shenzhen just announced reportedly takes Shenzhen to mid-century.

But does it go beyond that? And what does it tell us about where Hong Kong will fit in after 2047? We hear little today about Hong Kong’s post-2047 future, although many fears have understandably been expressed. A city that cannot forecast next week’s developments cannot be expected to focus on a generation ahead! Yet official and public thought must be given now to this challenge, because the younger people of Hong Kong are beginning to do precisely that as they ponder the choices confronting them in light of the current crisis.

Although a mid-century Hong Kong-Shenzhen Community would make sense, much would depend on central political developments. If, fostered by ever newer technology, the present communist dictatorship becomes even more Orwellian, Hong Kong’s distinctive contributions to the future growth and wellbeing of the merged entity will diminish with the inevitable restrictions on free media and expression, innovative financial transactions, and internationally-respected legal protections. Then many of Hong Kong’s dynamic younger talents will make their careers elsewhere.