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How a disruption in Hong Kong hurts China

With nearly a quarter of Hong Kong’s population out on the streets in the last protest, the current wave of demonstrations is among the largest that Communist China has had to confront. In the past, the Chinese government has not hesitated to use force, including its military might, to overpower popular opposition to its policies. In this round too, it has mobilised the People’s Liberation Army in the city of Hong Kong and carried out a propaganda war to link the demonstrators to terrorism. Yet, it has hesitated to act as swiftly, and ruthlessly, as it has done in the past.

A part of this hesitation could be explained by the sheer magnitude of the protests. The force that would be needed to counter millions of protesters in full view of the global media would make Tiananmen Square look like a picnic. But it is not just the direct political fallout of the use of force that is at play. There is also a recognition of the consequences of economic disruption in Hong Kong.

Economic dependence

A major disruption in Hong Kong’s economy would have direct impact on China. Hong Kong is a major source of Foreign Direct Investment in China, as well as an important source of bank loans. At a time when China’s economy is slowing down, it might not be able to afford the disruption caused by the use of excessive force in Hong Kong.

The disruptive potential of Hong Kong is also enhanced by the longer-term economic transformation that China is trying to put in place. China’s earlier success was based on it ability to manufacture relatively low and intermediate technology items cheaper than the developed world. This allowed it to take over a major chunk of the American market for these goods. But as it moves up the technology ladder and seeks to make a mark in 5G telephony, it needs greater presence in the upper ends of the global market. And in this task, it needs all the support it can get from Hong Kong’s economy. The Hong Kong stock exchange – the sixth largest in the world in terms of market capitalisation – remains a major point of listing for Chinese companies. A disruption of the stock exchange would have a major negative impact on China’s transition.

As much as China would like to prevent the disruption, its approach would change if the protests in any case lead to one. The unrest has already led China’s leading e-commerce company, Alibaba, to postpone its $15-billion listing in the city. If there is further disruption in financial processes, the Chinese government could well decide that it has nothing to lose by using harsh measures to bring calm to the city.

It is not that the protesters are not aware of the possibility of disruption hurting their interests. Major protests are organised during weekends, and demonstrators have apologised for the disruption at Hong Kong airport. Even as the Chinese government would not like a disruption in the Hong Kong economy to hurt China’s economic transformation, the protesters know that a well-functioning Hong Kong economy is their best insurance against an overwhelming use of force.

Foreign intervention

The situation in Hong Kong may be more directly affected by global economic processes than many other cities in the world. Hong Kong is an important point in the global cities network, and China is an ambitious emerging power with a reputation for bloody mindedness. But the case highlights the relevance of globalisation for international and domestic politics. It points to how the economy can be weaponised in international disputes. Countries are using sanctions as an instrument in international politics more frequently than before. The development of global networks also alters the role of third parties in international disputes. A third country that is not directly a part of the dispute could decide to intervene, in order to use it as a bargaining chip in its negotiations with either or both the countries directly involved in the dispute.

The intensity of the Chinese intervention in Kashmir could well be motivated by its efforts to develop a bargaining chip in negotiations with India on other issues. President Donald Trump’s offers of negotiating between India and Pakistan have also been accompanied by demands for trade negotiations with India.

Thus, even as countries focus entirely on their own narrow interests and turn away from general principles like human rights, they would still be inclined to look at specific global connections, both to protect their interests as well as to develop their capabilities in future negotiations. These global connections are increasingly, if not entirely, sited in cities. The particular course a city takes would determine its connections with the rest of the world, and hence the processes of international political negotiations.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru

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