Hong Kong’s continued decline

In recent years, many people have talked about the fall of Hong Kong. But different pundits have quite different focuses. The first perspective attributes the fall of Hong Kong to the erosion of its political freedom, highlighting the backsliding of its freedoms of speech, press, and protest. The second perspective perceives the fall of Hong Kong as a breakdown of its autonomy, focusing on China’s absorption of its government, economy, and society into mainland communist systems. The last perspective sees the fall of Hong Kong as a decay of its status as an international financial center, indicating its exodus of capital and talents.

All these perspectives have their own intrinsic logic. Yet, the loss of freedom, autonomy, and prosperity are symptoms, rather than causes, of Hong Kong’s downfall. From the Cold War to the post-Cold War, Hong Kong’s geopolitical neutrality not only attracted tremendous inflows of capital and talents, but it also enabled the city to be developed into a democratic autonomy. But now it’s all over. For Hong Kong, reality under the Chinese regime means that the city has lost the magic wand that has created its previous freedom, autonomy, and prosperity.

In 1949, when the “Bamboo Curtain” had drawn down dividing Asia into communist and democratic countries, Hong Kong became a unique place in between the two rival camps. On the one hand, Hong Kong was geographically located at the doorstep of “Red China” and was a home to millions of ethnic Chinese. On the other hand, Hong Kong was a British crown colony and was diplomatically part of the Western bloc.

For the United States, Cold War Hong Kong had critical strategic, political, and military values. Strategically, Hong Kong was the only place geographically connected with China while still being ruled by an ally. This made Hong Kong the best intelligence hub for the U.S. in the Far East. Politically, Hong Kong’s status as a capitalist enclave on Chinese soil also made it an ideal political show window for contrasting the backward conditions in communist China. To influence China, the U.S. provided massive economic aid to British Hong Kong government and opened up its market to facilitate Hong Kong’s industrialization.

Following U.S. President Richard Nixon’s visit to China in 1972 and formal normalization in 1979, economic engagement has dominated China-U.S. relations for four decades. This proved to be a historical window for Hong Kong’s economic take-off, enabling the city to thrive by serving as a distinctive bridge between the west and China.

Thanks to its common law system, British-style civil service, and proximity to the mainland, Hong Kong was well-positioned to become the prime location for Western enterprises to set up regional headquarters for developing the Chinese market. Concurrently, Hong Kong was also the best location for Chinese firms to gain access to Western capital, markets, and technologies. The rise of post-Cold War Hong Kong as an international financial center in the 1980s-90s would be impossible without such a geopolitical foundation.

In the eyes of Beijing leaders, taking back a democratizing Hong Kong with extensive Western presence meant bringing in a Trojan Horse, a big prize that China did not want to leave outside, but which could be destructive once taken inside. To hedge against this potential risk, China imposed a system of indirect rule under the 1990 Basic Law by handpicking the chief executive officeholders through forming a pro-Beijing election committee and delaying further democratic reforms.

But Hong Kong’s status as a geopolitical neutral zone proved to be unsustainable. Since the mid-2010s, China has started to become more aggressive and confrontational on a range of geopolitical issues, from Taiwan, Tibet, and Xinjiang to the South China Sea. It should not be surprising that the communist party’s aggression would be extended to Hong Kong. The outbreak of 2019 Anti-Extradition Bill Movement in the city served as a catalyst that dramatically accelerated this process.

The Anti-Extradition Bill Movement escalated the national security concerns of Beijing to an unprecedented level. Hong Kong activists’ global advocacy campaign, and the passage of the Hong Kong Human Rights and Democracy Act were imminent national security threats in the eyes of Beijing leaders. Believing that it is now powerful enough to redefine the “One Country, Two Systems” model on terms more favorable to its own interests, China considered itself no longer legally bound by the 1984 Sino-British Joint Declaration nor politically constrained by the 1992 U.S.-Hong Kong Policy Act. This drove China to make a dramatic decision to impose a National Security Law in Hong Kong.

The democratic west worried that following the adoption of a mainland-style security law, Western business enterprises, news agencies, and NGOs would lose the common law protection that they had enjoyed for decades in Hong Kong. The result was the demise of Hong Kong as a geopolitical neutral zone.

This has had far-reaching impacts on Hong Kong. For decades, Hong Kong’s geopolitical neutrality was the very foundation of its freedom, autonomy, and prosperity. Since 2020, Western businesses and talents have steadily retreated from Hong Kong. For example, more than 168 non-local companies have removed their regional headquarters in Hong Kong reducing the total number from 1,504 in 2020 to 1,336 in 2023. This trend continues as the Chinese regime continues to reduce freedoms in Hong Kong.

Global media firms and INGOs are also leaving. Once an international media hub, news bureaus such as the New York Times, Wall Street Journal, Washington Post, and AFP have relocated their regional offices in Hong Kong to other Asian cities. Facing political risks under the National Security Law, Amnesty International and Human Rights Watch – two global human rights groups – both closed down their long-time regional offices in Hong Kong. Many other smaller INGOs, such as New School for Democracy and Global Innovation Hub also left quietly.

Last but not least, middle-class professionals in Hong Kong are migrating to the West, bringing with them capital, skills, and knowledge. It is estimated that more than 200,000 Hong Kongers have emigrated since 2020.

But it is important to note that Hong Kong’s downfall thus far remains incremental, it has not been an outright collapse. Imagine Hong Kong as an ocean liner: It is now losing the fuel needed, exodus of capital, talents, and businesses, to sail as it used to. However, with a limited new fuel supplied, this ocean liner can still float in the sea, at least for the time being, because it is not heading for a titanic-style shipwreck, systemic collapse.

The inflow of mainland capital, talents, and enterprises have to a certain extent plugged the leaking holes. The Hong Kong government has aggressively absorbed mainlanders through new immigration schemes in order to mitigate the impact of brain drain. More mainland enterprises have also moved into the city, partially compensating for the retreat of Western companies. Yet, the continuous slowdown of the mainland economy calls into question how far the Hong Kong economy could be sustained by the China Factor. Time will tell. But time, unfortunately, appears not to be on Hong Kong’s side.