Hong Kong is Over: An Audacious Wake-Up Call

Jun 6, 2024

Stephen Roach speech before The Foreign Correspondents Club of Hong Kong
June 5, 2024

It is a distinct honor to stand before the Foreign Correspondents Club, with your rich history of defending press freedom in Hong Kong. I can think of no better platform than the FCC to underscore my own deep commitment to the spirit of intellectual engagement. This is a fitting end to a special trip back to my second home—my fourth trip back here in the past fifteen months.

I am a strong believer in the power of first impressions—in business and in love. After surviving my first harrowing landing at the old Kai Tak airport in the 1980s,  I quickly became infatuated with Hong Kong’s extraordinary energy, its unique character as a great city. Back then, you Hongkongers had both a vision and a strategy. China was just beginning to stir, and this city was perfectly positioned as a major beneficiary of what turned into the world’s greatest development miracle. It all worked out brilliantly, lasting longer than anyone expected. And now, as I wrote last February in the Financial Times, it’s over.

Harsh words, I know. Take them more as a metaphor than an epitaph. So, what’s really over?  What’s over, in my opinion, is the imagery that many still cling to in looking to the future of a prideful city—Asia’s world city, Milton Friedman’s favorite free market. The Hong Kong of old is not the Hong Kong of today, and especially not the Hong Kong of tomorrow. The title of my article was intended as a wake-up call, an appeal for you in Hong Kong to come to grips with this seemingly harsh realization.

Your pride in the past is admirable, almost inspirational. But pride not prescriptive, nor is it a substitute for a critical assessment of what the past—Hong Kong’s past—implies for the future. There are three legs to the stool of my FT piece: First, and foremost, a fundamental weakening of Hong Kong’s economic underpinnings; second, the crossfire of a seemingly intractable Sino-American conflict; and third, perhaps most controversially, a loss of political autonomy that has arisen since late 2019.

Well, you would have thought I was screaming “fire” in a crowded theater. The pushback has been fast and furious. Surprisingly, few have taken serious issue with my first two points—linkages to China and collateral damage from the US-China conflict. Instead, many have countered by stressing Hong Kong’s special resilience, a seemingly innate capacity for this city to reinvent itself in the face of adversity.

I get that. After all, modern Hong Kong has been written off repeatedly before—not just in the aftermath of the 1967 riots, but also in the depths of the Asian Financial Crisis, during and after the handover, itself, during the Global Financial Crisis,  and, of course, following the outbreaks of SARS and Covid-19. Louis Krarr’s  scathing 1995 cover story in Fortune magazine, “The Death of Hong Kong,” makes my recent article in the FT look optimistic. Time and again, Hong Kong has defied predictions of its demise, with a series of Phoenix-like resurrections. Why shouldn’t we expect the same this time?

Well, my friends, this time is different. Yes, those are dangerous words for investors but all too appropriate I fear for Hong Kong today. The three pillars of my argument as just noted bear directly on the hopes and dreams of resilience. They draw into question the likelihood of a newfound autonomy, a resilience that is highly unlikely to play out in the future as it has in the past.

Let me give you one important example of why, drawing on the economics of my argument, which unlike politics, is something I hope I am qualified to address. Specifically, what can we say about the possibility of a spontaneous revival in the Hong Kong economy? My premise is that without a rebound in the mainland Chinese economy, Hong Kong is unlikely to spring back to life on its own. That’s because the linkages between the PRC and Hong Kong economies have become tighter than ever.

Some numbers illustrate the point: Over the past twelve years, 2012 to 2023, the Chinese economy grew by an average of 6.3 percent annually; that was a 3.7 percentage point deceleration from the spectacular 10 percent pace of the preceding thirty-two years from 1980 to 2011. Spoiler alert: Growth in the Hong Kong economy has also decelerated by 3.7 percentage points, slowing from a 5.1 percent pace over 1980 to 2011 to just 1.4 percent from 2012 to 2023.

Coincidence? Not by any stretch of the imagination. The identical growth decelerations in both the Chinese and Hong Kong economies over the past dozen years make perfect sense in light of increased cross-border integration through trade flows, financial flows, and tourism. The Hong Kong economy has effectively been swallowed up by the mainland economy—hook, line, and sinker. With the Chinese economy likely to underperform over the foreseeable future—an arguable proposition that I am more than prepared to defend— I am afraid the same is likely to be the case for Hong Kong. Say what you want about Hong Kong’s glorious legacy of resilience—it is not mana from heaven. For the Hong Kong economy, resilience without China will be all but impossible to achieve.

As I noted, my recent views of Hong Kong haven’t gone over very well in this part of the world. That is true here, but also in the PRC. Too “sensitive” goes the feedback from Beijing. So sensitive, in fact, that I was silenced at the recent China Development Forum, Beijing’s Davos-like event, where I have spoken over each of the past twenty-four years as the longest-attending foreign delegate. That was too bad, mainly too bad for China where literally any debate over the “good stories of China” is now verboten. While that is not the case in Hong Kong—at least not yet—I note with some concern a recent news item reporting on John Lee’s urging for Hongkongers to “… stand united in telling others about the real and glorious side of the city.” I doubt that was just a casual remark.

In closing, I ask all of you, what role do you see for yourselves as honest brokers in the marketplace of ideas?  To me, it boils down to the integrity of constructive criticism. Sometimes that requires delivering uncomfortable, even controversial, messages. In effect, it almost dares one to speak truth to power. But these messages need not be taken personally. The ability to listen to constructive criticism can deepen friendships, making intellectual adversaries better versions of themselves. Constructive criticism need not be seen as a threat based on ulterior motives. My agenda is analytical, not political.

I can assure you that many times during my Morgan Stanley days I felt the heat from several controversial positions I took on sensitive issues. Yet I never backed down, nor compromised my position. Integrity and credibility were, and still are, far more important to me. I urged my colleagues back then, as I urge all of you today, to take analytically-grounded, empirically-supported views in a spirit of open and honest argument—yes, in the words of Deng Xiaoping, “to seek truth from facts.” That is the same spirit of engagement that I understand defines the very essence of the FCC as a leading bastion of the fourth estate.

Back to my basic question, is Hong Kong over? In the end, the very real struggles of Hong Kong are not about to vanish into thin air. Like it or not, Hong Kong’s dynamism, its energy, and its independence are now in flux. You cannot afford to take your city’s seemingly innate resilience for granted. That’s what is over.

Yes, this may seem as if this is a re-run of an old movie. But it behooves us to make the distinction between today’s challenges to Hong Kong and the challenges you have faced in the past. As an economist, I stress linkages: With China unlikely to regain its once powerful economic momentum, Hong Kong seems quite likely to follow suit. With the case for Hong Kong’s resilience now made in China, we need to peer into the future through a very different lens.

Many have asked me to explain my audacity in writing that piece in the FT three and a half months ago. I can assure you that it came from that same place inside of me that I began with. The China story, and by inference, its implications for Hong Kong, have changed my life. There have been many twists and turns in this journey over the years. I have been privileged to have a front-row seat, bearing personal witness to miraculous transformations in both China and Hong Kong. That was then. It was Yogi Berra, a famous American baseball player, who once said, “When you come to a fork in the road, take it.”  I have now taken that fork.

This debate is well worth the effort. It is hardly my first, and hopefully not my last attempt to wage intellectual battle in this part of the world.  The late John Lewis, a legendary figure in the US civil rights movement, inspired a lifetime of protest in the name of “good trouble.” As I wrote in a subsequent article in the South China Morning Post, by raising serious questions about the future of Hong Kong, I sincerely hope my wake-up call can do the same in a city I will always love.

Thank you very much.

Sign up for Stephen’s Dispatches: