Making Trouble in Hong Kong

Feb 23, 2024

My recent opinion piece in the Financial Times, “It pains me say Hong Kong is over,” has stirred up quite a debate in the city-state that I used to call home. Unsurprisingly, Hong Kong politicians have been especially critical. But former colleagues, business associates, and good friends have also raised strong objections to the broad thrust of my argument.

I concede that the title of the article overstates my case. No nation, economy, or city is ever definitively “over”—or finished, or in a state of terminal demise. The title was intended to be more of a wake-up call to a proud city-state that has long basked in the self-proclaimed glory as Asia’s world city, the gateway to China, one of the elite Asian tiger economies, Milton Friedman’s favorite free market. I argued in the FT that Hong Kong’s glory days may now be over.

In a nutshell, I cited three reasons for that seemingly dire conclusion:

  • First, a distinct loss of political autonomy in the aftermath of the massive demonstrations of 2019-20. The die, of course, was cast in 1997 with the handover to the PRC. But the operative assumption of a 50-year transitional glidepath was dramatically shortened by Beijing’s swift response to a destabilizing outbreak that I dubbed a “destructive anarchy” on CNBC in October 2019.
  • Second, I made the point that the Hong Kong economy had always been a levered play on the Chinese economy; with the Chinese economy in trouble, Hong Kong has followed suit. This was not just a backward-looking assessment; with the Chinese economy likely to remain in trouble for the foreseeable future, the same could be expected from Hong Kong.
  • Third, I argued that Hong Kong was caught in the crossfire of the US-China conflict; with Washington opting for friend-shoring over China-centric offshoring, Hong Kong’s East Asian trading partners were being forced to choose sides. America’s security umbrella has made that choice easy for Japan, South Korea, Taiwan, the Philippines, and others. Hong Kong, with trade accounting for 192% of its GDP can only suffer.

The push-back has been fast and furious. No names, here—just points and counterpoints. Many noted that Hong Kong has repeatedly defied calls for its demise in the past, citing its innate resilience to a long string of challenges including the Asian Financial Crisis as well as the handover itself. There were several who objected to my characterization of the demonstrations of 2019-20 as “pro-democracy”—arguing that the rioters (aka anarchists) were only a tiny share of the masses that clogged the streets a few years ago. Then, there were those, including a well-known senior political leader, who claimed that my impressions were dated since the days I lived there (2007-12) and that I needed to come back to a still vibrant Hong Kong and “see it for myself.”

That latter point is worth a quick retort—so are the first two, but in the interest of space I would like to stress that the FT piece was written with a very fresh impression of the current atmosphere in Hong Kong that I did, in fact, see for myself. Not only have I continued to be a regular visitor to the city since I moved back to the US full time in 2012, but I made three visits to Hong Kong in 2023 that played an important role in shaping the impressions that motivated my op-ed.

In fact, it was what I saw—and didn’t see—that troubled me the most. Many of my friends have left Hong Kong since the political upheaval of 2019-20. Companies are starting to do the same and those that are staying are, at a minimum, starting to discuss contingency plans for diversifying their exposure to Hong Kong. The risk of a talent exodus is very real. Yes, the bulk of my circle of contacts remains in place. But our discussions of the past year shared an important theme—a growing undercurrent of angst about the future of Hong Kong. The energy and unbridled optimism that was once Hong Kong’s most salient characteristic, its greatest asset, has been sapped.

To be perfectly honest, there is a part of me—reflecting my love of Hong Kong—that hopes I am wrong. I featured the Hong Kong stock market—long emblematic of the city’s success—as the lead to my piece in the Financial Times, noting that the Heng Seng Index had returned to the level prevailing at the handover in July 1997. More than a few have been quick to note that the Heng Seng has now been up for six out of eight trading days since the piece was published. Dead-cat bounce, or was it all just a bad dream?

You can follow me on X/Twitter @SRoach_econ

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