My column today was supposed to be an analysis of the Thai economic outlook for the remaining half-year of 2019. However, the ongoing massive upheaval in Hong Kong changed my mind.
Most opinions view the protest as being purely politically motivated -- a fight for political freedom from mainland China. However, as an economist, I have a different take on the issue, one that focuses on the economic aspect of things.
Hong Kongers, are actually fighting for the island's economic future.
A video of a Chinese tourist reprimanding Hong Kong protesters by angrily asking, "Are you not Chinese?", has attracted a lot of attention on social media. While the post did not go on to say how the protesters reacted, if I were the one asked, I would have said, "No. China's annual per capita income is about US$9,608, while Hong Kong's yearly per capita income is US$48,517. To be an integral part of China is to be economically worse off. Why would a Hong Konger want to be Chinese?"
This may be the real cause of the current protests in Hong Kong. Democracy is nice, but it is certainly not palatable to all. While people have different political ideals, China assumes everyone shares a common economic goal. This assumption could be the reason why Hong Kongers are rallying -- ultimately, they fear Chinese domination.
Most analyst see the current upheaval as a reaction against Beijing's increasingly aggressive posture -- especially considering since the protests first broke out over an extradition bill. However, I see it more as a reflection of Hong Konger's dissatisfaction about its current economic conditions, given Beijing's increased meddling.
If the extradition bill were to be passed, Hong Kong's judiciary will effectively come under Beijing's control, both legally and administratively. Its status will no longer be different to Guangzhou and Shanghai, which means that Hong Kong could no longer justify the investment premium it commands.
To make sense of the entire situation, one must find the answers to three critical questions. First of all, why is Hong Kong's annual per capita income so high? Hong Kong is ranked 16th in the world in terms of per capita income -- higher than Germany and Japan. The second question is: What happened in the past decade that caused the economic dissatisfaction. And last: Why was the extradition bill the last straw?
There are only a few states in the world right now that qualify as a true free trade port, and Hong Kong is one of them. Generally speaking, there are eight core conditions for free trade -- a relaxed policy environment, open investment areas, loose taxation, a working legal system, freedom of movement, as well as the liberalisation of trade and finances -- all of which, Hong Kong has had since the days of British colonial rule. As a result, capital from all around the world keeps coming to what was once a sleepy outpost. Fishing villages were replaced by skyscrapers, and Hong Kong's economy was Asia's fastest-growing economy -- until the territory was handed over to China on July 1, 1997.
Although China promised to uphold the "One Country, Two Systems" principle, doubts remain. As a result, capital began to move to Singapore -- which has, in fact, overtaken Hong Kong in terms of its annual per capita income ranking in Asia. However, as China's economy boomed, Hong Kong benefited from its location as a gateway to free trade with China. Consequently, its gross domestic product kept rising throughout the first decade of the 2000s.
This seemed like the formula for a happy coupling -- Hong Kong got a reasonable degree of the autonomy it demanded, while in return, it served as a feeder to the Chinese market. Unfortunately, good times do not last forever.
Things began to change in the early 2000s, when Beijing began to make it clear that it intended to assimilate Hong Kong into China. It became evident that Beijing viewed the "One Country, Two Systems" principle differently to Hong Kongers. The British even called it the "One Country, One and a Half System" -- but as its GDP grew at 8.7% in 2004, most people, including Hong Kongers, ignored the changing political circumstances.
After 2010, Hong Kong's economy started to nosedive. The 6%+ growth rate fuelled by China's economic boom turned into 2%+ growth when China's economy began to slow. Hong Kong's GDP grew at a mere 2.2% in 2016, and the public began to show their frustration over China's increasing political influence, particularly in the screening of election candidates.
Worst of all, despite the positive economic growth, prices are rising faster than incomes have in recent years. Real wages in 2018 were lower than real wages in 2011. Hong Kongers are getting poorer, not richer.
And who is to blame? The Chinese, of course. Wealthy Chinese individuals are buying numerous properties in Hong Kong, pushing prices beyond the reach of the ordinary Hong Konger. China is no longer a blessing to Hong Kong's economy, but a curse.
I have answered the first two questions. The wealth of Hong Kong is created by its unique status. Economic dissatisfaction in Hong Kong stems from an economic downturn and rising prices. Now, why the extradition bill?
If passed, the bill would effectively hand control over Hong Kong's judicial system to mainland China. It would undermine one of the conditions required for free trade to work. Hong Kong would lose its status as a free port, and Asia's financial capital -- something that Hong Kongers cannot tolerate.
I am no expert on Hong Kong-China geopolitics. But I do not think that China can afford to lose. The stakes are too high as Xinjiang and Tibet are waiting in the wings for more autonomy(not to mention the Taiwan issue). China cannot allow Hong Kong to set a precedent, and a dip in Hong Kong's economic prosperity is an acceptable price to pay.
My advice is that anyone who currently has investments in Hong Kong should reconsider them.
Chartchai Parasuk, PhD, is a freelance economist.