Beijing’s full control of Hong Kong is undermining its three pillars|Huang Ching-long


Last month China’s National People’s Congress Standing Committee adopted a draft amendment to the Hong Kong electoral system ostensibly to “perfect” it. Today, Hong Kong’s Executive Council today approved the “Improving Electoral System (Consolidated Amendments) Bill 2021”, which will be submitted to a special meeting of the Legislative Council for its first reading tomorrow. After the passage of the bill, the LegCo election which should have been held last year will be rescheduled for December 19 this year. The most staggering change in the amendment is that it will make it illegal to encourage others not to vote or cast blank or invalid votes.

Pro-establishment camp’s fall from grace

The implementation of the new electoral system in Hong Kong is Beijing’s move to further deprive the democrats of their living space after it imposed the “National Security Law” on the city. In the future, the democrats will no longer be able to thrive. Also noteworthy is that Beijing has also greatly reduced the influence of the historically important Hong Kong business community by reorganizing the Election Committee, making it such that the community no longer possible to influence the selection of the Chief Executive. It can be seen that the CCP, determined to exercise full control over Hong Kong, does not even trust the pro-establishment camp. In the future, only the Beijing authorities can be the “kingmaker”.

In the past, Hong Kong’s Chief Executive elections were described as “small circle” ones. But the business sector, especially the real estate developers, still played an important role. With the ability to directly, or indirectly, influence Election Committee members in the industrial and commercial, financial and some professional domains, it was virtually a “kingmaker”. Back then, it was necessary for Beijing to consider the preference of the business community when it recommended a candidate. Before the Election Committee election in December 2016, Leung Chun-ying, the then Chief Executive, announced that he would not seek re-election citing family reasons. The real reason, as rumor has it, was that he did not have the support of real estate developers.

Under Hong Kong’s new electoral system, the number of Election Committee members will be increased to 1,500 people, who will come from five major sectors. Sectors where the democrats used to have a presence, such as education, social welfare, and the legal profession, have seen the reduction of committee members. The 117 seats from District Councils, where the pan-democrats gained a majority through the elections the year before last, have even been canceled in their entirety. On the other hand, the number of Election Committee members as representatives of central government agencies or groups with close ties to mainland China has increased substantially. These members, handpicked by Beijing, will become the mainstay of the Election Committee in the place of the greatly diluted business community. In the future, those who want to run for Chief Executive will not even have the chance to get nominated without the blessing of Beijing. The 2017 election, where relatively moderate candidates such as former Finance Secretary John Tsang and former judge Woo Kwok-hing competed, will definitely not be repeated next year.

Traditionally, the Hong Kong business community is supportive of the pro-establishment camp. In the future, they will no longer be able to call the shots politically. And the real estate sector might even become the target of a purge. Recently, the Hong Kong business community has become worried that, after the implementation of the “National Security Law for Hong Kong” and amendments to the electoral system, Beijing will begin with the issue of housing - and even land reform - to deal another blow to the influence of Hong Kong’s real estate developers.

Another suppression of local influence

Back when the Communist Party of China had just established the new China, Ye Jianying and Fang Fang, both Communist cadres in Guangdong, proposed a special plan for the province, thus coming into conflict with Lin Biao and Tao Zhu over the implementation of the central government’s policies. After that, cadres dispatched by the central government to Guangdong and the province’s local cadres became embroiled in political struggles, resulting in three “anti-localism” movements. Under Mao Zedong’s leadership, the CCP’s Central Committee expressed its support for, agreement with and acquiescence to the movements so as to eliminate the resistance in Guangdong and other provinces when the CCP advanced its political and economic policies.

The anti-localism movements back then denied Guangdong’s local cadres the chance to dominate Guangdong’s political and economic development. Cadres dispatched by the central government, such as Tao Zhu and Huang Yongsheng, gained control over the province’s party, government, and army. Conflicts between Guangdong’s different factions remained tense until the Lin Biao incident. Now such a way to suppress local influence is being reemployed, and Hong Kong is on its receiving end.

If Beijing cannot even trust Hong Kong’s business community and finds it necessary to weaken the influence of the pro-establishment camp after its persecution of the democrats, will it be possible for Hong Kong to maintain its existing functions as a financial center? It is important to understand that Hong Kong has relied on three pillars to remain an international financial center after its handover. The first is the special status in terms of tariffs granted by the United States. But last year the US, citing China’s continual undermining of Hong Kong’s autonomy in violation of the Sino-British Joint Declaration and the Basic Law, suspended the special treatment towards Hong Kong. The suspension has been continued by President Biden after he took office this year.

The second is its adoption of the Linked Exchange Rate System, under which the Hong Kong dollar is pegged to the US dollar. After Hong Kong implemented the system in October 1983, the stable exchange rate and the free flow of capital enabled Hong Kong’s transformation from a manufacturing hub to a trading hub and financial center. It also played an important role in the boom of China’s economy. However, given the increasingly tense Sino-US relations, if the US adopts the policy of “the weaponization of finance”, one cannot rule out the possibility of Hong Kong’s US dollar trading status being restricted. Then the Linked Exchange Rate System could fall apart anytime.

Third, Hong Kong has long pursued the principle of “big market and small government” and has been repeatedly hailed as the “freest economy”. It has attracted corporations and capital from all over the world. But now Beijing is curbing the power of Hong Kong’s business sector, which might mean an end to “positive non-interventionism” as Hong Kong’s economy will be integrated into the “Greater Bay Area”. In addition, as a consensus has been reached in the G20 on the “global minimum corporate tax system” initiated by the US, Hong Kong’s characteristics as an economy of low tax rates could be challenged.

In the new Hong Kong, everything is becoming increasingly opaque. The Hong Kong government has spared no effort to suppress the democrats. Recently, the Hong Kong Customs have raided Abouthai, a department store, on the grounds that the products were not sufficiently labeled, adding another example of the Hong Kong government’s absurd, selective law enforcement actions. What is really worthy of attention is that Beijing does not even trust the pro-establishment camp that has a cozy relationship with the business community. If Hong Kong’s Linked Exchange Rate System is abolished, it loses its special status for tariffs, and its characteristics as an economy of low tax rates disappear, it will be highly questionable how Hong Kong can continue to be the “Pearl of the Orient” in the future.

Ban on access to public registries

Beijing’s calculations might be that as long as China concepts stocks can be listed in Hong Kong for a second time, it will have the means to engineer Hong Kong’s second handover. But this is wishful thinking – treating international investors as so gullible – that might not be true in practice. The absurd rationale for a recent court case gives us food for thought. Bao Choy Yuk-ling, a renowned reporter for the Television Department of Radio Hong Kong, was arrested by the police for investigating the 721 incident in Yuen Long last year on the grounds that she “illegally accessed” the lists of directors and organizational structures of registered companies. Carrie Lam, Hong Kong’s Chief Executive, responded by asking, “Why should journalists have privileges?” The Hong Kong government even proposed that the public should no longer be allowed to access the public registries. In the future, only law enforcement agencies can conduct investigations “in accordance with the law.”

There are comments in Hong Kong that the above incident has sent a very clear signal: in the future, Hong Kong will welcome global capital to launder money, become “white gloves”, engage in terrorist activities, and evade Western sanctions in the city, since nothing can be monitored “in accordance with the law” and the public or the press can no longer expose the collusion between powerful people, government officials and businessmen. At a time when tax havens around the world are brought under stricter supervision one after another, it remains to be seen whether Hong Kong will embark on an opposite course and seek to attract international funds - and establish a new international market status – by encouraging illegal financial activities.

(Huang Ching-Lung, President of Taipei Trust in Democracy Association)

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