The Final Burial of Democracy in Hong Kong?

Over two decades ago, I hired an old friend from prep school to lead the Hong Kong office of a fast-growing sourcing tech company I worked for. A Westerner with strong Chinese language skills and a graduate student in Asian history, he took a somewhat eccentric British pride in riding his old Triumph motorcycle around the streets of Hong Kong, the loud bike harkening back to the old days of British rule every time it backfired, perhaps.

There is no rumble of that old motorbike anymore.

While the latest tariff waves and currency devaluation rumbles have captured the U.S. and China headlines of late – as the overall situation appears to continue to deteriorate, perhaps for the better, perhaps for the worse – what we find just as fascinating and as important to understand China’s ambitions is its continued crackdown on the last vestiges of Democracy in Hong Kong, occurring this summer.

Specifically, in recent months, protests have rocked Hong Kong, a territory which China took control of in 1997, while granting it special considerations to include independent government and courts as part of the handover.

This summer, streets remain clogged, transportation systems disrupted, thousands of flights cancelled at the international airport and hundreds hospitalized according to reports. The protests appear significantly more organized than those in 2014, in which over 100,000 residents took to the streets.

The BBC reports that smart phones and apps have helped the protesters stay one step ahead of the authorities. The news agency notes that, users share information including “real-time locations of the police force, the situations at different front lines on different streets and locations of first aid stations, gas masks, goggles, bottles of water,” and leveraging apps such as Uber for pick-ups with, “drivers disabling their GPS (global positioning system) receivers to avoid being tracked as they offer rides home to protesters who need to leave the scene.”

The original cause of the protests this summer came as a result of a China-sponsored extradition bill that would have required suspects of criminal activities to be remanded to mainland China. While this may seem innocuous to those not familiar with Hong Kong law, the bill in effect would have extended the long-arm of the Chinese controlled communist party courts to Hong Kong, still lauded for its UK-based rule of law. Not only would it have exposed Hong Kong citizens to the totalitarian court system in China, it could enhance the influence of mainland Chinese law and governance on the self-governed territory of Hong Kong.

Beyond this spark which led to the daily protest fire in recent months, The Economist noted that, “activists are [now] renewing demands for greater democracy in the territory.” In recent weeks, as Surplus Record goes to press, the protests have continued, in certain cases magnifying with labor walk outs as well (i.e., employees “calling in sick”.)

Whether Hong Kong retains its independent judiciary and financial system with increased Chinese scrutiny, influence and control is difficult to answer – with the protests essentially serving as a proxy for. Of course if the protests result in a militant Chinese crackdown like the massacre of democracy protesters at Tiananmen Square in 1989, the situation could spill over into an international relations crisis for China, fueling continued tensions between the superpower of the East and the rest of the world.

More tactically, we believe that U.S. manufacturers should follow the situation closely as it represents yet another example of potential increased supply and trade risk with China, this time from a capital markets perspective. Consider, as The Economist, suggests, that “with or without bloodshed, an intervention would undermine business confidence in Hong Kong and with it the fortunes of the main Chinese companies that rely on its stock market to raise capital.”

Perhaps this should be yet another reason for manufacturers to decrease and de-risk their dependency on Chinese supply chains, tariffs or no tariffs.