Hong Kong must defend the ‘two systems’ advantages that make it special

Vicious geopolitics is hurting the world’s perception of Hong Kong and its autonomy, causing a slide in credit ratings and risk assessments
But Hong Kong should also reflect on whether it has indulged too much in past glory and is ill prepared for survival and revival under new national and international conditions

Anthony Cheung

Published: 5:30am, 2 Jan 2024

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The point of Hong Kong’s 1997 return to China under “one country, two systems” was to preserve its institutional vibrancy and international market so the city continues to thrive, play the role of East-West intermediary and contribute to China’s reform and modernisation.

A quarter of a century later, the “two systems” advantage seems to be under threat. Some international media have even portrayed Hong Kong as facing an existential crisis.

The economy is not rebounding as expected after its post-Covid reopening, despite official exhortations about Hong Kong returning to the world’s centre stage. Uncertainties remain and gloomy sentiments have spread because of the sluggish stock and property markets, and weakening consumption and investment. The government is in structural deficit.

The economic difficulties are not just cyclical, nor simply due to global headwinds. They are symptomatic of deeper structural challenges. Despite Beijing’s reiterations that “one country, two systems” is to persist, cynicism and conspiracy theories abound.

Moody’s Investors Service has downgraded its credit ratings outlook for mainland China, Hong Kong and Macau to “negative”, reflecting how some foreign capital see Hong Kong’s investment risk as tantamount to the mainland’s.

Because the central government imposed its comprehensive jurisdiction and a national security law on the city after its 2019 upheaval, Western governments and media question if Hong Kong still enjoys political and other freedoms, and a high degree of autonomy.

Hong Kong should beware of knee-jerk reactions and overkill in the new circumstances. But vicious geopolitics is driving an undue sense of external threat. How to reduce distrust and hostilities globally is a pressing task.

The United States was the first to claim that Hong Kong was heading towards “one country, one system”, suspending its special treatment and setting increasing restrictions.

Its national defence authorisation legislation designates China, including Hong Kong and Macau, as a “foreign adversary”. A bill to terminate the diplomatic privileges and immunities enjoyed by Hong Kong’s Economic and Trade Offices has gone through the House Foreign Affairs Committee.

The writing is on the wall: to marginalise and hollow out Hong Kong.

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Meanwhile, the international business assessment is shifting. According to the World Bank’s global governance indicators, Hong Kong’s 2022 score in “voice and accountability” has plunged to the 35th percentile, from 61st in 2017, though it still ranks high in government effectiveness, regulatory quality, rule of law and control of corruption, while political stability has improved after the 2019 low ebb.

Last month, the US-based Cato Institute and Canada’s Fraser Institute released the 2023 Human Freedom Index. Hong Kong was ranked 46th out of 165 territories, down from 29th. The two think tanks have long been bullish on Hong Kong, ranking it third globally in 2010. Now, its individual freedom is cast in serious doubt although its economic freedom still ranks second.

If Hong Kong is increasingly framed as being politically “one system” with the mainland, the logic follows that it faces the same political risk assessment.

Hong Kong mustn’t be afraid to vaunt its capitalist credentials

With closer economic integration, the mainland has become a major source of capital and talent. This is natural when the mainland economy has vastly expanded, with educational and professional standards rapidly lifted.

Absorbing external investment and talent has always been Hong Kong’s raison d’être. Confronted by a retreat in foreign capital and a steady brain drain, the city appears to have limited choice but to depend further on mainland support.

In mid-2023, mainland companies accounted for 55 per cent of the listed companies in Hong Kong, 77 per cent of its market capitalisation, and 87 per cent of the stock market turnover. Over 90 per cent of approvals under the government’s new top talent scheme are for mainlanders.

This overdependence weakens Hong Kong’s international profile. The city also bears the brunt of any serious market or policy disruptions on the mainland, as is the case now.

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Sadly, the post-2019 political changeover, not to mention our growing reliance on the mainland economy, has fed doubts about Hong Kong’s worth and competence. There are more calls to emulate mainland cities.

Such a tendency to benchmark mainland standards and converge to the mainland’s modus operandi, even for the purpose of policy learning, may, by default, minimise Hong Kong’s institutional distinction. If the city’s performance fails to deliver the vigour of an alternative system, who can blame the doubters?

The recent mockery by some mainland netizens that Hong Kong’s international financial centre status is a relic of history speaks volumes about its deteriorating image.

It is right that the government rebuts such denigrating claims. But Hong Kong should reflect on whether it has indulged too much in its past glory and is ill prepared for survival and revival under new national and international conditions.

05:25

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Hong Kong was the adventurer. Now Shenzhen is more assertive in shaping the Greater Bay Area.

The risk of losing the “two systems” advantage comes from both external moves and suspicions, as well as domestic inertia and self-deprecation. The issue is not integration per se but integration leading to homogenisation. It is about balancing two systems and institutional legacies within a dynamic synthesis.

Hong Kong needs to attract a global talent pool, not just more Chinese

Since President Xi Jinping’s July 1, 2022 speech, key messages from central government officials have emphasised the importance of keeping Hong Kong special and cultivating more extensive international connections.

Global geopolitics is hurting Hong Kong. But stabilising Sino-US relations and improving Sino-European cooperation now takes precedence in China’s global strategy. Hong Kong remains better positioned than any other Chinese city to facilitate a breakthrough and influence world opinion, as long as it can articulate a good international narrative.

Anthony Cheung is a former secretary for transport and housing (2012-17) and former president of the Education University of Hong Kong (2008-12, then known as Hong Kong Institute of Education)