ANDREW SHENG, XIAO GENG. Hong Kong’s Real Problem Is Inequality (Project Syndicate 29-8-19)

A powerful, but oft-ignored factor underlying the frustrations of Hong Kong’s people is inequality. And, contrary to the prevailing pro-democracy narrative, the failure of Hong Kong’s autonomous government to address the problem stems from the electoral politics to which the protesters are so committed.

HONG KONG – Since China regained sovereignty over Hong Kong on July 1, 1997, the city has prospered economically, but festered politically. Now, one of the world’s richest cities is engulfed by protests, which have blocked roads, paralyzed the airport, and at times descended into violence. Far from a uniquely Chinese problem, however, the current chaos should be viewed as a bellwether for capitalist systems that fail to address inequality.

In times of crisis, it is easy for emotion to overwhelm reason, and for dramatic and deceptive narratives to take root. This tendency is exemplified by media reports that frame the unrest as a clash of cultures symbolizing a broader global struggle between autocracy and democracy, or references to a “fight between two civilizations,” as Hong Kong legislator Fernando Cheung put it.

Such narratives often treat “democracy” as synonymous with improved welfare – a characterization that is not borne out by the facts. As the political scientist Francis Fukuyama has conceded, centralized, authoritarian systems can deliver economic outcomes that are superior to decentralized, inefficient democratic regimes. It is also worth pointing out that officials like Cheung are free to criticize China’s government on the international stage.

Those who think that China’s government will resort to a military-led crackdown forget Sun Tzu’s dictum that winning wars without fighting is the “acme of skill.” China’s government is well aware that if Hong Kong becomes a political or ideological battleground, peace and prosperity will suffer in both the city and on the mainland. Given this, it is willing to go to great lengths to uphold the “one country, two systems” arrangement that forms the basis of its sovereignty over Hong Kong.

What China’s government is not willing to do is consider independence for the city. Like a parent dealing with a frustrated teenager, China views the current upheaval as a family matter that must be resolved internally. The appeals of some Hong Kong protesters for outsiders like the United States to intervene are not only unhelpful; they fail to appreciate the long and destructive track record of US-led “democracy-building” efforts around the world, from Central America to Central Asia.

The reality is that Hong Kong is already operating as a living experiment in how the rule of law and electoral democracy can work within the Chinese context. The city ranks 16th in the World Justice Project’s Rule of Law Index, right behind Japan and ahead of France (17th), Spain (21st), and Italy (28th). On electoral democracy, however, there are significant challenges, which have little to do with the mainland.

A powerful, but oft-ignored factor underlying the frustrations of Hong Kong’s people is inequality. Hong Kong’s Gini coefficient – in which zero represents maximum equality and one represents maximum inequality – now stands at 0.539, its highest level in 45 years. By comparison, the highest Gini coefficient among the major developed economies is 0.411 (in the US).

This inequality is most starkly apparent in housing. The per capita residential space in Hong Kong is just 16 square meters (172 square feet), compared to 36 square meters (387 square feet) in Shanghai. Moreover, whereas nearly 45% of Hong Kong’s residents live in public rental or subsidized housing, 90% of Chinese households own at least one home.

Yet, despite having fiscal reserves of more than HKD$1.2 trillion ($147 billion), Hong Kong’s autonomous government has failed to address inequality, precisely because of the electoral politics to which the protesters are so committed. The city’s Legislative Council – whose members are elected through a complicated process based on proportional representation – is too politically and ideologically divided to reach consensus.

Unable to push through tough reforms to subdue vested interests, as China’s government is doing on the mainland, the Council is also vulnerable to the influence of real-estate developers eager to block measures that would lower prices, such as the allocation of land for more public housing.

Some companies are reportedly hoarding large amounts of unused rural land, either directly or through shell companies, precisely to constrain supply.

Hong Kong’s protesters believe they haven’t been heard. But it is the city’s own elites, not China’s government, who have failed them. Hong Kong’s leaders were so thoroughly out of touch with ordinary people that the protest movement took them by surprise, despite signals from social media and the free (though adversarial) press.

This means that, beyond addressing concrete problems like high housing prices, Hong Kong will need to reopen channels of communication between the public and policymakers. This will not be easy – not least because the protest movement lacks any clear leaders. But some consensus on how to move forward as a community will be needed to ensure the government’s legitimacy while it implements needed reforms.

It will take time for Hong Kong to recover from these months of upheaval. But all Chinese, from Beijing to Hong Kong, know that there are no quick fixes or decisive battles. Progress is a never-ending series of small steps, many of which must be made in difficult conditions. The only way to succeed is with humility, patience, wisdom, and a sense of shared destiny.

This article was published by Project Syndicate on the 27th of August 2019. 

Xiao Geng, President of the Hong Kong Institution for International Finance, is a professor and Director of the Research Institute of Maritime Silk-Road at Peking University HSBC Business School. 

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5 Responses to ANDREW SHENG, XIAO GENG. Hong Kong’s Real Problem Is Inequality (Project Syndicate 29-8-19)

  1. Charles Lowe says:

    Thank you for your insight.

    I wonder if Carrie Lam will invite leaders of the HK protests to enquire the extent to which they are effectively motivated by a sense of inequality – and, if so, their depth of awareness of it. I will keep watching and listening.

  2. Anthony Pun says:

    An interview with Joshua Wong: https://www.youtube.com/watch?v=_dF-Tau3Ijk. It is much clearer after watching this video, the Extradition Bill (the trigger for the protest) and the economics of HK are not really a priority issues for the young protesters. What the protesters wants is to have a “western liberal democracy:” and universal suffrage; and the type of democracy practiced in HK which is expiring in 2047 under the one country two systems, is not agreeable with them and they want to obtain a guarantee that democracy will go beyond 2047. This attitude, together with the continued “unpeaceful” protests, and economic vandalism will no doubt contributes to the impasse. It is unlikely that the HKSAR would give in to these young protesters. China will sit back and watch the collapse of HK’s economy and wait for those badly affected to plead for restoration of law and order. Doing the impossible is not wise. If things get worse, Australia, please standby to accept refugee applications from HK soon.

  3. Inequality is indeed the curse of our times, having been created by deliberate policy and implemented by financialization of the economy. Thomas Picketty addresses the issue in Capital in the 21st Century, the most important book on economics since Keynes wrote The General Theory.

    So I don’t doubt the authors’ description of Hong Kong’s government by property developers. It sounds like home in Australia. Nevertheless I think they have misconstrued the Hong Kong protests.

    Reports from the streets including the excellent work by the Four Corners team show that protesters know who they are fighting and why and it is not about economics. They fear darkness at noon — the bullet in the back of the head.

    The courage of Hong Kong’s protest marchers may mark a turning point. Soviet forces rolled the tanks into Hungary in 1956 and again into Prague in 1968, But when Solidarity took a grip in Poland the game was up for the Soviet Union.

    The Chinese regime crushed the Tibetans, the Uighurs and its own citizens in Tiananmen Square. The treatment of Nobel Peace prize winner Liu Xiaobo shocked the world. The island bases in the South China Sea are provocative.

    Nina Khrushcheva warns that Presidents Putin and Xi may face the same fate as her grandfather Nikita. “China’s elite will no doubt have noticed Xi is turning the country into an international pariah,” she writes. (The Australian 16 August)

    China’s elites don’t want their country to be a hermit kingdom. Too hard to earn a renminbi, let alone a yankee dollar. President Xi seems to have got the message and is directing the Hong Kong administration to lay off.

    Meanwhile Steve Bannon, a good judge of American politics, notes that Republicans led by Marco Rubio are emerging to the Right of Trump on China. Trump is the voice of moderation while Elizabeth Warren and Bernie Sanders are sharpening their views on China.

    The common mistake made by the Chinese Communist Party’s Australian fan club, who are surprisingly vocal, is to forget that Chinese dynasties do not last for ever. The Communist Dynasty has been in power for 70 years and may prove to be the shortest-lived of them all.

  4. Sandra Hey says:

    Thank you for your very informative article. Unfortunately Hong Kong is still suffering from the worst aspects of Capitalism (White Mans Disease) very convenient for the Capitalist power base to spread the fear of Communism. The young people of Hong Kong should thank their lucky stars they are not living under the rule of Capitalist Indian Prime Minister Narendra Modi who has stripped all human rights from the citizens of Kashmir.

  5. Dennis Argall says:

    This is right. The uprising naively conflates well-being with democracy. And democracy with the US.

    This article

    https://www.asiatimes.com/2019/09/article/the-tricky-link-between-hk-dollar-and-capital-flows/

    sets out how there is a bankers’ dream of Hong Kong, wealthy and with simplemindedness of the banker crowd, largely unaware of and without care for the great mass of the population.

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