The near term future of Hong Kong looks grim. A substantial part of the Hong Kong population is dissatisfied with their status as citizens of a Special Administrative Region of China. The freedoms of speech, property rights and internet, a democratically-elected legislature, and the British-legacy legal system are things promised under the Hong Kong Basic Law constitution. The hated extradition law was withdrawn in the face of massive peaceful demonstrations.

China has, overall, lived up to its part of the bargain and respected the Basic Law. But that’s not good enough for some protestors. A radical element, but apparently with considerable support from a substantial number of disaffected citizens, is destroying the city. The MTR train system has been extensively vandalized; bank ATM machines are destroyed; shops like Starbucks are burned; mainland Chinese are attacked; the airport has intermittently been shut down; anyone like professors who disagree with the radicals is threatened, and in some cases beaten. Further, Hong Kong’s status as a tourist and shopping mecca has been destroyed; Hong’s status as a financial center is in question — the list of radical-caused damage goes on and on. Hong Kong is heading for its own depression as its own version of the reincarnated red guards terrorize the city. 

Having lived and taught in Hong Kong for some ten years as an adjunct finance professor in a Hong Kong University, this is especially painful for me.

Let’s first begin with some historical background

What is now called Hong Kong was assembled by the British in three parts. Hong Kong Island was taken by force in 1842 while neighboring Kowloon was taken by force in 1860. Both ceded to Britain in perpetuity. The bulk of Hong Kong’s landmass, the so-called New Territories, was taken over by Britain under a 99-year lease in 1898. In 1984, under the direction of Margaret Thatcher and Deng Xiaoping, Britain and China signed the Sino British Joint Declaration. This provided for a “one country, two systems” arrangement for Hong Kong. Hong Kong would revert to China in 1997 but it would retain its British system of law and individual and property rights. English would remain as an official language along with Chinese. Based on the Joint Declaration, a committee was set up consisting of half its members from the Mainland and half from Hong Kong. This committee in 1990 published the Basic Law, which today functions as Hong Kong’s constitution. A great many who didn’t like or trust this arrangement emigrated from Hong Kong prior to 1997. There were no significant acts of protest in Hong Kong prior to the Handover in 1997 and the bulk of Hong Kong’s people seemed happy with the arrangement.

Here’s what I describe as current reality.

First, it is now completely clear that the Hong Kong police force has been overwhelmed by the radical vandals. The radicals attired in masks, armed with clubs, hammers and box cutters, starting fires, throwing gasoline bombs and bricks taken from what were pretty streets and coordinating their movements via social media, have physically overpowered the police. In most countries, when civil disturbances prove too much for the police, the army is called in. The soldiers have not always been reluctant to shoot demonstrators.

In1932, troops with tanks commanded by General Douglas Macarthur and then Major George Patton cleared out a major demonstration called the Bonus Army in Washington, D.C. (See photo.) This march consisted of unemployed WWI veterans. There were fatalities. During the Vietnam War, troops backed-up the police handling demonstrations. At Kent State University, National Guard troops shot and killed four students, who unlike the Hong Kong vandals, weren’t destroying anything. (Incredibly, in a legal trial the guardsmen were declared innocent).

But in Hong Kong, the National Guard that would be called in is the Chinese Peoples Liberation Army or PLA. The PLA supposedly has special units trained to deal with civil disturbances and some six thousand PLA troops are reportedly normally stationed out of sight in Hong Kong. World opinion is horrified at the thought of PLA intervention and the Hong Kong and Chinese governments have been intimidated by this world opinion. China doesn’t want another Tiananmen. The radical vandals know this and think they can act with impunity. They think the PLA will never come in. Stupid statements from Western media and politicians calling the protesters freedom fighters encourage more vandalism. But Hong Kong is reaching the point where the only way to prevent further destruction of the city is for the Hong Kong Chief Executive Carrie Lam to request that the National Guard – sorry the PLA – come into Hong Kong and back up the Hong Kong police. In an ideal world, this would be a one-off thing. The PLA troops would restore order and return to their barracks. The US and Britain would do the same in a similar situation. This would be the most logical solution to the current unrest.

But that is probably not going to happen. We live in the real, not the ideal world. Nobody trusts China. And when it comes to China, the United States follows a policy of do as we say, not as we do. It doesn’t matter how many times the US brought in troops to quell unrest and back up the police. If Hong requests PLA intervention, the US and its army of China haters in the media and Congress will lead a campaign to destroy Hong Kong as a financial center. And they will succeed. So the only way the Hong Kong radicals wave of destruction to end is for the situation to literally burn itself out, however long that takes.

Second, no one should think that China will ever give up Hong Kong. Hong Kong is very valuable to China but China would rather have Hong Kong burned to the ground if the alternative was to grant Hong Kong independence. Hong Kong was seized by the British in the nineteenth century as part of wars designed to force China’s faltering Qing dynasty to permit the importation of opium from British India. The Chinese ability to remember past injustices is legendary. The protesters and misguided Western media and politicians are doing Hong Kong a disservice by encouraging the protestors to seek independence or what amounts to some type of de facto independence. They should all study Chinese history.

Third, the people of Hong Kong are going to have to accept the Basic Law, that they are part of China and that compared to most other places in Asia they got a good deal. They shouldn’t let the perfect plan (which the Basic Law is not) be the enemy of the good plan (which the Basic Law is). Those who cannot accept this should emigrate. They are children of British imperialism. So Britain should give them citizenship.

Fourth, Article 45 of the Basic Law does envision eventual universal suffrage for the choice of Hong Kong Chief Executive. This is a legitimate demand of the protestors. But progress on this has not occurred partly because the Hong Kong Legislative Council (Legco) has been so divided on this. Democracy in action! And of course, British governors were appointed – never elected – by London. The current system, which is too complicated to be explained here, does not select the best people. One example is the current Chief Executive, who in the opinion of most observers of all persuasions, is totally weak and incompetent. And, who by her poor judgement and stubbornness, has made the current crisis worse.

Fifth, calls to devalue the Hong Kong peg are totally misguided. The Hong Kong peg is a currency board arrangement which has been run very conservatively and which works automatically. Set nominally at 7.80 Hong Kong dollars to 1.0 US dollar, Hong Kong dollars are effectively backed up by a 100%+ reserve of low-risk US dollar assets. The Hong Kong dollar is a clone of the US dollar. The considerable reserves of the Hong Kong government are separate from the reserves backing the currency board but another sign of Hong Kong’s financial strength. A company that IPOs in Hong Kong effectively raises US dollars but its stock trades in a Chinese market. I believe the Hong Kong peg and the Hong Kong financial system as a whole will survive the Hong Kong depression that is surely coming in response to the radical vandalism.

Sixth, Hong Kong has a housing crisis which may be an underlying cause of much of the protesters’ dissatisfaction. A succession of Hong Kong Chief Executives have given this lip service to this but has basically done nothing. The Hong Kong housing market basically is two markets. One market is for upper income Hong Kongers and rich Mainlanders. The private market supplies them. The other is for the less affluent which the private market supplies very little. The rich Mainlanders have pushed prices to globally record levels, way above what the less affluent Hong Kongers can afford. The government needs to take measures that will increase the supply of housing to the less affluent portions of the population.

Finally, it is curious that there is no trouble in Macau. Portugal gave Macau back to China in 1999 after having been there since 1557. Macau is run under a political arrangement similar to Hong Kong’s and the Macau Pataca is pegged to the Hong Kong dollar. Per capita GDP is much higher in Macau than Hong Kong. Is it possible that housing conditions are much better there?

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