Geopolitics and doing business in Hong Kong and China.
One of the main elements to consider when moving into overseas markets is the geopolitics that surround a territory. For the most part, this is often background noise as the time scales that make any problems manifest are often counted in multiple years rather than months. Sometimes, though, there is the apocryphal frog in the warming water moment when, to bend the analogy, the frog wakes up to what is happening and does need to jump out.
I write this as the events in Hong Kong roll on and as the people peacefully demonstrate their concern for what they see as a loss of their freedom. It would seem that the frog has decided to jump out of the hot water.
I think the Chinese authorities are in a bind: they can, of course, move into Hong Kong with their forces, but, as anyone who has lived there knows, there are not the readily accessible roads and spaces within the city to easily disperse troops and tanks like those around Tiananmen Square, and one wonders whether the people there would be easily overcome without serious force being used that would see dispersed fighting on the back streets of the city. There may be fast road access from Shenzhen, but, the city would need to be closed down in its entirety for these forces to be useful.
This would have huge international implications.
Meanwhile, the United Kingdom, the treaty co-signature to the agreement to return Hong Kong to China, is distracted by its own Brexit neurosis, and the United States is led by a man who takes a transactional view of life with a Congress that could take a very strong view on trade relations with China. So it might be that China will think it can do as it wishes, much as it acquired control of atolls in the China Sea, reckoning that the world wants to do business too much to care about a renegade province. I’m not so sure that it has much room for manoeuvre: the impact on attitudes in Taiwan and newly emerging client states could be salutary and affect what limited soft power China has, a power that doesn’t come easily to authoritarian regimes at the best of times.
China has a sort of social contract with its people which permits them to make money so long as they don’t question the rule of the Communist Party. It’s not hard to find people in China doing well but equally it is not hard to find people who aspire to a greater say in the management of the country’s future. In Hong Kong, the people were already doing very nicely, so this social contract model that seems to work on the mainland probably has limited traction. And, despite China pointing out that the colonial era had little electoral democracy, the other critical democratic ingredients of free press, independent judiciary and right of ultimate appeal to the Privy Council in London, gave people a strong sense of their rights and freedoms.
From China’s point of view, the demonstration of demands for freedom needs to be contained and blamed on foreigners. This feeds an appetite on the mainland of proper comeuppance for Hong Kongers, who are seen as ‘snooty misfits’, as well as the narrative used since the Nationalist days and taken forward by the CCP, of humiliation at the hands of foreigners.
But, the demand for change in Hong Kong will spread and is a real risk to the regime. Particularly so if a trade war induced economic downturn generates social unrest.
Business should not change their plans yet, but they do need to watch how Hong Kong pans out and the longer term impact on China, particularly if the US Congress kicks up over any crack down. There is, of course, the legitimate decision on moral grounds as whether China is a country worth encouraging and supporting from a business perspective and this will be a matter for individual business leaders to decide on.