Xi Jinping’s thuggery will mean China’s decline

In Hong Kong, the state has outsourced the more petty forms of its thuggery to gangsters. On the mainland, tactics like these are well-established and, so far, presumably effective. But in a literate, educated, civil society, they have caused an angry backlash and further energized the protest movement.

For how long? Only time will tell whether the protest movement or the state has more persistence, but in the end, people who have lived in an advanced and vibrant civil society aren’t about to consign themselves to a life of slow absorption into a country they don’t identify with, and steady stultification by an axis of party hacks, thugs, and triads. What has made Hong Kong the success it is today is an ethic that is fundamentally incompatible with Xi Jinping’s.

But the real reason why Hong Kong has been so successful is that it is not China. [….] In China, people cannot speak or assemble freely, and the press and courts are under the thumb of the state. But Hong Kongers continued to enjoy a free press and freedom of speech and well-defined rule of law. The formula is called “one country, two systems.”

That held true in the world of economics and finance as well. On the Chinese side of the border, capital flows are restricted, the banking sector is controlled by the state, and regulatory systems are weak and arbitrary. Meanwhile, in Hong Kong, financial regulation is top-notch, capital flows are among the freest in the world, and rule of law is enshrined in a stubbornly independent judicial system. Those attributes have given Hong Kong an insurmountable advantage as an international business hub. Banks from all over the world flocked to Hong Kong, while its nimble sourcing firms orchestrated a global network of supply and production that became known as “borderless manufacturing.” While there has been much talk of Shanghai overtaking Hong Kong as Asia’s premier financial center, the Chinese metropolis simply cannot compete with Hong Kong’s stellar institutions, regulatory regime and laissez-faire economic outlook.

What happens if Hong Kong loses this edge? In other words, what happens if Beijing changes Hong Kong in ways that make its governance and business environment more like China’s? Hong Kong would be finished. The fact is that Hong Kong’s economic success, the nature of its institutions and the civil liberties enjoyed by Hong Kongers are all inexorably entwined. If Beijing knocks one of those pillars away, ­if it suppresses people’s freedoms or tampers with its judiciary, ­Hong Kong would become just another Chinese city, unable to fend off the challenge from Shanghai. Foreign financial institutions would be forced to decamp for a more trustworthy investment climate. [Michael Schuman, Time]

To put it another way, would the world’s largest banks and investors entrust their assets to a system regulated by a state with a corruption index comparable to Africa or the Middle East? Would it buoy their confidence that Xi Jinping has now indebted himself to the muscle of the triads? Or might Tokyo, Singapore, Sydney, and San Francisco be safer venues?

This is a real danger for China itself. Given the precariousness of China’s real estate sector and the banks that have extended credit to it, a sudden and persistent decline in Hong Kong’s economy could tip other dominoes, too. That, in turn, could prevent China from sustaining the growth rates it will need to pay for the coming demands on its pension system, as those who preceded the one-child generations retire. It will not necessarily be the crackdown itself that causes this flight, but the blacklisting of actual or presumed supporters of the protests, the state’s slow Tibet-style colonization of Hong Kong with mainlanders, and the placement of mainlanders in favored places in government, industry, and academia — a sort of songbun system with Chinese characteristics.

The state’s increasingly violent reaction continues to validate my impression that Xi Jinping and his thugs are kindred spirits, distinguished mostly by the weapons at their disposal and the scale on which they operate. Eventually, I suppose Xi will do something brutal and ham-handed, believing that this would restore the status quo. It won’t. What it will really mean is that Hong Kong’s English-speaking intellectual capital will gradually disperse to Sydney, Singapore, and Seattle, signaling the decline of a key center of trade and finance for China’s economy. More humane governments could do much to deter Xi by quietly threatening to encourage such a wave of emigration, luring away Hong Kong’s brightest people and their money. I hope we can lure as many of them as possible to America.

Xi may well “win” his struggle against representative government and the rule of (rather than by) law in the short term. In the long term, his “victory” would be an economic and political catastrophe for China, and his easy resort to thuggery should also be a warning to those unfortunate enough to share a continent with it. It should be cause to reconsider the need for a new NATO-like alliance to contain China until the day that the thugs are driven from all levels of its government.