Hong Kong: Unforced Errors, With High Stakes

After the most violent weekend of demonstrations so far, the resolution of political crisis in Hong Kong is the most significant question hanging not just over the city, but over China’s long-term future. The early errors in managing the crisis belonged to Carrie Lam and the Hong Kong authorities, but Beijing is now compounding those mistakes and adding to them. Ending the demonstrations by escalating force and arrests is not feasible: the necessity of a political solution is obvious to all parties, but neither the Lam administration nor Beijing authorities have offered one.

Despite Beijing’s insistence to the contrary, Hong Kong’s status, its governance, its legal system, and the resolution of the current crisis are international concerns, not purely Chinese domestic matters. Foreign investors, not Beijing, will determine the long-term trajectory of capital inflows into and out of both China and Hong Kong. The future of those flows is now implicated in the the resolution of Hong Kong’s political crisis, both through direct investment channels and through the indirect political costs of economic engagement with China. Consequently, the fate of the Hong Kong dollar, the value of the renminbi, the future of China’s trade balance, and the size and global importance of China’s economy itself are all potentially at stake in the crisis.

Posted September 4, 2019
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