By Craig Stephen
Published: Sept 30, 2014 10:32 p.m. ET
Reuters
HONG KONG (MarketWatch) — Investors are now waking up to the political risk in Hong Kong’s democracy standoff, just as the city wakes up to another day of blocked roads.
Beyond disruption to tourism and the retail trade, escalation of the “Occupy Central” protest is the unknown wild card. This brings into the equation tail risks such as a possible Hong Kong liquidity shock, as well as a threat to China’s one-party government itself.
Today’s National Day holiday to celebrate 65 years of the People’s Republic of China promises to be an embarrassing anniversary for Beijing.
In Hong Kong, it is being marked by another day of mass protests beamed globally by the world’s media. The Occupy Central demonstrations have spontaneously mushroomed across Hong Kong ever since local police used tear gas on peaceful student protestors last Sunday.
The gravity of the situation means the democracy standoff is now being discussed in terms of Beijing’s biggest political test since the Tiananmen Square crackdown 35 years ago.
Such a comparison with this dark period for the ruling Chinese Communist Party (CCP) might appear overly dramatic, but there are some undeniable parallels.
In both cases students were protesting for democracy, emboldened by impecunious circumstances. While in 1989 students complained of food inflation, in today’s Hong Kong it is high prices for property and living costs in general. Indeed, the leader of the student protest body Scholarism asked during an interview why a tofu roast-pork-belly lunchbox costs 50 Hong Kong dollars ($6.50).
Then as now, democracy represents a direct threat to China’s one-party rule. Let that genie out, and the CCP fears its days in power will be numbered.
The Tiananmen protests, of course, ended with hardliners in the party leadership losing patience and ordering the tanks in to remove the students.
Rather ominously, there are fears today that Beijing may resort to type and use the People’s Liberation Army stationed in Hong Kong to impose martial law.
That such extreme measures to quell a student uprising are even being discussed says a lot about the strength of the CCP today.
Despite the substantial economic progress China has made in the intervening decades since 1989, Beijing has been stuck in a time warp in political terms. The party has consistently rebuffed any democratic reforms, instead tightening its grip on power through censorship, suppression and an elaborate network of economic control and ownership.
Yet in recent years there has been growing disillusionment with China’s state-led model of capitalism, due to environmental degradation, soaring debt levels and widespread corruption and inequality.
This response by the party has been to become extremely sensitive to criticism or dissent, with stability at all costs becoming the default position.
It has also led to President Xi Jinping’s approach of being an unyielding political leader, both at home and abroad.
But what works in mainland China is fraught with problems in the Special Administrative Region of Hong Kong. President Xi’s ham-fisted approach to date in Hong Kong suggests he is unaware of this.
By adopting a hardball stance to Hong Kong’s democratic aspirations, with the thresholds for a chief executive candidate raised from earlier elections, conflict was invited. This always made an escalation of protests that much more likely. (See previous column)
Further, the move last week by Xi to invite Hong Kong tycoons to a closed-door meeting in Beijing only antagonized the public further. He has now openly aligned himself with a group of billionaires resented by many for rigging Hong Kong’s economy through a series of cartels.
For many, democracy was a chance to alter the status quo and elect a government that represents the wider public, rather than just the interests of the plutocratic elite.
By intervening so directly, China’s president is now also seen to have ownership of the democracy dispute, thereby giving him less leeway to back down.
Meanwhile, the response from Hong Kong’s Chief Executive C.Y. Leung is that protests are futile, as Beijing will not change its view on democracy. He also says he expects a long period of protest.
For Xi, the pictures of Hong Kong’s massed protesters will be unwelcome as it risks inspiring copycats — this has already happened in Taiwan. Yet backing down and offering concessions to protestors would also be unpalatable.
The risk is this would give succor to pro-democracy or independence movements across China, thereby threatening the party itself.
Therein lies the potential for the Hong Kong situation to resonate within China, and it explains why an unwelcome escalation of violence cannot be ruled out. Self-preservation will always come ahead of Hong Kong’s interests or international opinion.
Meanwhile, as the party celebrates its 65th year in charge, modern history is not on its side. The CCP is now less than a decade away from the Marxist longevity record held by the Communist Party of the Soviet Union, which ruled for 74 years.
