If Hong Kong was free, why did we Hong Kong people fight in 2019?
Economic Freedom of the World Report 2020 continues to rank Hong Kong the world's freest economy. How well does the study reflect reality?
LT; DR Summary:
The Economic Freedom of the World Report justly tracked and reflected Hong Kong’s institutional decay;
Hong Kong is still at the top of the list, with Singapore as the solid number two because these are the only two city-states. Comparing city-states to nation-states is like comparing blueberries to watermelons.
Neo-nationalism is the greatest threat to freedom. The emergence of populist neo-nationalism is a global phenomenon. Communist China is no exception. Hong Kong used to have a cosmopolitan culture. But it also had its full-blown nationalism sentiment since 2019.
An effective and overlooked safeguard of freedom was the devolution of policymaking to the lowest possible level, i.e., the principle of subsidiarity. It was also what Hong Kong people fought for in 2019.
Hong Kong was once the poster boy of free market capitalism.
Its latest report in 2020, Economic Freedom of the World Report, jointly published by the Fraser Institute and Cato Institute, continues to rank Hong Kong as the world's freest economy.
However, many people doubt if the index reflects reality.
According to the report by the Congressional-Executive Commission on China, Hong Kong's civil society has been crushed. Thousands of people have been prosecuted for thought crimes.
I used to write a daily economic column for Apple Daily, Hong Kong's most popular newspaper. In 2021, the government forcefully shut down Apple Daily. It arrested Jimmy Lai, the non-executive chairman of the newspaper's holding company, and seven other editorial and management staff. They are prosecuted under the National Security Law imposed by Beijing.
I left Hong Kong in 2020 and have not visited it since.
Intuitively I would have contested the findings of the Economic Freedom of the World Report. However, after scrutinizing the details, I must confess that I find the study has captured precisely how Hong Kong has changed since the 1990s.
The index tracked and revealed at least five areas of change in Hong Kong:
First, Hong Kong's score for "Judicial Independence" has declined since 2012. In the latest report this year, the sub-score dropped significantly from 7.8 to 7.37. It has been the lowest ever for Hong Kong since the index's inception.
Secondly, Hong Kong suffered a very significant drop in the category of “Military Interference in the Rule of Law and Politics." Hong Kong used to score a perfect ten before 1997. Since 2019, this sub-scored dropped from 8.3 to 6.67.
Thirdly, in "Control of the movement of Capital and People," Hong Kong used to score almost perfectly before the handover in 1997. But in the latest report, this sub-score plummeted to 5.93, primarily due to restrictions imposed by the pandemic.
Fourthly, regarding private sector credit, which measures the relative significance of private versus public sector in the capital market, Hong Kong used to score perfect ten for almost two decades. Since 2019, the subscore dropped to 6.4. During the pandemic, Hong Kong's capital market witnessed the withering of the private sector demand and the crowding out by the public sector.
Lastly, arguably the most worrisome and distressing change is the deterioration in "Impartial Public Administration." Hong Kong's subscore in this category has steadily declined since 2002, and the deterioration has accelerated since 2012.
The five areas of change listed above coincided with the changes in the leadership in Beijing, hence the different approaches to the governance of Hong Kong. In a word, Hong Kong's institutions gradually deteriorated since the handover in 1997. Then since 2019, the degradations have been appalling.
"Hong Kong is the bellwether. If the Chinese stick to their agreement to let Hong Kong go its own path, then China will also go that way. If they don't, that is a very bad sign. I'm optimistic." - Milton Friedman, 2005.
There is no shortage of indices and rankings of various sorts. However, the Hong Kong government has been particularly concerned about the Economic Freedom of the World Report and the Heritage Foundation's Index of Economic Freedom.
Both indexes were introduced in 1995, two years before Hong Kong's handover. Both Beijing and Hong Kong were desperate for endorsement about the future of the One Country Two Systems. Two independent assessments by the most influential American and Canadian economic research institutions endorsing Hong Kong’s positioning as the world’s freest economy speak volumes.
In the past two decades, most nations have shown improvement toward openness, freedom, and democracy. However, Hong Kong’s decline is a rare exception amongst the most developed economies.
Once upon a time, people believed economic development would bring about reform in the political institutions of Communist China. China would eventually become more open and free like Hong Kong.
After the end of the Cold War and the dissolution of the Soviet Union, many autocratic regimes in Eurasia eventually reformed, especially during economic crises. Communist China, however, resisted the pressure to change.
Ironically, Hong Kong helped Communist China survive the existential challenge.
Since the 1980s, Hong Kong has helped transform China's inefficient state-owned sector into a more quasi-capitalistic presence by facilitating capital investment. Beginning in the mid-1990s, floating state-owned enterprises on Hong Kong's stock exchange has been an important source of foreign capital.
Even during the Asian Financial Crisis, Communist China relied on Hong Kong to manage its economic problems. For instance, Guangdong Holdings Limited, the investment arm of the Guangdong Provincial Government, was deemed insolvent in 1999. The debt restructuring and corporate rescue plan involved contracting a fixed-priced agreement to supply water to Hong Kong, capitalizing the income, and listing the assets on Hong Kong's stock market.
In the common parlance, the One Country Two System promised Hong Kong people freedom and democracy. With perfect hindsight of what had happened, however, it is no brainer that One Country Two System is a firewall designed to allow Beijing access to the global financial market without fundamentally changing its autocratic nature.
Communist China only and always cares about defending and asserting the one system of Beijing, not capitalism and freedom the people of Hong Kong cherish.
“As long as Hong Kong’s special status as the global financial center remains useful to Beijing, it will leave us alone.” I believe most Hong Kong people would agree with this statement.
But what has changed?
China’s neo-nationalism has been emerging in the past two decades, especially among young urban dwellers. The sentiment is fueled by carefully crafted propaganda to instill the belief that the Chinese Communist Party offers a vision for humanity superior to the liberal democratic order of the West.
No one should be surprised by the rise of neo-nationalism in China. It is indeed the zeitgeist. After the 2008 Financial Crisis, the economic woes hit not only Europe and the Americas but also China. The vicious cycle of debt addiction, low real productivity growth, displacement of workers by automation and algorithms, and rising living costs lead to frustration, anxiety, and anger.
In November 2021, Communist China made the third historical resolution. While some see the resolution as mere propaganda to pave the way for confirming Xi Jinping's third term at the helm of the totalitarian regime, the resolution also reveals how the regime position itself in the global context.
Simply put, the resolution claims China has attained economic modernization. It is time for the Party and the People to assert themselves in global agenda-setting.
The Communist Party has also strategically weaponized its investments, procurement, and selective market access to assert and advance its ideological claims. A case in point is the Belt-and-Road Initiative. The initiative secures energy and mineral resources from Central Asia and serves as a showpiece to validate the “little pinkies” (小粉紅) nationalism.
Nationalism drives Chinese politics, and it does not go well with Hong Kong’s Cosmopolitan culture. The antagonism between Hong Kong and mainland China surfaced about ten years ago. Since 2014 the conflict escalated and eventually grew into a full-blown ascendence of the movement to bring Hong Kong’s identity in 2019.
What did Hong Kong people fight for in 2019?
I cannot speak for other Hong Kong people. However, I find there is almost a consensus across the political spectrum on the following:
Hong Kong people should have the right to decide their affairs.
Some believe Hong Kong needs universal suffrage to safeguard our autonomy. Some are content with a limited government and let the civil society and market provide for people's needs. Those are commonplace debates in any civil, open society.
In the 1980s and 1990s, Hong Kong already had a reasonably efficient and limited executive branch of the government. The court was impartial and hence trusted and respected by the people. Although not all the legislators were returned through direct elections, people generally held that representative democracy was a necessary safeguard of people’s rights and freedom. There were also urban council and district boards supplementing and supporting Hong Kong’s grassroots civil society.
If Hong Kong people did not have sufficient sophistication for self-governance, I could not think of any people in the world that had.
Many Hong Kong people, myself included, acquiesced. After all, representative democracy is just one of the pillars of freedom. We falsely believe that as long as other institutions are intact, things will be fine.
Hong Kong’s institutions were taken to pieces right after the handover in 1997. The first Chief Executive, CH Tung, disbanded the Urban Council and replaced the function with three newly created executive departments. Then he instituted an appointee system to override the politically impartial civil service bureaucracy. The subtle but profound change in Hong Kong’s administrative structure paved the way for the debilitation of Hong Kong’s representative democracy and civil society.
Then in 2002, only a few weeks after Hu Jintao assumed the top post at the Chinese Communist Party, Beijing summoned Hong Kong’s Secretary of Justice, ordering her to prepare for the legislation on National Security.
The legislative proposal met with massive resistance from across the political spectrum. Eventually, the bill was shelved for 18 years and finally imposed directly from Beijing by the National People’s Congress Standing Committee.
In 2006, State Council announced the National 11th Five-Year Plan, which vaguely put Hong Kong in the Soviet-style economic plan. No one protested although the Basic Law stated explicitly that:
The socialist system and policies shall not be practised in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years.
The world’s freest economy did not disappear overnight. It was a long process.
My hypothesis on the decay of Hong Kong’s institutions can be tested. Macau, another former colony, was handed over to Communist China in 1999. Although Macau is much smaller than Hong Kong, culturally, socially, ethnographically, linguistically, and even its monetary institution is quite similar to Hong Kong. Macau is a perfect case as a control for the test if China is the reason why Hong Kong’s freedom eroded.
Unfortunately, and surprisingly, Macau is not even included in the Economic Freedom of the World Report. Out of sheer curiosity, I checked if there were any other city-states, or autonomous economic zones, listed in the report. It turns out Hong Kong and Singapore are the only two city-states included in the study.
Perhaps I have accidentally stumbled upon the answer to why Hong Kong and Singapore are always on the top of the Economic Freedom of the World Index. Comparing city-states to nation-states is like comparing blueberries to watermelons.
Nevertheless, there is still a valuable lesson for everyone who is advocating for freedom for the people. We should always find ways to devolve policy-making to levels closer to the people, i.e., the principle of subsidiarity. Not only it is an overlooked dimension of freedom, but it is also what Hong Kong people have been fighting for.