Sept. 16 marks the 100th day of the Hong Kong anti-extradition law movement.
The final direction of Beijing’s solution to the Hong Kong issue is already very clear—the co-governance between government officials and business elites will end, bringing to fruition the “second return” of Hong Kong to Beijing.
Several major indications released through various channels, including an exclusive article released by Reuters on Sept. 13, seem to confirm this. The article states that China urged its biggest state-owned enterprises to step up their investment and assert more control of companies in Hong Kong, so as “to calm months of unrest in the city.”
It is an indication of the Chinese Communist Party’s (CCP) attempts to control Hong Kong to a greater extent. In addition, on Sept. 13 the CCP mouthpiece The People’s Daily criticized Hong Kong billionaire Li Ka-shing, as the pro-Beijing Democratic Alliance for Betterment and Progress of Hong Kong (DAB) asked the Hong Kong government to consider citing the Lands Resumption Ordinance to reclaim the four major Hong Kong developers’ approximately 9.3 million square meters of agricultural land to build homes.
Then on Sept. 17, China’s domestic websites posted various columns and comments, pointing to plans for the “second return,” which is to end Hong Kong’s government officials and business elites co-governance for the CCP’s full control of Hong Kong’s economy.
Beijing Says Hong Kong Business Elites Are ‘Not Its Own People’
The Reuters’ article title, “China prods state firms to boost investment in crisis-hit Hong Kong,” suggests that China encouraged state-owned enterprises (SOEs) to increase investment in Hong Kong.
It was pointed out that the Chinese regime has recently convened hundreds of large SOEs to meet in Shenzhen. The high-level representatives of more than 100 large SOEs have promised to invest more in major Hong Kong industries, including real estate and tourism, to stabilize the financial markets and create jobs for local residents, and to do everything they can to help Beijing solve the most serious political crisis Hong Kong has faced. One of the SOE executives who was at the meeting told Reuters: “The business elites in Hong Kong are definitely not doing enough. Most of them are not one of us.”
This view suggests that the Hong Kong business elites’ reliance on the privileges granted by the Chinese regime to seek rent and profit in both Hong Kong and mainland China will come to an end, and so has the city’s political and business alliance. In Hong Kong, real estate and other industries will be taken over by SOEs.
At present, it is not clear how the SOEs will increase their investment, but the principle has been set: “Chinese SOEs are not only holding shares in Hong Kong companies, but also have decision-making power and control of the companies.” Demanding from Hong Kong’s wealthy elites to sell their ownership and let SOEs take control is one of the possible ways. It is estimated that companies that have “behaved poorly” in Beijing’s eyes since the “anti-extradition law” protests will be among the first for such acquisitions.
In the article, ‘The Second Return’ Would Be Nightmarish for Both Hong Kong and China, I said that ending the government-business co-governance model is an important part of the “second return” plan.
The rift between the Chinese regime and the united front of the Hong Kong business elite did not begin with the “anti-extradition law” campaign. As early as the Hong Kong Occupy Central movement in 2014, there were few people among Hong Kong’s business community who expressed their support for the government. China Daily recently published an English article criticizing Li Ka-shing as being ambiguous on his stance. Others such as Li Zhaoji, Guo Henian, Wu Guangzheng, and other tycoons also remained silent, not expressing their support for the Hong Kong government or the Hong Kong police’s handling of protesters.
Beijing’s View of Hong Kong Business Elites: Rent-Seeking, Profit-Taking, but Unwilling to Fulfill Political Obligations
Since China’s reform and opening up, Hong Kong business tycoons have indeed relied on the protection of the Chinese regime to seek rent and monopolize most of Hong Kong’s economic development achievements. Studies suggest that the two decades from 1978 to 1997 were critical to the economic and commercial development of Hong Kong. Besides the transfer of sovereignty, there were several intertwined changes, including de-industrialization, British capital flight, local commercial alliances, emergence of hybrid businesses, political restructuring, and the redefinition of politics itself, triggering a wave of restructuring.
The manufacturing sector was quickly replaced by services, which included banking, real estate, tourism, and transportation. This process has formed a number of large-scale enterprises and business tycoons. A typical case is the Li Ka-shing family’s Yangtze River Holdings, which owns a large number of companies and holding companies in different industries and across more than 50 countries. The researchers believe that Li started in the plastics manufacturing industry in the 1950s, with the consolidation of his business empire beginning in 1979. When he bought Hutchison Whampoa from the British, Li’s commercial empire laid the foundation for further expansion from there. Since then, he has formed a close political and business alliance with Beijing and has received support from Beijing.
The situation of other tycoons were similar to that of Li. Due to the close relationship between these tycoons’ business holdings and Beijing, the geo-economic relationship between mainland China and Hong Kong developed rapidly. This integration encompasses Hong Kong capital entering the mainland, a large amount of mainland investment entering Hong Kong, and cross-border commerce.
Local and mainland capital formed a symbiotic relationship and they have jointly developed a large number of commercial projects and networks across China and Hong Kong. At the time of Hong Kong’s handover in 1997, the top 10 Chinese business families in Hong Kong (including the Li Ka-shing family, the Lee Shau Kee family, the Guo Desheng family, the Wu Guangzheng family, and the Cheng Yu-tung family) had already controlled assets that accounted for 45 percent of Hong Kong’s stock market value. This kind of wealth has granted the families enormous influence over Hong Kong politics. These people have been in turn rewarded by Beijing, receiving the honor of participating in the National People’s Congress and the Standing Committee of the Chinese People’s Political Consultative Conference.
However, an advantage is often accompanied by a disadvantage.
The Chinese capital entering Hong Kong has changed Hong Kong’s wealth distribution. In the 20 years since 1997, the prominent position of Hong Kong’s local capital has gradually been overtaken by mainland capital, especially real estate-related capital from Chinese SOEs.
By the end of 2016, half of the 20 listed companies with the highest market capitalization in Hong Kong were mainland-based, including Tencent, China Mobile, China Construction Bank, CNOOC, Industrial and Commercial Bank of China, CITIC Group, BOC Hong Kong, Bank of China, Ping An Insurance, and China Overseas. Only four companies, including Cheung Kong (Li Ka Shing family), Sun Hung Kai Properties (Guo Bing Lian), Hang Seng Bank, and the Hong Kong Stock Exchange can be regarded as local companies based in Hong Kong.
Compared with the top four local companies in the market value of Hong Kong’s stock market in 1997, this shift has squeezed the Hong Kong business community. It is particularly worth mentioning that after 1997, cross-shareholdings between China and Hong Kong companies have become increasingly common, which has led to a blurring of boundaries between private companies and SOEs, resulting in a new hybrid business model. The operations of this hybrid business is based on different economic rationalities. It does not only pursue the maximization of profits, but also fulfills political obligations and acts as Beijing’s proxy in Hong Kong.
However, Beijing is ending the government-business co-government model earlier than planned. This is due to two reasons. One is that Hong Kong business elites such as Li Ka-shing and others have expressed sympathy toward the protesters in the anti-extradition law movement, which Beijing considers as intolerable.
The CCP reasons that the existing “government-business co-governance of Hong Kong” is the real source of unrest in Hong Kong as it has created a large wealth disparity between the rich and the poor and has served to intensify social conflicts. And the CCP no longer wants to be a scapegoat for the Hong Kong tycoons. In addition, Hong Kong’s flag carrier Cathay Pacific reportedly supported its employees’ participation in anti-government protests, daring to do so because of the company’s British ownership base. Enraged, Beijing plans to simply let the SOEs buy the company, fire non-compliant employees, and control firm policy.
Why Was Li Ka-shing Criticized by the People’s Daily?
The Chinese regime believes Li, who relies on Beijing’s political blessing to maintain a business empire, has acted against the party and its regime in at least three instances.
First, since 2011, Li hasn’t acquired any land in mainland China, but has quietly divested from the mainland and continuously sold off his Chinese assets. After 2012, Li has not purchased any Hong Kong land either. The scale of divestment is estimated to be 100 billion HKD ($12.8 billion).
At that time, Chinese public opinion expressed dissatisfaction in Li’s divestments. Among Hong Kong businessmen, Li was closest to the Beijing power base. As the most prominent elite in Hong Kong’s business community, Li has met with successive leaders of the CCP. Since Deng Xiaoping met Li twice in 1978 and 1990, Li was given “blessing” of the highest degree from the CCP. Since then, Li has operated unimpeded in Hong Kong and the mainland, and his privilege exceeded that of any mainland princeling. The Sina.com column “Don’t Let Li Ka-shing Run Away” states, “In view of the nature of Li Ka-shing’s acquisition of wealth in China in the last two decades, it seems that it is not just as simple as business… The wealth of real estate is not entirely gained from a true market economy. I am afraid it is not appropriate for him to leave as he wishes.”
Another column, entitled “What Requirements Did the Central Leaders Put on Li Ka-shing?” states that the Li family’s wealth was created by the CCP’s policies and special treatments, so it should have stayed “with the country.” Now when economic difficulties have begun to appear in China, Li’s family decides to move abroad with their wealth.
Second, during the Hong Kong Occupy Central movement in 2014, Li refused to support Beijing and the Hong Kong government.
Third, since this year’s anti-extradition law movement, Li has spoken out three times, but never expressed explicit support for the Hong Kong government. He first published the “Huangtai picking melon” advertisement, alluding that the Chinese regime is too harsh on Hong Kong. Then Li said, “I hope that the young people will understand the overall situation, and the ruling party can open up one corner of the net for the futures of our society.”
With these seemingly defiant acts, Li has become a target of the CCP media. They used harsh language to humiliate him and implied that Li is a hypocrite. I’m afraid that this is only the tip of the iceberg. Hong Kong’s wealthy business elites will soon feel the chill of fear from the bottoms of their hearts.
In summary, since the occurrence of Hong Kong’s Occupy Central movement in 2014, Beijing has planned to use the “boiling frog in warm water” method to carry out its “second return” plan.