Is Beijing Changing Its Tactics for Controlling Hong Kong?

China may abandon its 'elite puppet' policy and control Hong Kong directly
September 25, 2019 Updated: September 25, 2019

Commentary

Top Communist official Zeng Qinghong, who became the head of the Hong Kong and Macau Affairs work team in 2003, had been following the “elite puppet” tactic—controlling Hong Kong through local elites—in governing the former British colony. In addition, communist China’s “red families” and their assets have been continuously flowing into Hong Kong after Zeng took power, causing skyrocketing property prices over the past 16 years.

However, some recent signs indicate that Beijing may abandon this “elite puppet” strategy and adopt a new tactic to govern Hong Kong Special Administrative Region (SAR, the official name of Hong Kong). 

‘Elite Puppet’ Policy: A Decision Made Before Hong Kong Handover

Even before the handover of Hong Kong sovereignty from Great Britain to China, Beijing decided that Hong Kong should be ruled by the “elite puppet” policy. Chinese leaders thought that by winning over Hong Kong’s rich and social elites, Beijing could control Hong Kong’s political, economic, and social affairs.

Chinese politician Xu Jiatun took office as the Director of Xinhua News Agency’s Hong Kong Branch in 1983. In a Hong Kong and Macao Work Committee meeting at the end of 1983 in Shenzhen, Xu proposed six key points for the management of Hong Kong and Macau. One of them was “strive to win over local people’s hearts.”

But in fact, Xu’s real focus was to win over the hearts of Hong Kong’s social elites.

By the time Hong Kong was returned to China in 1997, local elites had already become puppets in the hands of China’s central government. 

Zeng Qinghong Enforced the ‘Elite Puppet’ Policy

Zeng Qinghong, a top official belonging to the faction of former leader Jiang Zemin, took office as head of the first Hong Kong and Macau Affairs work team in 2003. This is a very important position, holding the immense power of governing Hong Kong and Macau. At that time, Zeng was the fifth-highest ranking member in the Standing Committee of the Communist Party’s Politburo, the nation’s top decision-making body.

Zeng took the Chinese Communist Party (CCP) “elite puppet” policy to the extreme. To put it bluntly, “elite puppets” are political agents of the Chinese Communist regime in Hong Kong. Their relationship with Beijing is the same as slaves serving a master, and is sustained and stabilized by mutual benefits. The CCP wants political power, the elites want political and economic interests in Hong Kong. When these two groups are negotiating, the interests of the commoners are completely ignored. This is the root cause of the current chaos in Hong Kong.

A typical example is Hong Kong home prices, which skyrocketed after Zeng took charge of Hong Kong and Macau’s management work. During his tenure, the land supply in Hong Kong plummeted and the land reclamation project (land reclamation from the ocean) came to a standstill. Statistics show that from 2005 to 2012, Hong Kong’s residential land transactions were as few as eight pieces of land per year; from 2005 to 2013, the average number of new residential homes completed was only 12,000 units per year. Demand for land and housing far exceeded the supply.

In addition, then Hong Kong Chief Executive Donald Tsang Yam-kuen, who was chosen by Zeng, did not sell any new Home Ownership Scheme (HOS) apartments, similar to affordable housing in the United States, during his entire tenure. Hong Kong property prices more than doubled, even surpassing the peak in 1997. In 2019, Hong Kong’s home price to income ratio is 49:42, one of the highest in the world.

China joined the WTO in 2002, when Jiang Zemin and Zeng Qinghong were in power. The CCP then needed to attract Hong Kong’s funds and talents into mainland China. Therefore, many Hong Kong elites went to China and injected their money in China’s economy. Some of them were granted official titles in the People’s Congress and CPPCC, or were given important positions in the Hong Kong Legislative Council and the SAR government, or the privilege to monopolize various industries in Hong Kong. 

China’s Red Families’ Accumulated Enormous Wealth in Hong Kong

With the development of China’s economy and under then-leader Jiang Zemin’s philosophy of “making a big fortune while keeping quiet,” many high-ranking officials and their families migrated to Hong Kong one after another. Some China-based real estate developers also went to Hong Kong to do business. At the same time, huge amounts of “red capital” flowed into Hong Kong. One of the reasons was to facilitate some influential “red families’” transfer of their wealth to a safer place. In the event that the CCP collapses or runs into a crisis, they would be able to flee to Hong Kong immediately and continue their affluent lifestyle by hiding their identities.

This group of people and the funds they brought had an immediate impact on Hong Kong’s economy.

According to information from unofficial channels, there are more than 13,000 CCP officials and “princelings”—children and grandchildren of top CCP officials—who have settled in Hong Kong, and more than 2,500 people have settled in Macau. Most of them are engaged in finance and real estate. They work closely with local elites, and both groups made big fortunes in Hong Kong. About 70 percent of these “red families” live in the affluent Mid-Levels area of Hong Kong Island.

In all sectors of Hong Kong, “red families” are deeply rooted and their personal and business relationships are closely intertwined.

The most widely known is Jiang Zhicheng (also known as Alvin Jiang), Jiang Zemin’s grandson, and a board member of Hong Kong Boyu Investment.

Other “princelings” hold positions such as top executives at JP Morgan, Senior Manager at Deutsche Bank’s Hong Kong Investment and Finance Department, and co-founder of Magnolia Capital Management.

Permira Advisers LLP, a British company, hired CCP Party elder Chen Yun’s grand-daughter and offered her a position in their Hong Kong branch.

In addition to the “princelings,” some of the top CCP officials’ mistresses have also assumed influential positions in Hong Kong’s financial industry. For instance, Song Lin is Chairman of China Resources Holdings Co., Ltd. His mistress, Yang Lijuan, worked for Hong Kong Credit Suisse and UBS Group AG. When Yang worked at Credit Suisse, a number of China Resources’ investment banking transactions were handled by Credit Suisse. Two years after Yang joined UBS, UBS was chosen as one of the joint bookrunners for China Resources’ two large bond offerings. China Resources’ two bond transactions and two acquisitions extended the scale of business cooperation between UBS and China Resources to $7.7 billion.

While these “red families” are making a big fortune in Hong Kong, the city’s commoners feel that they do not have a future. Fresh college graduates earn an average of 12,000 Hong Kong dollars, which is not much higher than it was before 1997; but commodity prices are now several times those of 1997. The majority of Hong Kong citizens live in small and cramped flats.

China Blames Soaring Property Prices on Hong Kong Real Estate Tycoons

China’s Political and Legislative Affairs Committee (PLAC) published a commentary on its social media account on Sept. 12, criticizing Li Ka-shing, a Hong Kong billionaire and business tycoon, for holding large areas of land. The article attributed the soaring home prices to Li’s land reserves.

However, a real estate market research publication in Hong Kong listed more than 10 recent land acquisitions involving funds from China, for agricultural land in the New Territories, totaling more than 5 million square feet, indicating that the most active land buyers in recent years are actually corporate buyers from mainland China.

Conversely, Li Ka-shing’s real estate company, CK Asset Holdings, has been selling land to liquidate the company’s assets in the past several years.

PLAC’s commentary, based on its false charges on Li Ka-shing, called on the Hong Kong government to “take immediate action to reclaim the land (from real estate magnates) and start new home development.”

In addition to PLAC, CCP’s mouthpieces Xinhua News Agency and People’s Daily made similar comments.

There are also articles on various China’s social media platforms that attack Hong Kong real estate developers, blaming the huge gap between the rich and poor on them. None of these articles ever mentioned the influence of the “red families” in Hong Kong, which are the real cause of the economic problems and social conflicts.

The PLAC commentary and articles from Chinese state media seem to suggest that Beijing would re-evaluate and revise its “elite puppet” strategy in governing Hong Kong. In other words, the CCP may no longer provide support for Hong Kong’s business elites. 

Beijing Wants Direct Control of Hong Kong

A Sept. 12 article from Reuters revealed that nearly 100 executives from China’s largest state-owned enterprises (SOEs) attended a meeting in Shenzhen in early September.

“The meeting was organized by the State-owned Assets Supervision and Administration Commission (SASAC),” Reuters reported. “Instead of simply holding stakes in Hong Kong companies, the Chinese SOEs were also urged to look to control companies and have decision-making power in them.”

The article quoted an executive who attended the meeting as saying, “The business elites in Hong Kong are certainly not doing enough. Most of them are just not one of us.”

The day after the Reuters’ article came out, Hong Kong-based Apple Daily reported that a number of high-level executives of China’s SOEs were seen driving into Carrie Lam’s government office building on Sept. 13, including Fu Yuning, Chairman of China Resources Group; Meng Zhenping, Chairman of China Southern Power Grid; Wang Changshun, Chairman of China Southern Airlines Group; and Ke Ruiwen, chairman of China Telecom Group.

Based on these events, the central authorities are planning to adopt a series of measures to gradually replace the previous “elite puppet” tactic with the Party imposing direct controls on everything in Hong Kong. They believe that by doing so, they can eventually quell all dissident voices in the city.

If China’s Minister of Public Security, Zhao Kezhi, really becomes the deputy head of the Hong Kong and Macao Affairs work team as rumored, Beijing basically aims at ruling Hong Kong directly. It will be inevitable that Hong Kong police would gradually become a state apparatus of the central government, and a mafia-like organization, just like the police in mainland China. Hong Kong will no longer be the same.

It is a pity that even to this day the Chinese authorities have not realized that the ongoing anti-government protests are telling them that Hongkongers are determined to say “No” to the CCP.

 

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