China’s Xi Jinping tames Hong Kong

Like 2021, next year will be a pivotal one for Hong Kong and China. For the former British colony, the template appears set: The system has been remade to entrench Beijing’s control, freedoms that were guaranteed under “one country, two systems” have been eroded, hundreds are in prison for political offenses, and tens of thousands of people who can are moving abroad. For China, there are more unknowns. The government has embarked on a risky change of direction, seeking to refashion the economy to reduce inequality under the rubric of “common prosperity,” and making a sustained effort to lessen developer leverage and tame housing prices. Keep an eye on these trends in the coming year.
The road to crushing Hong Kong’s democracy aspirations was a long one. At times, it appeared that Beijing might be willing to find a way to live with the city’s opposition forces. Ultimately, though, the landslide victory that opposition candidates won in 2019 district council elections sealed movement’s fate and showed up the situation as the gilded cage it always was. Beijing’s response was to pass a national security law, redefine political opposition as subversive,
and finally to remodel the electoral system to ensure that establishment interests could never again lose.
Beijing wasn’t only disenchanted with Hong Kong’s democracy movement. It also appears to have lost faith in the property elite that controls much of the local economy, and diluted its influence in the bodies that will control the territory’s political future. This is one development that people shouldn’t lose any sleep over. Many of the structural problems and inequities that plague the economy can be traced to dominance of the property tycoons, who failed to build a fairer and more cohesive society.
The city has changed irrevocably since the passing of the national security law in mid-2020. Hong Kong was always an anomaly: an exuberantly free society, though never a democracy, perched precariously at the edge of the world’s most powerful communist autocracy. Its survival as an entity distinct from the rest of China always seemed an improbable miracle. A mass of contradictions, the city’s story is ultimately a testament to the triumph and durability of the human spirit.
There are reasons for doubt whether Xi’s common prosperity campaign, even if well intentioned, will lead to the results that the president hopes for. Back in early 2012, shortly before he came to power, the World Bank and a top Chinese government think tank released a 473-page report spelling out the reforms the country would need to avoid the “middle-income trap” and reach the ranks of high-income nations. Xi’s program goes in the opposite direction.
The willingness of the Chinese government to take the economic pain of tackling excessive leverage in the property industry has surprised many people.
Real estate accounts for around a quarter of the economy, so cannot be reshaped without risking incalculable and potentially catastrophic consequences. Nevertheless, the government has been trying. The wild card remains the danger that an imploding property market will set off an uncontrollable chain reaction. With distress continuing to spread across developers, that’s still the risk to watch.
—Bloomberg