07 October 2014
CCS COMMENTARY:
The ‘Umbrella Revolution’ in Hong Kong:
economic consequences for Hong Kong, China
and the global economy
In 2017, Hong Kong SAR is due to elect its chief executive by universal suffrage for the first time. However,
while in 1997 Beijing promised Hong Kongese to freely choose their political leaders, its recent decision that
candidates will be selected only by a narrow nominating committee has triggered a series of street protests
and has led to the prodemocracy movement known as “Occupy Central”. The protests have shut down banks
and various businesses and show little to no sign of letting up. The territory’s central commercial district is
likely to face sustained disruption for the duration of the protests and is likely to face greater challenges
depending on the outcome of these protests.
In 1997, SAR Hong Kong was returned to China after being a British
colony. Even though Hong Kong joined mainland China, the city has its
own political and legal system inherited from the United Kingdom.
Therefore China and Hong Kong are often referred to as “one country
two systems”. Hong Kong is autonomous from the rest of China and
enjoys a special administrative status, hence the name of the city Hong
Kong Special Administrative Region (SAR).
Economic interdependence
Source: thetimes.co.uk
It is unlikely that China will submit and allow Hong Kong a democratic
election. Additionally, Hong Kong is dependent on China—without Chinese deals, Hong Kong’s law firms,
investment banks, and private equity players would swiftly relocate elsewhere; without Chinese tourists Hong
Kong’s hotels and shopping emporia would suffer; without Chinese linked opportunities, Hong Kong’s young
people would face under or unemployment. China is no longer dependent on Hong Kong; instead it is the
opposite. With China keeping a tight grip on Hong Kong and most likely clamping down on these protestors, it
is likely that Beijing will start becoming increasingly influential in the internal affairs of Hong Kong. This could
have long term negative effects on foreign business in the city as China could hugely influence Hong Kong’s
business, economic or political system. Given the fact that China is reluctant towards foreign engagement in
Hong Kong, it might influence the region’s investment landscape, which is very much orientated towards
foreign engagement. With a greater Chinese influence, the region could face new policies such as immigration
policies, making it more difficult for foreign nationals to enter the city or conduct business.
Economic consequences
The current protests in Hong Kong for the right to freely elect political leaders through universal suffrage in
2017 as promised by China in 1997, have consequences for both Hong Kong’s and China’s economies which
are linked to each other as well as to the global economy. The movement is seeing increased involvement from
citizens across Hong Kong and is spilling over into various sectors. This has had adverse effects on the city’s
markets, as stocks fell the most in three weeks, the currency weakened and equity-market volatility surged, all
of which impact investments and business activities.
Many large businesses with headquarters based in Hong Kong have factories in China’s Guangdong province
with production being more cost effective. Chinese cities: Guangzhou, Dongguan, Foshan, Shenzhen have been
manufacturing hubs for Hong Kong companies due to its proximity and the various advantages they offer as
for labour and production costs.
As relations between mainland China and Hong Kong become more tense, these operations could face major
setbacks. Additionally many Chinese firms have a large presence in Hong Kong and are some of the city’s
largest investors. These firms could be forced to withdraw from Hong Kong and relocate, which would
negatively impact Hong Kong’s economy and investment climate, making it difficult for other foreign firms to
be profitable and show positive growth.
Hong Kong has been a financial centre to the world economy as well as to China. China has always used Hong
Kong to get access to foreign currencies (which today constitute China’s huge foreign currency reserves)
particularly through the Yuan denominated bonds. At the same time, Hong Kong is the first place which
contributes to the internationalisation of the Chinese yuan (to be next to the Euro, the US dollar, the Yen, and
so forth) which today is a priority of the Chinese government even though more trade and investment deals
are settled in the other international currencies mentioned; the Yuan being the only currency which is not a
reserve currency among the currencies of the world’s five largest economies.
For various reasons, such as incentives for foreign businesses, international legal systems based on the
British legal system, language advantage compared to China and international management styles, foreign
companies across various economic sectors have established themselves in Hong Kong and from there, reach
China and other Asian countries.
While Hong Kong has enjoyed the economic presence of Chinese investors as well as foreign investors in the
past, and served as a gateway for foreign companies to tap into the Chinese market, it is likely that changes
will occur. Many of those investors will direct their investments in major Chinese cities like Guangzhou,
Shanghai, Shenzhen and Guangzhou which are able to entirely accommodate companies with the same
advantages if not more than what Hong Kong is currently offering. Besides, Hong Kong is highly dependent
on Chinese investments in various sectors of its economy: finance, services, real estate and tourism.
China’s, Hong Kong’s and the world’s economic interests are suffering from the current political protests in
Hong Kong. Will Chinese officials opt for a different position to enable Hong Kongese to choose their leaders
in 2017 even though China’s politics and economy are heavily linked?
Indiana Baron Jones
Research Assistant
Centre for Chinese Studies
Stellenbosch University
Dr Daouda Cissé
Research Fellow
Centre for Chinese Studies
Stellenbosch University
“Commentaries are written by Research Analysts at the Centre and focus on current and topical discussions or media events with
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