Hong Kong Is the First Casualty of the New Cold War

Two weeks after the passage of the National Security Law – touted by some as the beginning of the ostensible restoration of “normalcy” to Hong Kong’s “law and order” – the United States revoked Hong Kong’s special trading status, originally granted under the U.S.-Hong Kong Policy Act in 1992.

More than a month into the law’s taking effect, both the United States and China have successively outdone each other in bellicose gestures. The U.S. Treasury sanctioned 11 individuals for undermining the city’s autonomy. The Chinese Foreign Ministry reciprocated by sanctioning 11 American politicians on August 10, for their ostensible interference with Hong Kong’s domestic affairs. Coincidentally, on the very same day, the U.S. Customs and Border Protection declared that from September 25 onwards, all imported goods made in Hong Kong would be demarcated as “Made in China.”

Understanding the events befalling Hong Kong requires awareness of the more structural, underlying forces at play between the two most prominent powers in the world today.

The United States views China as an existential enemy to its national security and hegemonic liberal-democratic ideology – a successful China not only poses a threat to U.S. economic competitiveness and political security, but also its ability to maintain a firm grip over its international allies. Similarly, the Chinese Communist Party has adopted a trenchant turn in its foreign policy out of both realpolitik considerations – e.g. the imperative of restoring domestic buy-in and re-establishing internal stability after one of the most devastating economic episodes over the past three decades – and an ideological frenzy intertwined heavily with the country’s jingoistic “anti-foreign subjugation” (抵抗列强) zeitgeist, accompanied by a nascent, Schmittian official worldview that interprets the global order today as a state of exception.

The results have been for all to see, particularly in Hong Kong – the first battleground where East meets West. The Hong Kong of today is no longer as we knew it. The city is the first casualty of the new Cold War.

The Economic Toll

Let’s talk about the economy. Only 13.2 billion Hong Kong dollars was invested in commercial real estate in the first half of the year – 70 percent less than in 2019. An American Chamber of Commerce survey in July revealed that 26 percent of its members were contemplating relocating out of the territory. Investors are increasingly wary of investing in the city for a multiplicity of reasons – while some allege that the pessimism is related the political uncertainty induced by the increasingly tightening grip Beijing holds over the city, others attribute it to the inefficacious government and social-cum-civil unrest that had persisted in the city since the anti-extradition bill protests in June 2019.

While the United States’ revocation of the city’s special status is unlikely to induce direct damages to the mainland or, indeed in the short term, the city itself, many have suggested that the staunch statements from Secretary of State Mike Pompeo and President Donald Trump are harbingers of further decoupling to come. Hong Kong’s regional rivals – Singapore and Shanghai – are likely to benefit from high net-worth individuals and medium-to-large corporations who prefer the two financial hubs over the former colony, for a basket of reasons: greater certainty concerning political trajectory, higher concentration of human capital, and, in Singapore’s case, a robust (albeit comparatively worse) legal infrastructure that supports efficacious capital consolidation.

While some Hong Kongers could take solace in the fact that the vacuum left by the departing companies is likely to be filled by their mainland counterparts, others – whose livelihoods are contingent upon a thriving tourism sector and international firms – may well have reasonable grounds for concern. As a city that has historically thrived on being the confluence of Western capital and business opportunities stemming from China, Hong Kong is likely to be the worst hit as the United States and China seek to decouple partially (at least symbolically) from one another.

Hong Kong’s Political Identity

There’s more to Hong Kong than just finance and real estate, however. For over two decades since the handover, the city plodded along largely on a semi-democratic political arrangement, with reasonably high (though diminishing) levels of press freedom, and significant levels of political dissent. While Beijing loyalists portray recent measures as effectively curtailing only a small minority who partake in insurgency, collusion, sedition, and terrorism, the broad chilling effect is both stark and apparent. Secession is clearly against the law – Beijing has left no room for doubt over that legal commitment. Yet even more moderate criticisms are dwindling in visibility and intensity, as they find themselves in the unchartered territory of a Hong Kong that is increasingly assimilated into the mainland.

Advocates of the tightening view it as a necessary step – allegedly overdue – to “put Hong Kong back on the right tracks of stability.” Those who genuinely think that may find themselves surprised as they gradually come to realize that a core part of what makes Hong Kong special is its value pluralism and ideological diversity. One could hope that with the red lines established, the opposition would adapt to the new rules in the city, but with the increasingly hawkish international alliance pitting Hong Kong activists against Beijing, and an increasingly reactionary central administration, such hopes seem to be in vain.

Above all, the new Cold War has dissipated the prospects for any and all forms of governance normalcy in the city. While historically the city had been sustained by a broadly competent bureaucratic workforce, managed by an unelected but generally qualified technocratic governing class, the continual escalation in China-U.S. tensions has left little to no room for genuine policy discussions. Moderates – including pro-establishment lawmakers who were amenable to cross-bench collaboration on “livelihood issues” (issues that are, at least superficially, apolitical), and milder democrats, who view with suspicion and resistance the ascendant cries for radical, extra-institutional action – face the prospects of a near-decimated electorate and attacks from both ends of the spectrum. Disputes over any and all issues – ranging from the government’s controversial (and subsequently dropped) ban on indoor dining to its decision to work with mainland biotech firms in implementing universal testing for COVID-19 – are automatically sublimated into an existential tussle between “authoritarianism” and “democracy”; “law and order” and “hooligans and vandals.” The room for compromise has been all but obliterated, by politicians across both aisles who prioritize raucous rhetoric and prolific pandering over substantive engagement. And it’s only understandable. As some radicals may say, what is the point of engaging within the system, if the system seems to be so clearly delineated along partisan lines?

Hong Kong: A Cold War Pawn?

How have we made it here?

Liberal progressives’ diagnosis of Beijing’s calculus rests upon a critical mistake. They place an unduly high premium on Beijing’s economic dependence upon Hong Kong, and fundamentally disregard the complex political undertones in the Communist Party’s calculus. I have previously noted that when the anti-extradition bill movement transformed itself into an ostensible war against the rest of China, there would be little to no room for concessions – for any concession to a ceasefire, political liberalization, or, indeed, any of the movement’s demands would be anathema to Beijing’s incentives to appear defiant and resolute in face of “foreign imperialism.” Chinese bureaucrats often analogize Hong Kong as a critical pass, where any perceived sign of weakness would enable the entry of foreign enemies (e.g. the United States), much as the Manchurians entered China in 1644.

Some radicals in the city believe that the new Cold War would “emancipate” the city from Beijing’s grip. Yet this is more quixotic than pragmatic – fundamentally, Hong Kong’s economy is dwarfed in size by the rest of the Chinese economy; Beijing has also braced itself for the worst consequences of decoupling from parts of the West, with an increasing emphasis by senior officials on fostering an “internal circulation.” Additionally, on the subject of finance and economics, Beijing could always turn to Shenzhen, Shanghai, and Guangzhou as suitable quasi-substitutes for Hong Kong’s functions. The importance of not being seen as kowtowing to foreign powers – particularly ones that had historically subjugated China’s people during the Century of Humiliation  – far supersedes any marginal economic considerations. Just as Trump is bent on waging a trade war for the discursive and symbolic flamboyance it inspires, there exists very little reason for Beijing to open the floodgates to potential foreign insubordination and interference with its national affairs, which would undermine the intactness and stability of the 1.4 billion-strong country.

It takes two to tango. To Trump, the Hong Kong issue remains his best shot yet at regaining the confidence of an embittered, disillusioned, and vastly resentful electorate. With most of the economic gains since his inauguration wiped out by the COVID-19 pandemic, which the White House has clearly struggled to contain, Trump is very much in need of a ruse that would enable him to signal both strength in leadership and a comparative advantage over rival candidate Joe Biden, i.e. his hawkish stance toward China. Yet Trump must also do so without jeopardizing his trade agreement and various other forms of economic dependence upon China – for that would only further undermine his already flailing chances. As such, the most cost-effective strategy would be to continually dial up his rhetorical “support” for Hong Kong citizens, while carrying out little to no substantive engagement in genuinely resetting U.S.-China relations. Sanctioning Hong Kong officials enables Trump to proclaim that he is indeed “tough on China” without sabotaging the fundamentals of the bilateral economic relationship. Fundamentally, Hong Kong acts as a distraction – one that allows the White House to stall a thorough reassessment of its China strategy.

Less cynically, Hong Kong has always operated as the entry point for Sinophiles – including American corporations and businesses that recognize the vast economic potential embedded in the city, because of its unique connection with its sovereign state. With the COVID-19 pandemic wreaking extensive havoc across the world and a global recession, American corporations are confronted with a difficult dilemma. For some, expanding into China would be the saving grace preventing them from proceeding down a downward spiral. For others, entering China now could well incur the wrath of the Trump administration, as well as substantial discursive backlash.

Hong Kong’s comparative advantage has historically been its openness – its openness to economic entrepreneurship, to financial capital, to cultural diversity, and, above all, to political and governance efficiency. Hawks on both sides may view the gorgeous city of 7.4 million as a mere pawn – one to score ideological victories and political distractions with. Such an approach would have devastating effects on not just the city, but also the relations between the two powers that have historically enabled the city to thrive.

Biden – the current front-runner in the U.S. presidential election – has a proven track record of engaging in calculated, moderated diplomacy. One would hope that should he clinch the victory in November, we would enter into a phase of more normalized, more prudent re-evaluation of relations between the West and China – a point articulated, albeit in a different context, by Rana Mitter and Sophia Gaston’s recent “After the Golden Age: Resetting UK-China Engagement” report.

The United States and China have vastly different political values, systems, and leadership structures. Both the COVID-19 pandemic and the wider economic tensions between the two countries suggest that it is high time for policy wonks and politicians across both sides of the Pacific to engage in a productive reassessment of their relationships. Yet genuine dialogue – with mutually advantageous reforms in line with universalist values and principles – could only take place when both parties have the political will and integrity to listen; not when cities and peoples are transformed into battered pieces in a Machiavellian chess game.