Resignation Bordering on Despair

What I found last week in Beijing and Hong Kong

The spark is gone. After having spent the past week in Beijing and Hong Kong, there can be no mistaking a darkening mood in both cities.  Their unbridled enthusiasm and can-do energy have given way to a relatively grim sense of resignation.  For the younger generation, it borders on despair.  But there’s more than just a mood shift.  What was once a vigorous culture of open and honest engagement has regressed into a hyper-defensive posture, laced with ad hominem attacks directed at those who dare to raise tough questions in good faith. 

In China, the main concern today is policy ­— its focus, design, and implementation. Last week, I met with a large group of Chinese entrepreneurs who collectively bemoaned Beijing’s lack of commitment to a once thriving private sector.  Ahead of next month’s long-awaited Third Plenum of the Communist Party of China (CPC), they expect greater emphasis on state-owned enterprises, focused on Xi Jinping’s increased focus on “new productive forces.”  Like me, they remember all too well the disappointment of an earlier Third Plenum — namely, the raft of reforms proposed at the 18^th CPC Central Committee in November 2013.  At that time, there was widespread hope that these measures would fill the void of the unfinished reforms of the Hu Jintao era. Nearly eleven years later, that void remains — raising real questions whether the upcoming plenum will do what the last one didn't. For diehard optimists, such a low bar underscores the potential for an upside surprise.

Try telling that to China’s current generation of students.  Over the past six months, I have had several opportunities to hear from a broad cross-section of Chinese university students — undergraduates and grad students, alike. I did that again last week in Beijing, meeting with a number of students currently enrolled in China’s most prestigious universities.  Their collective outlook is bleak. Several students told me they are going to grad school in large part because there were no meaningful opportunities for them when they finished college.  And, as I found out on my visit to Nankai University in Tianjin late last year,  those in grad school aren’t faring much better in seeking out prospective employment. Conveniently, government statisticians have now removed students from the youth unemployment statistics, masking the full extent of this increasingly serious problem.

In Hong Kong, I have now become part of the problem — or at least that’s the way a politicized blame game prefers to put it. My February 11 opinion piece in the Financial Times, “It pains me to say Hong Kong is over,” has become something of a lightning rod in the debate over the fate of this fabled city. So, I returned last week with some trepidation to stress test my thesis in front of those with the most at stake.  I had a wide range of meetings, including two public events — an Asia Society dialogue with my good friend, Ronnie Chan, and a speech at the historic Foreign Correspondents Club (FCC) — a few media interviews, and several meetings and functions with Hong Kong insiders.   While I did not meet in person with any current government officials, their presence shadowed me everywhere I went.  

The Hong Kong government’s response to my June 5 FCC address was the most glaring example of that. Following my speech, the government was quick to issue a 1,592-word press release taking dead aim on “some individuals” who were accused of making critical remarks “not backed by data or facts.” When pushed by the press, government officials admitted they were referring to me.   Sadly, the facts and data contained in the press release took the form of public relations spin that one might expect from a tourist bureau.  They offered no effective counter to my analytical critique, which focused on Hong Kong’s economic linkages to a growth-challenged Chinese economy, as well as on adverse consequences of crossfire from the Sino-American conflict.

Never mind, argued Regina Ip, so-called convenor of Hong Kong’s Executive Council and member of its legislative council (LEGCO).  In a follow-up op-ed a few days later — her latest in a long string of attacks directed at me — she argued that I was guilty of a “shallowness and short-termism as befit a stockbroker” who is “pretending to be a prophet of Hong Kong.”  Like the government press office, she ignored the analytics and drew on PR spin, especially for the Greater Bay Area, to support her arguments. 

The government’s weak response contrasts with the serious discussions I had last week with Hong Kong’s best and brightest, professionals from all walks of life — from industry to finance, from academia to culture, from property development to lawyers and former senior government officials. These discussions coalesced around the important theme of what it might take for Hong Kong to disentangle itself from the web of an increasingly challenged Chinese economy. Collectively, there was recognition of the need to focus on those factors which had the greatest potential to prevent Hong Kong from succumbing to its greatest fear — being marginalized as just another large Chinese city. History and culture were viewed as necessary but not sufficient.  Several expressed concern over Hong Kong’s narrow economic base — heavily concentrated in financial services while lagging in R& D-led innovation potential (see figure above). 

At the same time, Hongkongers are quick to stress the key foundational advantages that come from its long-standing rule of law — namely, the belief that its legal system, and therefore its governance, is ultimately independent of the CPC. Unfortunately, that view has now been drawn into serious question by the recent resignation of three foreign judges who had served on Hong Kong’s Court of Final Appeal. A scathing FT opinion piece on June 10 by one of the recently departed judges, Lord Jonathan Sumption, warned that “The rule of law in Hong Kong is in grave danger.” In response, the government press office went into overdrive, this time issuing a 2,900-word press release  that was almost double the length of the one they fired off after my FCC speech less than a week earlier.  

Sumption didn’t mince words.  He tackled head on the most contentious aspect of my “Hong Kong is Over” argument — mounting political constraints in the aftermath of March’s hasty enactment of Article 23 of Hong Kong’s Basic Law (its constitution).  The point I made in the FT back in February was that political autonomy is essential if Hong Kong is to take aggressive policy actions that might enable it to outperform the weak Chinese economy to which it is shackled. Sumption threw cold water on this possibility.  He argued that a dangerous tilt in domestic politics has led to an outbreak of “judicial patriotism,” with an increasingly China-centric political tide running against the very grain of Hong Kong’s political autonomy.  Beijing has not taken this criticism lightly.  Global Times has called it a smear while China’s State Council has accused the former judge of being “politically hijacked” by framing his arguments on the basis of “prejudiced political assumptions and malicious political hype.”  Sadly, that’s the post-fact world we all now live in.

Lord Sumption went even further, warning that Hong Kong now risks the dire endgame of  “slowly becoming a totalitarian state.”  To me, that sounds like the proverbial frog in a boiling pot of water.  Little wonder that the mood is so bleak in this once extraordinary city.  Unfortunately, this matches up all too well with the darkening mood up North, as China’s Party leaders gear up for the long-awaited Third Plenum. Like I said at the outset, this grim sense of resignation now risks bordering on despair.