“Laam chau” (攬炒), a form of mutually assured destruction, has been a subtext in the battle between pro-democracy demonstrators and their Beijing-backed rulers in Hong Kong for years. In the mouths of protesters, the message to Beijing does not need much elaboration: “We know we might be destroyed, but don’t think you’re not coming, too,” it said.
The concept has effectively been criminalized, as seen in the trial of media magnate Jimmy Lai (黎智英), but the notion still terrorizes the Chinese Communist Party. It knows, after all, how its story is one day most likely to end.
Where it sees laam chau as a threat, however, others may observe a statement of fact. The more Beijing, via its local underlings, cracks down on fundamental rights in Hong Kong, the more it destroys the essence of the city that makes it rich. And riches are its only legitimacy.
Because pre-2020 Hong Kong had a unique business and economic function that wasn’t just about the wealth or the port or the proximity to the production powerhouse of Guangdong. Sure, that all helped, but there are plenty of cities in China that can tick similar boxes.
No, what made Hong Kong irreplaceable was its rule of law in a Chinese context and its ability to serve as an information interface between East and West. Things that could not be printed across the border in Shenzhen could become common knowledge in Hong Kong. As a result, informed business decisions could be taken, which drove efficient and reliable investment. The courts could be trusted.
The Hong Kong government has been chipping away at this for a while: The National Security Law, passed in 2020, effectively shuttered most local media that was not pro-Beijing and eliminated judicial independence, while requirements for Hang Seng listings to disclose risks due to China’s policy, business and legal environments were quietly retired. Now, since Saturday, as part of a Beijing-laid plan going back 40 years, Hong Kong’s Legislative Council has brought in yet more oppressive legislation, known as Article 23, that will, in the typically insidious words of its Chief Executive John Lee Ka-chiu (李家超), prevent “potential sabotage and undercurrents that try to create troubles.”
Combined with its doomed response to COVID-19, China’s economic travails and violent attacks on citizenry, the effects of Hong Kong’s slide into total autocracy had already reverberated through the economy before Article 23: GDP shrank in three out of four years from 2019 to 2022. The Hang Seng Index has endured the longest losing streak in its entire history and underperformed Taiwan’s TAIEX for the first time in three decades during November 2023. Since 2018, the tourism industry has almost halved when measured by the annual number of visitors, and retail sales are down between a tenth and a fifth. International firms with regional headquarters in the city have reduced their workforces by a third in the same period, little by little inching out the door in the hope that China will not retributively notice.
But the situation might well nosedive from this point forward. For Article 23 does not just affect dissidents, media and critics of China. It mimics state secrets and espionage laws from the mainland in such a way that economic, social and technological information, which is to say the bread and butter of many multinational firms, can be considered criminally sensitive. It also makes certain forms of communication with “foreign organizations pursuing political ends” jail-worthy if conducted with “unlawful intent.” And that does not mean a short stay behind bars, either.
Given China’s recent prickliness about the state of its economy, supply chain auditing and decoupling, it would come as no surprise if communication to headquarters from staff in Hong Kong was interpreted as collaborating with “external forces” — now punishable by 14 years in prison — in situations where authorities do not like the decisions made on the basis of the information exchange. Authorities have, after all, considered songs played at weightlifting contests 3,700 miles from Hong Kong as threats to Chinese Communist Party rule and routinely expect businesses to conform to the image they are seeking to project.
To understand what happens next, one only has to look at China proper, where new counter-espionage and other laws have been linked to a surge in enforced disappearances, a nearly 50% rise in the number of arrests, staff at U.S. diligence firms being held incommunicado after raids on their offices, and people who reveal forced labor in factories being threatened with prosecution.
Underpinned by exit bans, a legal device that Hong Kong has also inserted into law, this has not just affected Chinese nationals, but also foreign employees of overseas firms, and led to a generation of executives who are so frightened of visiting their own operations in China that they simply put off going. Economists are working in a climate of fear.
Meanwhile, even as rules tighten in the U.S. concerning both human rights abuses in supply chains and where military-civilian dual-use products can be sold, companies partially located in China do not have full control over where their materials and components are sourced or even who subsequently purchases them, a trend that may worsen as they are forced to ringfence their enterprises under Beijing-rule from their main businesses out of fear for the consequences of data transfer or geopolitical fall-out if they do not.
Unremarkably, this new age of authoritarianism has coincided with one of the worst economic slumps in China’s post-Mao period, precisely when its figures should be flattered by a rebound after the COVID years. Foreign-direct investment plummeted 80% between 2022 and 2023; capital flew. Beijing has been overtaken as Asia’s billionaire capital by Mumbai, and the wealth in the hands of its superrich has recently shrunk by 15%. Official statistics are almost certainly masking wage declines for large sections of the population, and a steady stream of international companies and investors are looking for alternative locations in countries like Vietnam, Malaysia and India.
This is the kind of grim future that presently awaits Hong Kong, and, while national security has been just one factor among many in China’s malaise, such as the collapse of its property market and accumulating provincial debt to drive sometimes superficial growth through construction projects, the Hong Kong leadership is taking off down these other rabbit-holes, too.
In part to alleviate genuine housing concerns, but also to serve political aims by amalgamating the city with the Chinese Communist Party-dominated hinterland, Hong Kong is embarking on highly ostentatious, costly and environmentally damaging mega-developments amid a demographic collapse. At the same time, its public deficit is ballooning into the eleven-digit realm, even as it spends millions of dollars in failed attempts to prop up its ruined global image and billions on the architecture of its police state, all of which is necessitated by its overzealous law and desperation to consolidate single-party rule. Security costs are even set to grow with the extra workload from Article 23 as well.
All of this has laid wood upon the kindling for an economic fire that has long been lit by Beijing through its local proxies. Hong Kong is certainly burning. The only question now is who will burn with it.
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