A new report details the years-long flood of ‘red capital’ that paved the way for Beijing’s crackdown.
A new report details the years-long flood of ‘red capital’ that paved the way for Beijing’s crackdown.
W hen we think of Beijing’s drive to crush Hong Kong’s nascent democracy, what comes to mind are images of mass demonstrations and of pro-democracy icons rounded up, imprisoned, and brought before judges to face sham trials under the National Security Law (NSL) forced upon the city by the Chinese Communist Party last May.
It is natural for China’s crackdown on Hong Kong to get most of the ink, especially given that it continues apace even today: In addition to a recent move to charge 47 pro-democracy figures under the law, the National People’s Congress last week restricted candidacy for the city’s Legislative Council elections to “Patriots Only,” the final nail in the coffin of Hong Kong’s hopes for democratic government.
But earlier this month, the nonprofit Hong Kong Watch released an extensive report on another, less-noticed aspect of Beijing’s repression: the ways in which a gradual influx of “red capital” helped to bring the city’s democrats to their knees.
After the NSL’s implementation, Hong Kong could no longer maintain its reputation as an oasis of free markets and relative political freedom. And indeed, the Heritage Foundation recently announced that the city would be treated as part of China for purposes of its Index of Economic freedom, since it has been rendered, as the group’s former president Ed Feulner put it in the Wall Street Journal, “almost indistinguishable in many respects from other major Chinese commercial centers like Shanghai and Beijing.” But Sam Goodman and Johnny Patterson, the Hong Kong Watch report’s authors, argue that the city’s dominant financial powers were gradually brought to heel by years of Chinese political pressure and cash before Beijing finally moved to snuff out the last vestiges of its independence.
Even in the earliest years of the period following the city’s 1997 handover from the U.K. to China, the Chinese regime’s willingness to use flex its financial muscle as a way of asserting control over the life of the city was already apparent. As a result of the 2003 Closer Economic Partnership Agreement, trade between Hong Kong and the mainland tripled over the ensuing decade. The growing influx of mainland cash degraded Hong Kong’s financial regulations, allowing Chinese firms to take charge of its capital markets. In 2004, mainland corporations accounted for 31 percent of Hong Kong’s stock market by market capitalization; by 2019, that figure had risen to about 71 percent.
Naturally, Beijing turned its increasing control of Hong Kong capital flows into a political weapon with which it would eventually beat down the city’s pro-democracy opposition. The report notes that as the regime gained greater clout within Hong Kong-based multinational corporations, it installed party loyalists in key positions within them. And not coincidentally, during the protests against an extradition law proposed by the city’s chief executive in 2019, a number of businesses restricted the political speech of, and in some cases fired, employees for supporting the democracy movement, while banks, such as HSBC, closed accounts used to support the protesters.
Many of these cases received extensive coverage. After the Global Times, a Chinese Communist Party tabloid, called on Hong Kong companies to fire employees with “the wrong stance” on the protest movement, PwC, Deloitte, KPMG, and Ernst & Young disavowed a front-page ad taken out in the pro-democracy Apple Daily newspaper by an anonymous group of their employees. “We stand with all fellow Hongkongers,” the ad read.
Today, the Apple Daily still resists the Communist takeover, though publisher and pro-democracy stalwart Jimmy Lai is in jail awaiting trial on charges of having violated the NSL, and the paper has faced advertising boycotts since 2003. Other previously independent news outlets have either been co-opted by Beijing’s loyalists (e.g. the South China Morning Post, which still produces journalism of varying degrees of deviation from the Communist Party line) or “suffocated” and driven into self-censorship.
Hong Kong may maintain some vestiges of its previous economic dynamism, but China has ended the free flow of information that made the city such a powerhouse, leaving behind a “compromised corporate rule of law” and “an economy which is rigged in factor of mainland firms and those with CCP connections,” as Goodman and Patterson put it.
Perhaps even more worrying is that the Western world’s financial centers are an enticing entry point for red capital and the CCP political control that sooner or later comes with it. Already, prominent Hong Kongers are warning of the possibility that the repression of democracy in their city is intrinsically linked with the health of democracy worldwide.
The assumption that China has a “very inward diplomatic approach — that assumption has been completely wrong. China has been planning to expand, trying to promote their authoritarianism by different cross-continent initiatives and the realization [of] that threat comes quite late in recent years,” the activist Nathan Law said during a McCain Institute webinar in February. Hong Kong Watch similarly calls the city a canary in the coal mine.
Which means that unless democracies confront the threat of Communist Chinese cash, what looks like Hone Kong’s tragedy today might come to be seen as the harbinger of a metastasizing global trend tomorrow.
Editor’s Note: A previous version of this article misstated one of the authors of the Hong Kong Watch report as the organization’s CEO Benedict Rogers. Although Rogers was involved in reviewing it, Sam Goodman is co-author of the report.