Why Hong Kong’s economy can take on protesters by Elizabeth Economy @FortuneMagazine October 2, 2014, 3:06 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Hong Kong has many claims to fame. It is a center of global capitalism, a model of clean government, an easy place for expats to call home, and a good place for bargain shopping. As such, it remains a jewel in China’s economic crown. It is unsurprising, therefore, that as the protests in Hong Kong continue into their second week, the business community is growing increasingly concerned. Mainland tourists are canceling their trips to Hong Kong, the island’s retail sector is suffering, and the Hong Kong stock market is down. Neither Beijing nor Hong Kong will benefit from a prolonged standoff. As The Economist has reported, two-thirds of foreign direct investments into China in 2013 flowed through Hong Kong (up from less than one-third in 2005); its stock exchange continues to outperform that of Shanghai—since 2012, it has raised $43 billion in initial public offerings as opposed to $25 billion on the mainland exchanges; and “more than anywhere else in the world, Hong Kong has provided Chinese companies with access to global capital markets for bond and loan financing.” The stakes are high for Hong Kong as well. Its exports, bank lending, and tourism industry are all heavily reliant on mainland Chinese consumers. Moreover, according to some analysts, the protests themselves are rooted in economic disparities and resentment. Hong Kong Chinese resent the increasing number of wealthy mainland Chinese moving to the territory, have a sense of declining economic opportunity, and have lost their identity. Yet history suggests that such a focus on economic explanations and ramifications is misplaced. As much as Hong Kong’s reputation derives from its economic strengths, it is also a vibrant center for political debate and civic participation. While this most recent round of demonstrations has captured the world’s attention, this tiny island of 7 million people takes to the streets every year in support of political issues. Protests run the gamut from opposition to Japan’s behavior in World War II to concern over the impacts of the WTO and globalization. Every year, there is a march to commemorate the 1989 Tiananmen Square demonstrations. Nothing, however, galvanizes the Hong Kong people more than the specter of Beijing infringing on or negating their political rights. Only 30 minutes after Hong Kong’s handover to China on on July 1, 1997, thousands of people gathered to light flames of democracy and protest Beijing disbanding the democratically elected legislative council in favor of a new provisional legislature. In 2003, a half million Hong Kong citizens demonstrated against proposed new security laws; and the following year, 200,000 people marched when Beijing announced that Hong Kong would not have universal suffrage for the 2007 elections. In 2012, hundreds of thousands again turned out to protest Beijing’s efforts to enforce a national patriotic education curriculum in the Hong Kong Schools. And today Hong Kong is the site of a massive protest of over 500,000 people demonstrating against Beijing’s decision to limit the slate of candidates for chief executive in 2017 to one selected by a Beijing-dominated committee. What are the implications of this culture of protest for Beijing? First, Beijing should not mistake this protest as primarily driven by economics. While there is economic discontent in Hong Kong, its citizens protest when the economy is strong and when the economy is weak. There is no reason to believe that these protests are not overwhelmingly about just what the demonstrators say they are—less control by Beijing and greater freedom for the Hong Kong people in determining the candidates for the 2017 chief executive elections. In addition, the political roots of the protest mean that Beijing’s ‘one-country two systems’ principle is not yet ready for mass adoption. The protests send a clear signal to Taiwan that reunification plans should remain on the back burner—if in fact they are on Taiwan’s burner at all. Above all, the protests in Hong Kong may well signal that there is a broader desire for greater political participation in mainland China than Beijing is willing to acknowledge. Demands for a meaningful political voice do not only emanate from political dissidents or misguided scholars in the Chinese Academy of Social Sciences. Instead, as in Hong Kong, they likely also reside in the form of 80-year old grandmothers, 50-year-old old truck drivers, and 15-year old students. The good news for Beijing—and Hong Kong—is that, as we have seen in Beijing, New York, and most recently in Vietnam—the impact of such wide-scale protests on local economies is short-term and ultimately negligible. What really matters is the long-term political stability of Hong Kong—and that depends on understanding the root causes of the protest, their implications, and, of course, the ultimate outcome. Compromise is possible and in the interest of all sides. For that to happen, however, Beijing needs to begin by understanding the fundamental difference between Occupy Central and Occupy Central with Love and Peace. Elizabeth Economy is the C.V. Starr Senior Fellow and Director in Asia Studies at Council on Foreign Relations. She is also the co-author of By All Means Necessary: How China’s Resource Quest is Changing the World?