Hong Kong, a city whose main business is, well, doing business, is facing an existential problem.
After two months of protests, violence and shutdowns for business and civil society alike, investors are expressing "growing discontent with the heavy-handed police response, public backlashes and the government's seeming inability to address the public's concerns [which] could cause long-lasting damage to business confidence," say analysts at Fitch Ratings.
Nor are the messages from Chinese officials comforting. China's Hong Kong liaison Zhang Xiaoming has said the only way the city can avoid "sinking into an abyss" is for protesters to stand down --- or risk military action. Zhang compared the demonstrations to the "color revolutions" which swept Eastern Europe and the Middle East, offering a hint of the magnitude of the threat Beijing senses.
If neither the protesters nor the Chinese government, through the Hong Kong administration, give ground soon, the city may find its business reputation permanently damaged.
There are already economic effects from the protest, which could push the city into recession, according to Finance Secretary Paul Chan. It can be seen in the fallout from hundreds of canceled flights, subway disruptions, empty shopping malls and scrapped holidays to "Asia's World City."
Red digits, meantime, dominate Hong Kong's stock exchange. The Hang Seng has fallen more than 9% since early July.
But rather than winding down, Hong Kong's uprising shows every sign of intensifying. Beginning on the evening of August 2, thousands of civil servants took to the streets for the first time in these protests.
On August 5, they defied government orders to remain politically neutral, joining everyone from lawyers to student activists to residents working in aviation, construction, education, finance, health care, retail and even Hong Kong's Disney theme park in a general strike.
We are talking about the human machinery that powers Hong Kong literally grinding to a halt. When the MTR subway system is paralyzed, that is a challenge to Chief Executive Carrie Lam. But Hong Kong society seizing up is a truly foundational problem.
This broadening show of resolve brings a new dimension to the enterprise, one 2014's Umbrella Revolution did not achieve. It challenges not just the Hong Kong government's ability to respond, but Beijing's too.
President Xi Jinping's options on Hong Kong are not great. Taking a soft approach toward activists clogging the streets might inspire pro-democracy agitators on the mainland to test the Communist Party's resolve.
Yet a clampdown involving Chinese troops and armored vehicles, carried live on BBC and NHK, would provoke an international backlash and ruin Hong Kong's financial-center status.
A show of force would almost surely enliven the pro-independence movement in Taiwan. It also might hand Donald Trump some of the geopolitical high ground Xi's government has wrested away from the U.S. leader's chaotic White House.
Xi would be wiser to stop the "China-ization" efforts that have been a hallmark of his seven-year reign. Since July 2017, Lam's government has consistently done Xi's bidding to keep the pro-suffrage movement under wraps.
Lam blundered spectacularly in April by pushing ahead with amendments to Hong Kong's extradition laws. They would allow anyone in Hong Kong who was merely suspected of a crime to be spirited away to the mainland.
Lam's overreach, on Beijing's behalf, fused with rising economic discontent in a city teeming with mega-millionaires. Hong Kong's Gini coefficient, a measure of inequality, ended 2018 at its highest level in 45 years. And China's economic boom is a key factor behind Hong Kong's 0.539 reading far exceeding Singapore's 0.458 and America's 0.411.
The first stop for most uber-rich mainlanders looking to deploy their millions -- or billions -- is Hong Kong property. Housing costs are now well out of the range of middle-class Hong Kongers, particularly millennials. That was the fuel driving tens of thousands of students into the streets in 2014, and it is a contributing factor today, says Fitch Ratings analyst Andrew Fennell.
The same goes for investors. Those following companies related to residential and office property and shopping malls are seeing their fair share of red on brokers' screens. Shares in Swire Properties, which owns stakes in office spaces, hotels and luxury malls, are down nearly 18% since mid-June. Wharf Real Estate Investment Company, which owns the huge Harbour City shopping complex, is down a fifth since its June peak.
One way out for Xi might be dispensing with Lam. Since she shelved the extradition bill in June, calls for her resignation have only grown. The bigger issue, though, is the need for Xi to change tack on Hong Kong.
In 1997, when the city returned to Beijing's rule, the question was whether China would emulate Hong Kong's free-market success or smother its animal spirits. Since taking power in 2012, Xi has attempted the latter -- and with little to show for it.
The best-case scenario is for Xi to find a face-saving middle ground where Hong Kong maintains some "one country, two systems" autonomy. That would allow Xi to tend to much-needed reforms on the mainland. Given the ways in which Trump's trade war is imperiling China's manufacturing industry, a dose or two of Hong Kong's laissez-faire magic could be just the thing.
The Trump effect could have Xi going the opposite way. As Trump's tariffs challenge Xi's resolve, the Chinese leader may be less inclined to take a soft approach toward Hong Kongers who are not about to give up the fight -- or toward civil servants, lawyers and other professionals risking it all to join it.
Odds are, this standoff will further dent Hong Kong's reputation for stability and ease-of-doing business efficiency. The costs are rising for an economy that grew just 0.6% year on year in the second quarter. They include a potential exodus of businesses, says political risk consultant Steve Vickers. Some investors, he warns, "may, in time, eschew Hong Kong, perhaps preferring Singapore." Or might Tokyo win some of that business?
It is hard to see how smothering Hong Kong's free-spirit economy is in China's interest in the long run. For now, though, a city already flashing red is destined for even bigger troubles in the months ahead.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."