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To whom does Hong Kong belong?

Endless standoff brings its citizens into spotlight

Hong Kong Chief Executive Carrie Lam addresses a news conference in Hong Kong on Sept. 5.   © Reuters

TOKYO -- Tens of thousands of demonstrators took to the streets in Hong Kong on Sept. 8 calling for the passage of the Hong Kong Human Rights and Democracy Act through the U.S. Congress.

Hong Kong's Chief Executive Carrie Lam, the territory's top leader, finally declared the complete withdrawal of a highly controversial extradition bill on Sept. 4. But months of anti-government protests sparked by the bill show no sign of abating.

The Chinese government, which backs the Hong Kong government, finds it difficult to play hardball. Anti-government protests in Hong Kong are likely to drag on further amid the continued standoff between demonstrators, the Hong Kong government and the Chinese government.

Behind the three-way confrontation is the fundamental question: To whom does Hong Kong belong?

There were fears that the local government's proposed amendments to the Fugitive Offenders Ordinance would allow political offenders in Hong Kong to be handed over to Chinese authorities.

But the long-awaited withdrawal of the extradition bill was not enough to satisfy Hong Kong residents. They took to the streets again, calling for an inquiry into the violent suppression of demonstrations by Hong Kong police and democratic elections in the territory.

At the Sept. 8 demonstration, participants pleaded with the U.S. Congress to pass the human rights and democracy law. This move was apparently aimed at protecting the safety of demonstrators by involving the U.S. while piling pressure on China.

It also seems to be a dangerous game that could give the Chinese government, which hates any interference by foreign forces, an excuse to take tough measures in Hong Kong. But the Chinese government also really wants to avoid a military intervention there.

China's economy is sputtering conspicuously, largely due to its trade frictions with the U.S. The truth is that the world's second-largest economy relies heavily on Hong Kong for growth.

First of all, China enjoys the benefits of trade through Hong Kong.

When Chinese companies import goods via Hong Kong, they pay reduced tariffs. Even when Chinese companies export goods to the U.S., they can use the First Sale rule if they make such exports via Hong Kong.

Under the customs rule, when Chinese companies export goods to the U.S. through trading firms in Hong Kong, the amounts of U.S. tariffs are determined based on transaction prices between the Chinese companies and Hong Kong trading firms, not on final import prices in the U.S.

Chinese companies can double the benefits of low tariffs if they procure parts and raw materials from abroad via Hong Kong, assemble them into finished products within China and then export the goods, again via Hong Kong.

China has trade frictions with various countries and regions. It can also be said that Hong Kong is effectively serving as a buffer zone easing the confrontation between them.

Hong Kong can serve as a hub for "detour" trade, or trade through third countries or regions, exactly because of the "one country, two systems" formula that allows it to have a different customs system from China.

That's one of the reasons Beijing does not want to crush Hong Kong's current systems.

Chinese companies related to information technology have grown into giants as they have procured funds for growth from Hong Kong’s capital market.   © Reuters

Secondly, China receives financial benefits from Hong Kong.

China has aimed for the internationalization of the yuan and the liberalization of yuan transactions for many years. But the realization of such goals is still a long way off due to the country's vulnerable financial system.

There are various restrictions on yuan transactions, making the currency hard to use for both Chinese and foreign companies. However, the Hong Kong dollar can be exchanged for other currencies easily and is convenient as a currency for investment and trade settlements.

In Hong Kong, the U.S. dollar is also handled freely. Foreign direct investment in China totaled about $70 billion in the first half of this year. Of that amount, $50 billion, or over 70%, was made via Hong Kong.

Chinese companies related to information technology have become giants as they have procured funds for growth from Hong Kong's capital markets.

IT services behemoth Tencent is listed on the Hong Kong stock exchange and is competing with compatriot rival Alibaba Group for the top slot in China in terms of market capitalization. There is also a plan about New York-listed Alibaba's listing on the Hong Kong bourse.

If China crushes Hong Kong's money-collecting function, its own economy will suffer a serious blow and this could destabilize the communist regime in Beijing.

While making itself look formidable, the Chinese government probably wants to wait for Hong Kong residents to cool down after making small concessions to them. But the anger of Hong Kong residents, especially young people, will not subside.

That's because a convenient Hong Kong for mainland China does not necessarily equal a convenient Hong Kong for Hong Kongers.

After Hong Kong's return to Chinese rule in 1997, Chinese companies and people born in mainland China flocked to the former British colony at a furious pace. Large amounts of Chinese money also flowed into Hong Kong in pursuit of local assets.

The influx of Chinese companies, people and capital was initially welcomed in Hong Kong as contributing to growth in the local economy. But its negative aspects soon became clear.

The abrupt proposal of the extradition bill gave young people a golden opportunity to lodge a protest with the Chinese and Hong Kong governments.   © Reuters

Chinese money pushed up housing prices in Hong Kong.

According to estimates by U.S. property firm CBRE, the average price for a 54.9-sq.-meter home stood at 9.63 million Hong Kong dollars ($1.23 million), making it the highest in the world.

A survey by Japan Real Estate Institute showed that luxury housing price levels in Hong Kong stood at 212.8 against 100 for the base luxury housing price levels in Tokyo's Moto-Azabu district.

Unless one is very rich in Hong Kong, or a Chinese investor or businessperson, it is difficult to acquire housing in the city. Many young people in Hong Kong live in cramped rooms and have little hope of owning their own home.

Perhaps the Hong Kong government should do something to ease the situation. But no effective measures have been taken.

Under Hong Kong's political system, the chief executive, the city's top leader, is elected in an undemocratic indirect election, making it difficult for the opinion of the public to be reflected in the outcome.

Instead, only officials favorable to the Chinese government have been elected to the top Hong Kong government post.

Under these circumstances, the abrupt proposal of the extradition bill offered Hong Kongers a golden opportunity to protest before the Chinese and Hong Kong governments.

Despite the withdrawal of the controversial bill, pent-up discontent among Hong Kong residents will not be resolved unless housing and other policies that fully take into account their woes are adopted. Demonstrations by young people will be repeated at every opportunity.

Elites from mainland China are exploiting post-handover Hong Kong as if they own the place. Hong Kong residents are calling for Hong Kong-first policies.

"One country, two systems" was supposed to be a formula designed to serve as an intermediary between the two sides in the first place.

It appears that people will have to think about a way to explore the coexistence of mainland China and Hong Kong while going back to the starting line.

And ask themselves: To whom does Hong Kong belong?

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