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“Move beyond” the unknown

HK Star Ferry

the iconic skyline of hong kong island. pic/shukor yusof

 

“I am in dread of the judgment of God upon England for our national iniquity towards China” – William Gladstone

 

Modern China is a beast both the US and the UK cannot, however much they try, control and corrugate.

The transformation of China has been long and painful.

Economic and social changes have taken place in a very short space of time, shorter than during its past history, starting from Deng Xiaoping’s “Open Door Policy” in 1978 to the Tiananmen Square protests in 1989 and most recently, President Xi Jinping’s move to turn Hainan into a free trade port.

In just over four decades China has morphed from a backward, under-developed society into the world’s second-largest economy, and the second-biggest holder of US treasury debt (USD1.08 trillion against Japan’s USD1.27 trillion).

It is difficult to fully appreciate and grasp the changes of the past 40 years without studying and understanding China’s political system, social structure and economic institutions in the past, particularly events in the 18th and 19th centuries.

There were several major forces that shaped modern China. After its defeat to Britain in the Opium War, followed by the Anglo-French occupation of Beijing in 1860, China’s elite knew the country had to change if she was to survive.

The Middle Kingdom had much to learn from the barbarians.

The Chinese initiated the Self-strengthening Movement in the 1860s, using the buzzword of the day then, coined by Wei Yuan, a famous scholar, that went thus: “learn the superior barbarian technique with which to repel the barbarians.”

Alas, this movement – focused mostly on military strength of the West – proved insufficient, evident during the defeat to the Japanese in 1895, and the Chinese realized any meaningful attempt at modernization must include political reform.

China, Hong Kong & the West

In recent weeks unrest in Hong Kong over the introduction of a national security law has led observers, particularly those in the West, to question if the “one country, two systems” principle has any relevance.

China’s view though, is this: there is only China – the One China Policy – and that all of it is under one single, indivisible sovereignty, which also includes Taiwan.

But Taiwan is another story, for another day.

And Taipei should heed the warning from China that any attempt to give refuge to Hong Kong “rioters” would only “bring harm to Taiwan’s people”.

Hong Kong’s transformation, from a British colony to a Special Administrative Region of China, had been relatively smooth until mid-2019 when the Hong Kong government introduced an “extradition bill” which, if enacted would have allowed extradition to jurisdictions which Hong Kong currently does not have agreements with, including the mainland and Taiwan.

Following widespread opposition and subsequent rioting, the bill was formally withdrawn on 23 October 2019.

However, confrontation and tension between the territory’s leadership and many Hong Kongers remain on-going and have damaged business confidence as well as the territory’s standing as a financial centre.

Beijing’s recent decision to impose the national security law has further aggravated the situation.

Here’s what we know about this new law so far: read it here.

Any talk of secession from the mainland, undermining the authority of the Hong Kong government, collusion with foreign forces and using violence against people are deemed criminal acts.

Many residents worry, too, over China possibly establishing its own institutions in Hong Kong to handle security affairs.

When Britain handed its colony back to China in 1997 both sides agreed, as part of the Sino-British Joint Declaration, on a mini-constitution known as the Basic Law, along with the “one country, two systems” policy.

However, in 2017 Beijing said the accord with the British was irrelevant.

The proposed new law, according to China, is a critical step in establishing and improving the legal system and enforcement mechanisms in Hong Kong, as well as to safeguard national security.

There are fears, amongst locals and British (and EU) politicians that Hong Kong’s judicial system will be like China’s if the new law is passed.

The British government is so upset that its premier Boris Johnson is offering eligible Hong Kongers almost 3 million British National Overseas passports, a document which allows its holders to live and work in the UK.

But has Britain conveniently forgotten something?

When Hong Kong was under British rule, the Treason Act of 1351, also known as “Statute of Treasons”, applied to the colony. The Act was designed to punish people plotting or “imagining” the death of the monarch, “levying war” or “adhering to the King’s Enemies”.

What does all this mean to Cathay Pacific Airways?

Cathay Pacific Airways is living on borrowed time.

Despite assurances by its chairman that the airline’s long-term future is bright, doubts remain.

For one, Cathay’s destiny is inextricably linked to the fate of Hong Kong.

China has no intention of destroying Hong Kong but many of the territory’s citizens – with their incessant demands for greater freedom (some even clamoring for independence) and willingness to use violence – are jeopardizing their own prospects.

Both Cathay and Hong Kong’s Chek Lap Kok Airport depend much on tourism, as do the hotels, theme parks, restaurants and retailers on Hong Kong Island, Kowloon and The New Territories.

The riots and protests in the second half of 2019 resulted in tourist arrivals falling by almost 40%.

And the jobless rate rose to 4.2% in March 2020 (from 3.7% in the Dec 2019 to Feb 2020 period) – the highest in nine years – partly due to COVID-19 as well as the political impasse.

Hong Kong is experiencing negative economic growth – its first in a decade.

Its position as a financial hub is at risk.

No airline can flourish under such bearish conditions.

There is the HKD39 billion (USD5.03 billion) rescue package crafted by Morgan Stanley allegedly within three months for Cathay, but money burns fast in the airline business and it won’t guarantee the airline’s survival long-term.

Here are more details of the Hong Kong government bailout.

Morgan Stanley is earning nice fees at the expense of struggling carriers. (In July 2019 the Wall Street investment bank was mandated by Malaysia’s Khazanah Nasional to find a fix for Malaysia Airlines. So far, nada.)

As Hong Kong’s economic future hangs in the balance, so does Cathay’s.

Beijing has shifted its focus to Hainan Island, a 50-minute flight from Hong Kong.

And the Chinese are hoping it can lure foreign investors to the balmy island after President Xi announced the creation of Hainan as a free trade zone.

This isn’t just empty talk.

A new airline, Sanya International Airlines, is to be launched soon.

It will be partly owned by China Eastern (51%) and the rest by Juneyao Airlines and Trip.com.

Hainan is nearly 30 times larger than Hong Kong and is popular amongst mainland Chinese as a resort destination. It is the venue for the annual Boao Forum and touted by Beijing as the “Hawaii of Asia”.

Unlike the mainland Chinese carriers, Cathay’s disadvantage (similar to Singapore Airlines) is that it has no domestic destinations. It has high labour and operating costs and according to an ex-executive, a pestilent workers union.

Finally there is the small matter of Cathay largely controlled by the Swire Group (through Swire Pacific), a conglomerate based in both Hong Kong and London, whose top management remains quintessentially upper crust English.

The majority, or 80% of the company’s 130,000 employees (working in diversified sectors such as property, beverages and marine services) are located in China, Hong Kong and Macau.

Unlike its rival Jardine Matheson Holdings (which started life as drug peddlers, long before the cartels of Colombia), Swire has had a better relationship with the mainland.

But the Chinese have long held a grudge against the British (and other Europeans). The sight of tai pans still roaming around in Hong Kong must rankle a bit with the mandarins in the Party.

In the world of realpolitik it would be judicious to note that Anglo-Chinese relations, while currently cordial, are veering towards antagonism following Britain’s (and the US) stance on Hong Kong.

To paraphrase Harvard economist JK Galbraith, the future of Hong Kong isn’t the American or British future. But it is the Chinese future.

 

 

 

 

 


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