China’s “one country, two systems” principle that marks its relationship with Hong Kong, recently took a hit and now appears to have merged into “one system”, as China passed the national security law last Tuesday, on the anniversary that marks the British handing over Hong Kong to China. While that principle had allowed the citizens of Hong Kong to exercise more democratic freedoms such as the freedom of speech, of assembly, of openly criticizing government, especially among the youth, this has now reduced to a mere tantalizing dream. Most of mainland China does not grant these rights, and the draconian law only augments China’s power over Hong Kong. Secession, subversion, terrorism and “collusion with foreign or external forces to endanger national security,” have been criminalized under the law, and its vague definition has caused waves of uncertainty, rippling across economies who now watch keenly how the law is being implemented, and are evaluating their stance and relationship with the financial hub that bridges the East and West.
The Chinese government now has power that reduces judicial autonomy of Hong Kong and can crack down on anybody, including non-residents and those who approach international governments or bodies to intervene in Chinese politics. Many firms and investors rely on Hong Kong as a primary source to store data. However, since the Chinese government is expected to secure the noose by implementing its cyber-security laws that can force companies to reveal their data, many firms might have to re-evaluate and seek alternatives to route and store its data. These firms have previously sought Hong Kong as lucrative, precisely because it was secure against the central government’s stringent laws. It became an economic access point for China. Now, however, their stance seems precarious.
Furthermore, Hong Kong’s thriving port anchored many international trade relations, especially with the US. Hong Kong’s special economic status with the United States allows preferential tariff rates for exports from Hong Kong, while the US enjoys a zero tariff rate for its exports. This has resulted in trade of goods and services worth $67 billion annually. However, with the passing of the security law, the US government has perceived low autonomy of Hong Kong, due to which it is reviewing the special status to the economy. Should the US government revoke the special status, firms on both sides will be vulnerable to higher tariffs imposed by both sides of the US-China trade war, which will cost both economies heavily. With the two biggest economies imposing retaliatory economic or other sanctions, will not only disrupt the bilateral US-China relation, but also hamper the economic comeback of other nations.
An alternative that many investors and firms worldwide seem to be considering, especially for the long-term is Singapore. Singapore, while already holding a significant economic stand, has a port that can secure trade relations. A complement to its port, will be law that is more autonomous than Hong Kong’s new security law and grants the privacy and security that attracted data to be stored in Hong Kong in the first place.
With the ongoing COVID-19 pandemic, the global economy is expected to shrink about 5.2% as forecasted by the World Bank. Uncertainty is already an important factor that is ceiling the stabilizing of economies and curbing their growth, which makes it reasonable to conclude that economies worldwide would prevent other potential factors that could intervene in their investments and trade relations and further decrease their growth. Fair enough, the incalculable effects of the security law can be certified as a driving factor that can see the potential shift to Singapore. Perhaps it will reduce the effects that the security law could cost, provided the law turns out as dangerous as anticipated. Singapore, in this fiasco, will readily welcome the opportunity that can rev its economy and it might even reform some laws to make the process adjust further. While this can be debatable, it is a highly possible scenario that could be taken into account.
Alternatively, the uncertainty surrounding the new security law allows the exploration of what China as a modern economy can mean. Modernization theory entails that economic growth facilitates social development, which means that the population, especially the younger generation, that receives higher education and better standards of living are better equipped to criticize, analyze and understand their individual liberties. While as outsiders, the world is inclined to believe that China is strictly authoritarian and therefore, deprived of democratic rights, Li Fan argues that not all hope is lost. The last few decades have seen improvements and great optimism among the Chinese who father democratic feelings and challenge the authorities in ways, idiosyncratic from protests held in otherwise democratic countries. This means that, while Chinese government is more authoritarian and yet highly developed economically, which still remains an integral puzzle to many academics, not all hope is lost yet.
Despite the arrests of 300 people under the law, perhaps the authorities will abide by their promise and only use the law when necessary. This might restore the certainty of relations between the world and Hong Kong, the latter which is considered as a keystone to the ecosystem that is international economics.
Tejaswini Vondivillu is a second year undergraduate student at Ashoka University, pursuing a major in Politics, Philosophy and Economics.