How concerned should investors be about the current demonstrations in Hong Kong? After significant demonstrations on Sunday, it appears that demonstrators are dispersing this morning. Hong Kong could face another challenge on Wednesday, 1 October – public holiday in Hong Kong and National Day in Mainland China.
The main political issue: In connection with the agreement between the UK and China on handing over sovereignty of Hong Kong to China in 1997, it was agreed that, with the exception of defence and security, Hong Kong should be able to maintain its existing political system for at least 50 years. In addition, it was decided that at some stage the chief executive position should be decided either by election or consultation and that the legislature should also at some stage be decided upon in an election. As a follow-up to this agreement, China’s Standing Committee of National People’s Congress (China’s parliament) in 2008 issued a declaration that the election of the chief executive in Hong Kong may be implemented by universal suffrage in 2017 and that the election for the legislature in 2020 might also be decided by universal suffrage. Hence, Hong Kong is currently in a heated discussion about the election laws for the 2017 chief executive election. The current turmoil has to a large degree been prompted by another statement from the Standing Committee of China’s National People’s Congress in late August in which it demands that all candidates for the chief executive position are approved by a nomination committee where Beijing is expected to have considerable influence. Effectively this means that Beijing will be able to block unwelcome candidates. The current protest movement in Hong Kong including the Occupy Central movement believes that the public should be able to nominate candidates for the chief executive position or at least the bar for standing in the chief executive election should be lower.
While the new Chinese leadership under Xi Jinping has signalled accelerated economic reforms, it has also suggested unwillingness to accelerate political reforms. While there will without doubt be considerable nervousness within the Chinese Communist Party (CCP) about possible spill-over to Mainland China, the likelihood that this will actually happen is, in our view, quite low. While it is admittedly difficult to judge, the current CCP leadership – not least CCP leader XI Jinping personally – appears to be relatively popular in the broad population in the wake of its frugality and anti-corruption campaign. In addition, today’s youth in Mainland China appear to be more characterised by being nationalistic than having an imminent urge for democracy. The broad public in China will probably tend to see the current demonstrations in Hong Kong as resistance to unification of China after ‘100 years of humiliation’ by the colonial powers.
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