This week the shadow boxing over Hong Kong’s political future ended. The gloves are now off, and civil disobedience protests will start for real after Beijing yesterday ruled out open elections.
So far financial markets have largely ignored potential “Occupy Central” disturbances as stock prices have moved higher over the summer. For now, investors appear to be betting on Beijing prevailing as it endorses the business-friendly status quo in Hong Kong politics.
But this hardline stance on political reform with no obvious path to resolving conflict could be dangerous. Investors should be wary of a potential escalation of disturbances or reaction from authorities, which could trigger capital flight and a liquidity shock.
Any hope of a compromise solution to offer Hong Kong representative democracy was dashed on Sunday, when Beijing’s Standing Committee officially adopted a tightly controlled framework for the first popular election for chief executive in 2017. Candidates must have 50% backing of the 1,200-strong selection committee — up from the 12.5% required in the last nomination. The number of candidates will also be limited to two or three.
By placing such a high threshold for leadership candidates on the small-circle committee made up of city elites and Beijing loyalists, the elections risk offering no real choice. Hong Kong residents will get a vote, but most likely a meaningless one for a stooge candidate from the existing government-tycoon nexus.
Not surprisingly, this proposal has met with a promise of a “long fight” by the Occupy Central movement, including plans to blockade the Central Business District.
Markets generally dislike uncertainty, even though few might bet against Beijing getting its way.
Of course, China’s Communist Party has plenty experience of suppressing dissent at home. Evidence so far suggests the government is ready to fall back on crude tactics to ratchet up intimidation and scare protestors and the Hong Kong people in general.