Andrew Sheng, Distinguished Fellow of Asia Global Institute, delves into the problems seen plaguing Hong Kong.
Was it only 20 years ago that we were at the Convention Centre celebrating the return of Hong Kong to China? As a white-gloved PLA soldier unfurled the flag to signal the creation of the Hong Kong Special Administrative Region on July 1, 1997, I recall wondering what Deng Xiaoping (鄧小平) would have thought had he been alive to witness it. What did it mean to have "one country, two systems" where Hong Kong residents could still "dance and race as before", at least for 50 years?
Fast forward 20 years and, after two financial crises, the world has changed beyond imagination. Hong Kong is still rated as the most competitive and free economy in the world, but this standing is under threat, as other nations and cities begin to overtake it in innovation and technological skills.
Economically, Hong Kong has visibly prospered, its GDP has gone up by 80 per cent since 1997, building on its superior infrastructure, a free port and low-tax regime, and world-class financial and logistic hubs. But meanwhile, China has grown spectacularly, its GDP increasing 11-fold to US$11.2 trillion last year. It is now the world's second-largest economy and leading trading nation.
Financially, Hong Kong has done well, with the market capitalization of its stock exchange rising 7.7 times to US$3.2 trillion, but much of it was propelled by the listing of mainland Chinese enterprises. Red-chip and H-share listings have gone from 16 per cent of total main board market cap in 1997 to 40 per cent.
In comparison, the market cap of the mainland stock market, just half of Hong Kong's in 1997, grew 34 times to reach US$7.3 trillion in value in 2016. What is remarkable is that Shenzhen (just rice fields only 40 years ago) has a stock market valuation of ÂUS$3.2 trillion - seventh in the world and one rank above the Hong Kong exchange.
What has kept Hong Kong from greater glories and its full potential is its toxic politics. It did not help that policies under the first chief executive were driven askew by the Asian financial crisis, after Thailand devalued the baht on July 2, 1997. It was the shock of recession, particularly in real estate prices, that woke our middle class up to the fact that, when push came to shove, they would be the ones footing the bill. They watched aghast as tycoons pressured the administration into abandoning the 85,000 per year housing policy, thus denying over a million youth even the thought of owning an affordable home. Even if only 60 per cent of the target had been achieved, just over 1 million units would have been made available by now.
This supply side intervention had a temporary effect of making Hong Kong one of the most expensive real estate markets in the world, but the long-term implications for social and political stability became more apparent over time.
Denied any realistic chance of affording their own home, with greater competition in the job market and high rents a barrier to start-ups, Hong Kong's youth turned towards the politics of protest and opposition to the administration. Politics was no longer a search for compromise but had hardened towards more inward-looking localism.
The polarization of society stalled reforms, frustrating not only reform-minded civil servants but also those who felt the city was losing its international standing, which used to be its key comparative advantage over mainland competitors.
While the idealism of youth is to be admired, Hong Kong politics has been "too simplistic, too naive", as one national leader remarked with some frustration. Even former governor Chris Patten, on his last visit, had to remind our youth that politics must be pragmatic and realistic, seeking to achieve goals step by step - not asking for the impossible.
The global political landscape has changed profoundly. Who would have thought that a new president would lead the deconstruction of the American neo-liberal order in less than 150 days in office? Who would have dreamt that Brexit may even reduce Great Britain to Little England? Localists hoping for sympathy in foreign lands will find geopolitics has demonstrated that there are no permanent friends, only perfidious allies.
What of Hong Kong's future? The reality is that, with only 30 years left for the "one country, two systems" promise, Hong Kong cannot remain the same as in 1997. If no consensus can be achieved well before 2047, its SAR status will revert to that of any other city in mainland China. And, by that time, if Shenzhen and the rest of the Pearl River Delta grow at their current pace, Hong Kong will be the smaller cousin in a race of giants.
The Lion Rock spirit is all about those who built Hong Kong from a barren rock to one of the most vibrant cities in the world. It was never about relying on the state or the mainland for help, just not to hinder. But what is hindering Hong Kong's ascendance is the lack of a community-wide social consensus. Unless that is built, and this is not just the responsibility of the next chief executive, the Lion Rock spirit will not be rekindled.
This article first appeared in the South China Morning Post on June 9, 2017. The views expressed in the reports featured are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.