What Hong Kong protests mean for businesses

October 1, 2019–the day of the 70th anniversary of the People’s Republic of China’s foundation. The streets of Beijing were lined with exuberant crowds chanting after the meticulously orchestrated military parade and seamlessly executed celebration of the country’s socioeconomic progress over the past seven decades. In the meantime, in another Chinese city named Hong Kong–one of the two Chinese special administrative regions and former British colony–had dozens of its districts flooded by some of the most violent protests it has ever seen.

The National Day protests saw extensive property damage, politically motivated vandalism targeting pro- and anti-government shops and businesses, and–as an epitome of the unthinkable deterioration–the first firing of a live bullet by a policeman, into the chest of an 18-year-old student.

The city was entering its 17th week of continued protests, first triggered by a controversial extradition Bill that would allow for criminals convicted in the Mainland to be extradited from Hong Kong. The protests have since evolved into a behemothic movement against perceived government ineptitude, the police’s lack of accountability and alleged brutality, socioeconomic frustrations, and–finally–the elephant in the room: Hong Kong’s relationship with China, its motherland.

The two brinkmanship games

Both the Hong Kong government (by extension, Beijing) and the movement view the ongoing conflict partially or mostly through the lenses of brinkmanship. Originally viewing the protests as likely to fizzle out organically with minimal responses needed, the administration has been swayed by hawks within the establishment to believe that stern and repressive law enforcement–however excessive or harsh at times – would be the only way to shock the protesters into submission. They believe that the attrition warfare would be won eventually by their side, equipped with the vastly superiorly armed and professionally trained forces whose tactics and weapons are designed to restore stability and order to the disarrayed community, regardless of the costs. By heightening the force deployed and the intensity of casualties inflicted, the government seeks to push protesters to the brink of caving in, if not–at the very least–shifting away from the violent tactics they have adopted for weeks. Adamant that the ongoing crisis should be resolved without deploying the People’s Liberation Army (PLA), the Central Government has thrown its weight behind the forceful responses adopted by the local administration.

On the other hand, many amongst the radical wing of the movement view their deployment of force as justified and instrumentally necessary in forcing concessions from the local and Central governments. They operate under the assumption that by extensive damage to the livelihoods and revenues of large firms, instigating continued unrest disrupting transportation and infrastructure (both core components of Hong Kong’s economy and public welfare), and internally salient, symbolically powerful acts of violence–Beijing would be forced to kowtow and accede to their demands. More specifically, these demands–colloquially referred to as the “Five Demands”–entail the withdrawal of the extradition Bill, establishment of a committee of enquiry, full amnesty to protesters arrested in the movement, the granting of universal suffrage, and the rescinding of the definition of the events on June 12 as “riots”. These acts of violence–alongside the “diplomatic front” through which the movement sought the ostensible support of actors such as the U.S. and the U.K.–are intended to apply direct costs to Beijing, with the hope that the response would be one of the substantive concessions.

Where the brinkmanship logic fails

The trouble with both brinkmanship frames is simply their disconnectedness from the whole empirical reality. The protesters’ diagnosis over-estimates the importance of Hong Kong to Beijing–it must be acknowledged that Hong Kong is a crucial site of foreign exchange reserves, initial public offerings (IPOs), and legal securitisation of many mainland Chinese corporations; it is indisputable, too, that Hong Kong’s institutional experience is unrivalled and unlikely to be surpassed by any of its nearby counterparts. Yet such argumentation neglects three crucial features of the Chinese government’s calculus: first, whilst Hong Kong is perhaps the best option that stands currently, there remain other cities within the Mainland to which national companies could turn to as entry points into the “wider point”; second, between the economic motivation of maintaining high growth rates, and the political optics of maintaining continued symbolic and projected strength amidst a raging trade war, Beijing seems to historically and realistically favour the latter–both because of the symbolism’s importance to China’s population, and its belief that political strength is crucial for any sustained economic bargaining power. Above all, however, Beijing remains unconvinced that any further concessions to the movement would adequately pacify a generation of disillusioned youths–the brinkmanship logic assumes that the “compromise option” is viewed as more attractive as its alternative’s costliness increases. This is unfortunately not the case in the central government’s calculus.

On the other hand, there appears to be a widespread misdiagnosis in the establishment over the psyches of many amongst the protesters. The slogan “Lam-Chow” (“Mutual Annihilation”) denotes an overwhelming, quasi-religious commitment amongst protesters to take down the establishment at all costs; the underlying reasoning is complex–for some, they believe that any compromises or softening are unlikely to lead to any personal or societal gains on the front of democratisation; for others, their extreme anger towards the neglect and inertia of the establishment–particularly over repeated failures to assuage public concerns about law enforcement practices–could only be channeled through their destructive and belligerent behaviours. For many in the movement, they are well aware that they are approaching the brink–yet defiantly refuse to stand down. Thus there is no end in sight in the movement as it stands.

What of moderates or the proverbial “middle”? Advocates of compromise, dialogue, and mutually beneficial solutions have hit a brick wall as neither party appears open to substantive commitments. The newly established “dialogue platform”–a supposed opportunity for the administration to face and hear from the public–concluded with the chief executive and her entourage being surrounded by disillusioned protesters for over four hours. In short, compromise and dialogue–whilst ideal–remain in lofty talk and little more.

What does this mean for businesses?

For local businesses, the prognosis is grim. Tourism and other related industries have faced sharp declines in revenue. The Hong Kong Travel Industry Council reported a 70% decline in August and a 90% decline in the first week of September in the number of mainland tourists, and a 45% decrease for all tourists in general. Tenancy rates for hotels fell to 80% in July, whereas they would previously be fully booked over summer. Perhaps unsurprisingly, tourists have instead taken to alternative destinations, such as Singapore. The number of Chinese tourists visiting Southeast Asia surged 46% in July, relative to June figures.

Moreover, other shops and businesses at large have fallen victim to attacks–whether it is due to collateral damages resulting from skirmishes and altercations, or politically motivated (vigilante) attacks that intentionally seek to sabotage their business. Examples for the latter range from small, family-owned shops seen to be abetting protesters, to large franchises owned by groups typified as backing the staunchest factions within the establishment. Large firms have laid off workers due to worsened revenue projections, amongst other considerations. Those who have escaped this crisis relatively unscathed–alongside other regional competitors of the targeted firms–have found short-lived and eventually minimal boosts to their businesses from the ongoing unrest. Personnel changes have also taken place in the upper echelons of sectoral magnates such as Cathay Pacific–for reasons that some allege to be political.

More broadly, Moody’s recent downgrading of Hong Kong’s sovereign rating and the slumping of the Hang Seng Index by over 13% since April reflect a substantial drop in consumer and investor confidence. Such trends are likely to persist as violence continues in both localised, small-scale flare-ups and large-scale rallies, accompanied by widespread animosity towards the police for its actions over the past three months.

The brinkmanship logic sadly does not work in a complex “game” where actors have vastly divergent understandings of political realities and each other’s preferences. It is probably the case that the fundamentals of the city remain unshaken–its outstanding human capital, legal infrastructure, economic vibrancy, and financial viability are deeply rooted features that will enable it to eventually recover in the future. Yet such recovery is likely to take months, if not years–and even if such economic recovery were to take place, the scars left by this summer’s events would require years, if not decades, to adequately rectify and compensate. In the meantime, the international business community should hope for an unlikely but crucial peaceful resolution to the crisis at hand.

Views are personal.

The author is Editor-in-Chief, Oxford Political Review .