End of Hong Kong means 3 systems, not 2

In a 1992 speech in Fulton, Missouri, Mikhail Gorbachev stated ‘Humanity is at the major turning point. We live in a watershed era. One epoch has ended, and a second one is

commencing and no one yet knows how concrete it will be’. He was right then, and if the speech were given today, these words would also ring true.

The fall of communism was the key event in catalyzing globalization. It was the bookend that opened up new trends that saw the flow of people, money, commerce and importantly, of ideas and cultures. In particular, the fall of communism led to a sharp rise in the creation of new countries (some 34 have been created since 1990), and in the spread of democracy (between 1988 and 2005 the proportion of countries classified as Free rose from 36 to 46% globally according to Freedom House).

Since the fall of communism, the ripple of globalization through the world has lifted billions out of poverty and spawned new technologies. This great period in world history is now at an end, decisively crashed by the coronavirus crisis, having already atrophied in the face of rising indebtedness, trade wars and the vandalization of international institutions by populist leaders. Now, with deadly and decisive timing, the bookend that closes the period of globalization is the subsuming of Hong Kong.

The introduction of new, harsh security laws in contravention of the process of the Basic Law, will severely curb the identity and livelihood of one of the world’s unique cities. Hong Kong played a role in the first wave of globalization in the 19th century and has been prominent in the recent one.

The import of the likely end of Hong Kong’s ‘two systems’ is that at a much greater level it marks the arrival of ‘three systems’, or what I call a multipolar world dominated by the US, China and Europe.

China has acted to hush Hong Kong because of the threat that protests pose to the Communist Party in China (and the position of Xi Jinping), and also because, with the West in disarray, China is in a relatively powerful position. The potential significance of China risking Hong Kong’s role as an international financial portal is that it has decided that the time is come for Shanghai, Shenzen and the Greater Bay Area to become China’s financial hub. This is bad news for those in Hong Kong who think that the economy will continue to thrive in the light of the new security laws.

As such this may mark a move away from an approach that seeks to integrate China with international financial markets, and toward one that deepens China’s markets in the Chinese ‘way’, so that they are overseen by Chinese rather than Western corporate governance rules. China has notably already made this transition in its treatment of the internet.

China’s effective ending of ‘two systems’ in Hong Kong also comes at a time when friction is rising in its interaction with democracies – especially India and Australia (both of whom are members of the QUAD defense grouping with the US and Japan).

Elsewhere China’s assertiveness means that the US and the EU will have to become more singular. Europe (EU) will in my view, soon force its member states to adhere more consistently to its values (Hungary and less so Poland here) and is beginning to make a move towards a greater fiscal role for Brussels.

It is also worth noting that the exit of Britain from the EU is consistent with the end of common law in Hong Kong in that both events underline the decline of Britain’s role in the world and the degeneration of political leadership in England.

That leaves the US. If Gorbachev saw the US today he would likely not be surprised that it has so far retained its military and financial dominance, but by the same token, not astounded that it has failed to harness the benefits of globalization for all Americans.

With the benefit of a few years in the Kremlin, Gorbachev might even remark that the coronavirus has hit the US in all of its weak points – the labour market, inequality and healthcare. To that end the American response to what is happening in Asia, and to the rise of the Chinese ‘Leviathan’ like model, must be to strengthen its own economy, society and institutions, and not to weaken them as President Trump is doing. Leaving the World Health Organization is a strange way for America to help the people of Hong Kong.

Have a great week ahead,

Mike

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s