Hong Kong voters send a warning to Beijing

There has been overwhelmingly positive coverage of the massive gains made by the pan-democrats, or anti government/establishment, parties at the weekend’s Hong Kong general council elections — but the real story lies more with Beijing’s miscalculation.

An eerie calm settled on the city for two days after six months of increasingly violent protests. But the respite did not last long.

And the truth is the council positions hold little real power in the city/state and the “first past the post” voting system distorts the results to give the impression of a bigger swing against Chief Executive Carrie Lam’s administration (and her Beijing masters) than was actually the case.

The overall result was indeed a thumping victory for pan-democrats and independents, many of whom also supported the protests. In the 452 seats available pan-democrats won 347, the independents won 45, while the pro-establishment camp won only 60, a massive collapse form the 300 they previously held.

The pro-democracy parties now control 17 out of 18 district councils, and their support ran across wealthy and poor as well as protest- and non-protest-affected areas. Almost 2.9 million people voted, 71.2% of eligible voters — a record number, that strongly suggests that younger, newly registered voters, determined the results. The number was up up from 47 % in the 2015 district council election and 58.3% in the 2016 Legislative Council election.

But the outsize victory of anti-establishment parties has obscured the fact that the overall vote for the establishment was still 41%, and seats held by establishment figures were lost partly because of the presence of a third “spoiler” candidate. It also does not mean nearly as much for the real test of support in Hong Kong, which does not come until September 2020 in the next Legislative Council election — which itself comes ahead of the 2022 Chief Executive election.

For sure, the victories in 17 out of 18 districts does provide a boost to pan-democrat numbers in the “voting” for the city’s chief executive, handing it all (but only) 117 seats for district councilors in the 1,200-member Election Committee that “selects” the chief executive. Hong Kong councils only have limited powers and small budgets, restricted to ground level local issues such as “parks, bus stops and waste collection.” But control over councils will allow the pan-democrats to prepare the ground for the 2020 Legislative Council election, an opportunity they fluffed when they last won a resounding council victory in 2003.

Still, for all that, the results at the weekend were a further stark illustration of what some commentators are describing as a “historical” miscalculation on Hong Kong by Chinese leader Xi Jinping and Beijing’s continued misreading of the situation on the ground in the city. A government official admitted that Beijing had been surprised by the result and there were credible reports that Beijing’s states run media had pre-written stories.

All this shows that Beijing has drunk its own Kool-Aid on the situation in Hong Kong, believing its narrative that the length and violence of the protest had alienated the city’s “silent majority”.

There is now far more danger for Beijing in any rejection of candidates put forward for election as Chief Executive in 2022 — as the law allows them to — as further street protests are now far more likely to erupt. Beijing’s Hong Kong policy needs a good hard rethink.

There’s a lot of misguided talk about Hong Kong not being needed as Beijing’s money funnel. This ignores the fact Hong Kong is, in the words of a senior, foreign long-time Hong Kong banker, the world’s “biggest money laundry”. It remains Beijing’s key source of capital raising and foreign investment. Suggestions that its role could easily shift to Shanghai and/or Shenzhen are laughable to anyone with any familiarity of China’s capital controls and complete absence of a credible legal system — Hong Kong’s Common Law legal system is its key insurance policy for continued relevance.

Statistics tell the tale. In 2018, 67% of foreign direct investment flowing into China originated from Hong Kong and 61% of FDI flowing out of China headed to Hong Kong. Over the past decade, more than 70% of companies listing on offshore sharemarkets chose Hong Kong. Despite the turmoil, China’s central government is undertaking a US$6 billion sovereign bond sale in Hong Kong, and internet giant Alibaba is marketing an US$11 billion IPO in Hong Kong so, for now, it remains as essential as ever. Beijing must take stock.