Is Hong Kong the next Tiananmen?

Bloomie offers some thoughts today:

A soft approach toward protesters addressing demands for democracy could show dissidents on the mainland that widespread upheaval can bring about political change, something that may imperil the Communist Party’s grip on power. At the same time, sending in Chinese troops to restore order risks an international backlash that may do irreparable harm to the city’s economy with no guarantee of success.

…“It’s not clear that they’ve decided on any approach,” said Ivan Choy, a political scientist at the Chinese University of Hong Kong, who added that Xi’s government may try to buy time by asking a group of key residents in the city to offer suggestions. “One of the major considerations of the Beijing authorities is they want to have social order restored first, and only after that you will consider some adjustments of the policies.”

…Officials from the Hong Kong and Macau Affairs Office in Beijing plan to speak to the media on Tuesday and announce something new, the South China Morning Post reported, citing an official familiar with the matter who didn’t provide more details. A commentary read on state-run media outlets Monday reiterated Beijing’s “unflagging support” for Lam and warned of a “most dangerous phase,” the newspaper said.

I am sure Bejing could control the information fallout on the mainland if it did a deal. The CPC’s core function is silencing its populace. To end the crisis, Beijing is going to have to condemn and sack the Hong Kong leadership for slicing the freedom salami too thick. Then go back to slicing it thin. In Taiwan as well.

But that still assumes Hong Kong will be satisfied. The protests do rather appear like a fight to the death. A last stand, if you will. They are leaderless, have deep support, and are spreading through all levels of society.

As such, there is a sad irony developing in which Hong Kong may leave Beijing no choice but to crack down. And, given the passions that are aroused, that is unlikely to end well. An optimist might hope that martial law quiets the place then a deal be struck. But that is one gigantic leap of faith. It is just as likely to turn into a disastrous street battle and massacre.

If it does go that way, we can say with confidence one thing. It will end China’s integration with the global economy that began with WTO accession in 2001, as economic sanctions rain upon it. This will be exacerbated by the basic personal fears of western executives. China will be shoved much more swiftly out of the global economy and the economic fallout will drive a nasty global recession in short order.

Still, that is not the base case. Beijing must take short term pain for long term gain (or less loss) and sack the Hong Kong Government, if it is not entirely irrational today itself.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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