Retail Is Concerned That China Could Flip Hong Kong – One Country, One System?

Over the years, American retailers advertised that consumers could “buy one and get one free.”

“Two for the price of one,” retailers would say, and now those same retailers who currently maintain significant business in Asia, worry that China borrowed our advertising pitch, in an attempt to accelerate the 50-year timeline for Hong Kong to be fully admitted into China’s fold.

“Buy one, get one free.”

During Hong Kong’s ascension in 1997, China promised 50 additional years of structural independence – by using a new phraseology to explain that there would be one country which would operate under two different systems.

The first 23 years of this agreement seemed to work reasonably well. Hong Kong ran their Special Administrative Region (SAR) and maintained a significant degree of independence from mainland China. As is true with most things existing in paradise, governance issues flared up last year over a proposed new “Extradition Bill” that brought out some serious opposition in Hong Kong. There were large (but peaceful) demonstrations which (unfortunately) were followed by disruptive and violent protests. Tourists eventually slowed their visits to Hong Kong, and their economy slid into recession. The “Extradition Bill” was withdrawn late in 2019, and the protesting calmed down towards the end of the year.

As we entered this year (2020), the protesters took a few months off for social distancing, but just days ago there were new governance concerns over a similar issue that now arose from mainland China. The concern is related to Article 23 of Hong Kong’s “Basic Law” where Hong Kong was to create a national security law and had not completed one, so China decided to act on their behalf. By Sunday, protesters returned to Causeway Bay and Wan Chai in Hong Kong. With umbrellas and signs, they marched in one direction while tear gas from the police pushed them in another. Uncomfortable as the entire situation remains for everyone, unrest has (once again) returned to Hong Kong.

What sparked this weekend’s protest was the basic proposal to exercise a new version of targeted legal authority over Hong Kong. The new security law is being drafted for the Chinese National People’s Congress to review, and the concept of the legislation is that China would be allowed to intervene in Hong Kong (if necessary) – to ban secession (breaking away from China), subversion (undermining China’s authority), foreign interference, and terrorism. China lawmakers view this authority as one that is needed to protect the former British Colony. Residents in Hong Kong view it as interference with rights guaranteed by their mini-constitution (which remains valid until the year 2047). While it is still too early to tell where this confrontation is headed, lines are quickly being drawn in the sand. One side talks about safety and prosperity. The other side talks about the beginning of the end. One side believes that their duty is to protect the people. The other side believes that their rights are being impaired.

Many in the retail and fashion community consider Hong Kong to be our second home. We have traveled there for years, and our collective experiences are beyond memorable. Lately, however, our industry is concerned about the protests and safety of the people in our offices. In addition, our Hong Kong friends are split on how these issues will (or should) get resolved. Often, entire nuclear families are divided about what needs to happen.

China took over the former British Colony in 1997, and the agreement allowed for 50 years of adjustment under the banner of “one country, two systems.” Hong Kong was to be politically and legally independent, but still quite unified with China. The governing document was called the “Basic Law” of the Hong Kong Special Administrative Region of the Peoples Republic of China. It was adopted by the National People’s Congress in 1990.

*In the beginning (1997-2003), the Hong Kong-China arrangement was working well.

*The first sign of an issue surfaced in 2003 when there was a proposed adjustment to (the same) Article 23 of Hong Kong’s “Basic Law.” The change was viewed as an attempt to rein in any political dissent that might be targeted against China. At that time approximately 500,000 people flooded the streets of Hong Kong in a peaceful protest, and the concept was eliminated.

*Issues flared up again 11 years later in 2014, when China issued a white paper outlining a procedure whereby the new Hong Kong Chief Executive elections in 2017 should have candidates that “love China and love Hong Kong” which essentially would serve to pre-screen any candidate for the position. This triggered a reaction in Hong Kong called The Umbrella Movement, and that triggered more than two months of protests.

*In the spring of 2019 tempers flared again, when the Hong Kong Government introduced an “Extradition Bill” that many people in Hong Kong felt was an encroachment against their legal authority. There were massive, and (in some cases) violent protests. By the fall of 2019, the “Extradition Bill” was withdrawn by Hong Kong’s Chief Executive Carrie Lam.

While all this was going on in Hong Kong, the U.S. Government decided to weigh in. Six months ago, President Trump signed into law the “Hong Kong Human Rights and Democracy Act” (HKHRDA). This U.S. law allowed for possible sanctions against individuals in China / Hong Kong and called for an annual review to determine if changes were made to Hong Kong’s political relationship with China. If there was a need for punitive action, the bill allowed for potential altering of the special trading status that Hong Kong enjoys with the United States. After the bill passed Congress and before he signed it, President Trump said: “We have to stand with Hong Kong, but I’m also standing with President Xi, he’s a friend of mine.”

When the Hong Kong Government eventually withdrew the “Extradition Bill” last September, pro-democracy forces in Hong Kong felt that they had achieved a significant victory, but mainland China was not pleased with the result.

Without getting too political about the entire situation, our retail industry is very concerned. We maintain offices in Hong Kong and the location has become our gateway for business throughout Asia. Industry questions are now being asked: Will the United States exercise the Hong Kong Human Rights and Democracy Act? Is this going to affect our business going forward? Should we move our Hong Kong offices?

Everyone understands that we live in crazy times, but retail is also sitting on a special apocalyptic edge of the cliff. The last thing that anyone wants to do right now – is to pack up and move out of Hong Kong. Will China go forward and enact what they say they will, or is this a threat to keep the Hong Kong protesters in line? Will Hong Kong residents who are fed-up with the social unrest and tired of the recession go along with a mandated change like this? Will the protesters stand down? Will the United States and the rest of the world react by taking Hong Kong’s side? Seriously, there are a lot of unanswered questions, and it’s a very complicated issue. Mainland China feels compelled to do what they feel is right, and they are saying that it will be better for Hong Kong. At the same time, there are many in Hong Kong that cherish their independence and feel this is an over-reach.

It’s genuinely hard to say what will ultimately evolve with this real-life drama. However, it is fair to say that there are no easy choices, and that any wrong decisions could be catastrophic for the future of Hong Kong as we currently know it.

Everyone understands that Hong Kong is the one location on earth where “East meets West,” and the world is watching carefully as this delicate situation unfolds. The prevailing hope is for a good and appropriate outcome that will maintain Hong Kong’s status as a true city of the world. The author Nury Vittachi had it right when he said: “You can leave Hong Kong, but it will never leave you.”