Hong Kong asserts control of its political future

In a milestone parliamentary vote that will shape the political future of Hong Kong, 28 lawmakers rejected a Beijing-backed electoral reform bill on Thursday, delivering a clear “No” to the central government.

Despite a lengthy ten-hour debate commencing from Wednesday, the outcome of the vote was seen by some as a foregone conclusion, as each of the legislature's 27 pro-democracy lawmakers has long vowed to vote down the bill, arguing it did not represent “true democracy”.

Their stance made it difficult for the bill to muster the support of at least two thirds of the 70 lawmakers in the Legislative Council (Legco) needed to pass into law.

The plan, which adhered to a tight framework laid down by Beijing last year, would allow the city’s five million eligible voters to elect their next chief executive for the first time in 2017, but only from a slate of up to three candidates vetted by a largely pro-Beijing nominating committee.

Many Hongkongers have been demanding “genuine universal suffrage” without Beijing-imposed strings attached since the former British colony reverted to China in 1997.

Thursday’s result followed a surprise walk-out staged by some 30 pro-Beijing lawmakers ahead of the vote. The move puzzled lawmakers from the opposition camp and saw the bill handily defeated by all 27 pro-democrats and one medical representative, a constituent legislator, at the Legco.

Only eight from the pro-Beijing side voted in support of the plan, with 34 abstentions. Local media reported the walked-out/gesture was caused by miscommunication among pro-Beijing lawmakers.

CY Leung, the incumbent chief executive, expressed his disappointment at the outcome of the vote during a press conference on Thursday.

“I, the Hong Kong government and millions of Hong Kong people are naturally disappointed,” he said. “Twenty-eight Legco members…denied five million Hong Kong voters the right to elect the next chief executive.”

The Chinese central government in Beijing previously said a rejection of the plan would throw Hong Kong’s democratic process into limbo, and warned the opposition that a defeated bill would place the city’s economy at risk.

Thursday’s result looks certain to underscore Beijing’s failure to politically integrate Hong Kong with the mainland since the 1997 handover.

“This result is not what we want to see,” said Lu Kang, a spokesman for the Chinese Ministry of Foreign Affairs at a daily briefing on Thursday. “Both the central and Hong Kong governments have made great efforts [on the universal suffrage].”

Kenneth Leung, an outspoken pro-democracy lawmaker representing the accounting constituency, told FinanceAsia: “of course, the result would piss off Beijing, but they [Chinese officials] were already pissed off [by Hong Kong] before anyway.” Leung voted against the bill.

He added it was unlikely Beijing will seek to financially “punish” Hong Kong because of disagreements on political issues. Mainland China still relies on Hong Kong’s long-standing experience and expertise amid the ongoing reform and opening-up of the domestic capital market.

Raymond Yeung, a senior economist at ANZ in Hong Kong, echoed Leung’s point of view.

“If Beijing really wants to punish Hong Kong, the Shanghai-Hong Kong Stock Connect would not have been launched during Occupy Central last year,” Yeung told FinanceAsia.

Despite a disappointing start, the stock connect scheme, through which domestic and international investors can invest in each other’s stock market, has seen a steady surge in the trading volume since the launch in November, with the turnover reaching $34 billion alone in May.

However, Yeung said the rejection of the plan will “intensify political infighting” in Hong Kong, which is not good news for the economy, as it faces increasing competition from mainland municipalities seeking to become China’s premier financial hub

“As the political condition becomes increasing unstable, business confidence will also be dampened,” he wrote in a research note on Thursday. “If Hong Kong fails to progress, its status as China’s financial centre may also be shaken.”

The long-awaited vote came six months after the Occupy Central movement saw hundreds of thousands of Hong Kong residents protest against the controversial electoral reform plan, which paralysed the city’s central business districts for nearly three months.

Last summer, as the movement gathered momentum, HSBC downgraded its investment outlook for Hong Kong equities, partially due to tensions between Hong Kong and Beijing over the election plan.

Earlier this year, China launched three more so-called pilot Free Trade Zones in Guangdong, Fujian and Tianjin, in addition to the existing Shanghai’ FTZ, with the goal of testing reform policies and integrating the country’s economy with international practices.

Meanwhile, HSBC announced last week that it will expand business in Guangdong, home to the world’s largest manufacturing hub and a growing middle class, across the border from Hong Kong.

“There’s a good opportunity to create another Hong Kong” in Guangdong, the bank’s chief executive Stuart Gulliver said at a presentation to clients last week.

According to official figures, Shanghai’s GDP surpassed Hong Kong’s since 2009, while Shenzhen, dubbed China’s Silicon Valley in Guangdong, is set to overtake Hong Kong by GDP this year.

Shanghai’s economic output amounted to $380 billion last year, while Hong Kong and Shenzhen recorded $289 billion and $258 billion, respectively. In terms of stock market capitalisation, both Shanghai and Shenzhen are far ahead of Hong Kong, thanks to the strong bull run in China.

However, Cheng Manjiang, chief economist of Bank of China International, says the mainland Chinese metropolises cannot easily replace Hong Kong in terms of financial stature in the coming years.

“The judicial independence is a cornerstone [of Hong Kong]. It is widely recognised by international investors,” Cheng told FinanceAsia, adding the city’s internationalised work environment also helps it outperform domestic peers.

Under the “one country, two systems” principle, Hong Kong is entitled to a much higher degree of freedom than mainland China. That makes the city favored by most large multinationals and heavyweight investors over mainland cities across the border.

“People in Shanghai and Shenzhen cannot even use Twitter and Facebook freely. That’s a very basic thing,” said the lawmaker Kenneth Leung. “If they can’t solve the issue [of free flow of information] like this, how can they replace Hong Kong?”

This article has been amended to include additional comment by Raymond Yeung.