Breakingviews - Capitalist amnesia enables China’s tough line



HONG KONG (Reuters Breakingviews) - Capitalist amnesia is encouraging China’s hard line in Hong Kong. Violence in the financial hub worsened over the weekend. A Reuters report, meanwhile, says Beijing last month rejected a compromise with protesters. Investors have ignored ugly crackdowns before; that feeds cynical expectations that harsh measures will be forgiven again.

    Examples of moral courage in the corporate world are few and far between. Saudi Arabia’s brutal assassination of journalist Jamal Khashoggi generated negative headlines and dampened enthusiasm for a Davos-style shindig in Riyadh, but that barely lasted. China’s own record – including the use of re-education centres in its Muslim Xinjiang region - has hardly scared off foreign cash.

United Nations data shows foreign direct investment in China hit $1.6 trillion in 2018, a figure which rises to $3.6 trillion when Hong Kong is included; Japan, by way of comparison, notched up $214 billion. Human rights campaigners may howl, but the money has saluted.

    None of that is encouraging for Hong Kong, where mainland media is suggesting red lines have already been crossed. Should Beijing find it necessary to use violence and coercion to clear the Chinese-run territory’s streets, as it did in Tiananmen Square in 1989, past experience may lead officials to believe the economic cost will be minimal.

The analogy does not hold. Neither the Tiananmen affair nor the tough line in remote Xinjiang had much impact on foreign investors' wealth; neither location hosted a stock market doing over $12 billion in daily turnover. Business executives tend to tolerate iron fists that bring stability, but military intervention in a city of 7 million will make matters worse.

Until recently, China could trust foreign companies to accept some rights would be ruffled in the name of stability and growth. But that assumption is beginning to fray, and a brutal solution in Hong Kong would not reassure. It’s also not all up to executives: hawkish Western legislators could use any confrontation to force funds and companies to divest. History does not always repeat itself.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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