Hong Kong Will Mean China’s Demise

In China, the Unraveling Begins, Part V
Studio Incendo /​Wikimedia Commons Hong Kong protesters threw eggs at Communist Party general secretary Xi Jinping's portrait on National Day. October 2019. Hong Kong protesters threw eggs at Communist Party general secretary Xi Jinping’s portrait on National Day. October 2019.
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China’s disintegration is now under way.” —Arthur Waldron, Lauder Professor of International Relations, University of Pennsylvania

Following the Tiananmen Square fiasco, Beijing “knew” a few things it hadn’t known before.

Beijing knew that offering its citizens modest economic and personal freedoms was dangerous to the health of the Communist Party. When you offered such freedoms, as Deng Xiaoping had done a few years earlier, people didn’t meekly express their gratitude and go back to work. No, the greedy bastards always wanted more-​more-​more. Thus, Tiananmen Square marked the peak of reform in China, and the modest liberalizations that Deng had engineered have since been gutted by Xi.

Beijing knew that the West was a paper tiger. The U.S., Europe and Japan had large economies and some of them had powerful militaries, but they lacked the will to use their power. It seemed clear to China that it could do virtually anything it wished without push-​back. Cheat on international trade? Check. Steal Western intellectual property? Check. Murder its own citizens? Check. Occupy the sovereign soil of other nations? Check.

Beijing knew that the West was in terminal decline and that it was no longer necessary to hide its strength and bide its time. Capitalism had made the West rich, but it had also made it soft, weak, and greedy for ever more wealth. Democracy made the West free, but it had also made it chaotic and ungovernable. Chinese-​style Communism neatly avoided both problems.

Everything was going China’s way until, apparently out of the blue, Hong Kong blew up in Beijing’s face. And, it turns out, Hong Kong is a problem Beijing can’t solve. Let’s look at the three possible outcomes of the current unrest.

Xi submits to the demonstrators’ demands and democracy comes to Hong Kong. Well, stranger things have happened — the Washington Nationals won the World Series, after all — but this outcome is truly beyond risible. Democracy is anathema to Beijing, and Xi can’t risk appearing weak in the face of demands from Hong Kong. He would be purged and factional fighting would likely break out among the senior bosses in the Party and military. Every other outcome is more likely than this one.

Wait, watch, hope. This is Beijing’s current strategy and it’s not a bad one. “Protest fatigue” is a real phenomenon and, sooner or later, people are going to stop turning out en masse.

The trouble with this strategy is that the inevitable dwindling of the big crowds won’t mark the end of the insurrection — the battle will simply go underground. Beijing will face many years of guerilla warfare in Hong Kong, and either Xi’s patience will run out or Xi will be purged by hardliners in Beijing who are terrified that the unrest will spread across China.

Send in the PLA and crush the demonstrations. Ultimately, this is the most likely outcome because it’s the only one Xi can survive. But the question is whether China can survive it. Unfortunately for China, the world is a very different place today than it was during Tiananmen Square in 1989.

The first thing that is different is that Hong Kong isn’t Tiananmen Square — it’s not a flat place in the middle of a huge city. Hong Kong is itself a huge city. The tanks that rolled through Tiananmen Square would quickly become bogged down in narrow streets and alleys, and the heavy lifting would have to be left to the infantry.

Brutal house-​to-​house fighting would rage throughout the city, as PLA units unfamiliar with the local area play an endless game of Whack-​A-​Mole with protestors wielding Molotov cocktails and other homemade weapons.

The second thing that is different is that Hong Kong in 2019 isn’t Beijing in 1989. The Central Committee was able to hush up what happened in Tiananmen Square and it was many years before the world knew for sure what had happened.

But Hong Kong boasts hundreds of thousands of foreign residents, hundreds of foreign journalists, and access to every possible social media platform. Whatever happens in Hong Kong will happen in full view of a horrified world.

The third thing that is different is that the days when China got a free pass are over. China is no longer hiding its strength or biding its time, and it is no longer even pretending to be a good international citizen. Today (what took so long?) all but the densest or greediest observers in the West view China not as “converging” with the West but as a gangster country bent on destroying the civilized world — starting with Hong Kong.

In short, Beijing is screwed. If it caves in and allows democracy to flourish, Xi will be out on his booty. If it gets bogged down in an endless guerilla war, unrest could spread across China and civil war could erupt. If it cracks down hard, China will become an international pariah compared with which the trade war is the merest bagatelle.

Bizarrely, it turns out that China’s insistence on the return of Hong Kong was a decisive mistake, because it allowed the nose of Western democracy and capitalism under Beijing’s tent. There is no cure for this disease that doesn’t isolate China internationally and crush its economy.

An isolated China with a declining economy is the way China unravels. The Chinese are an extraordinary people but they have been cursed — for the better part of 4,000 years — with bad governments. The Mao-​Xi Dynasty is merely the most recent example of a Chinese government that exists only to aggregate power to itself. Hong Kong is doomed, there is no doubt about that. But China is doomed, too.


Greg Curtis

Gregory Curtis is the founder and Chairman of Greycourt & Co., Inc., a wealth management firm. He is the author of three investment books, including his most recent, Family Capital. He can be reached at . Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

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