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Why Beijing is giving Hong Kong less respect

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Special To The Japan Times

On Dec. 11, 2014, the student-initiated 75 day mass demonstrations of the “umbrella movement” ended with orderly execution of a forced expulsion by the Hong Kong police. They avoided another bloodbath similar to that of the Tiananmen Square protests of 1989. The incident, however, shows that political liberalization is incompatible with communist dictatorship.

No wonder that, seeing its survival eventually jeopardized, Beijing’s communist regime did not heed the protesters’ demand for free election of the chief executive of the Special Administrative Region, scheduled to be held in 2017 according to the pre-reversion Britain-China agreement.

The Beijing regime is resolute on imposing new rules designed to keep liberal democratic candidates out of office. The world was watchful of Beijing’s move because it seemed to be caught between a rock and a hard place.

Yet Beijing’s unexpected readiness to adopt a hard line begs the question of why it no longer respects Hong Kong’s freedom and democracy, a prerequisite to the area’s functioning as a major international financial center that begets wealth?

Certainly Hong Kong matters less now given that its economic weight relative to the mainland has significantly diminished since the inception of Deng Xiaoping’s reform policy of 1978.

But it also should be noted that as early as October 2008, British financial circles published “The Future of Asian Financial Centers” as a major report on the City of London Corporation. It identifies the central importance of Asia in light of population, economic growth and demand for funds, and, given insufficient intra-regional capacity in financial services, sees a good opportunity for the circles to play its prime financial intermediation role for the region.

Besides, the report expects Shanghai to be Asia’s prime financial center — not Singapore, which has no hinterland, nor Tokyo, which suffers from a declining birthrate and an aging population while entrapped in the allegedly continuing closed nature of Japanese markets.

In response, in April 2009, the Chinese government set forth the Shanghai International Financial Center Construction Plan, aiming to expand the size and proportion of foreign investment in the Shanghai markets, presumably. Behind-the-scenes bilateral negotiations ensued.

During Premier Li Keqiang’s official visit last June to London where he met with Prime Minister David Cameron, Britain and China issued a joint statement emphasizing the deepening of their already 10-year-long comprehensive strategic partnership, including more substantial and concrete cooperation in economics, finance and trade. Given the statement’s tone in the context of the post-Lehman Brothers economic stagnation, Britain is evidently exploring a means of economic survival through its relationship with China.

Needless to say, London’s financial sector is the mainstay of the British economy, and its Eurodollar markets have long played a critical role to supply necessary funds for U.S. national finance, thus supporting U.S. hegemony.

In sustaining this function, tax havens in British Oversea Territories and Crown Dependencies were indispensable in keeping sources of money — such as petrodollars and Vatican Bank funds — anonymous and in laundering money from obscure sources.

In the fall of 2012, however, the British government moved to impose stringent control and restriction on the tax havens. Steps were reinforced by the communique of the Group of Eight Summit of 2013 in Lough Erne, which declared joint action toward securing a sufficient taxable basis by preventing tax evasion. This move effectively constitutes a significant weakening of British support for U.S. hegemony and demands that the U.K. get an alternative partner for its financial survival.

Last September, just before the Hong Kong demonstrations began, the British government announced its plan to be the first Western country to issue sovereign bonds in yuan and add the proceeds to its reserves managed by the Bank of England.

This means a significant endorsement of the yuan, which hitherto had an informal status as a reserve currency. Also, British financial circles are eager to enable the yuan, which remains formally not fully convertible under the International Monetary Fund’s definition, to make rapid strides toward an international status.

Clearly these circles wish to reinforce their position as a global trading and investment hub for the yuan.

Last October, soon after the demonstrations started, the British financial circles sent a delegation led by the head of the City of London Corporation to Beijing, Shanghai and Shenzhen, exploring necessary measures to assist China in international finance.

With such spadework, the communist regime naturally no longer must highly value Hong Kong as an international financial center, at least from a medium- and long-term perspective, which frees the regime from paying due respect to Hong Kong’s freedom and democracy.

On the other hand, as some pro-Beijing media allege, the U.S. most likely has intervened in Hong Kong politics by lawful democracy promotion methods like public diplomacy, cultural/academic exchanges and public education.

The approach is reminiscent of several cases in the so-called color revolutions in areas of the former Soviet Union and the Balkans a decade ago.

To note, the U.S. National Endowment for Democracy, a nonprofit organization established by the Congress and funded by the U.S. Agency for International Development budget, has supported Hong Kong’s democracy movement, as demonstrated by a public discussion event with its two key political leaders, held at its Washington headquarters in April 2014.

Looking closely, therefore, the crux of the Hong Kong problem lies in Anglo-American veiled enmity, which is coincidental to U.S. hegemonic decline.

International media largely highlighted superficial phenomena without probing deeply into this crucial nexus. It is high time that we redefine a basic perspective on the problem as the basis of reporting and policymaking.

Masahiro Matsumura is a professor of international politics at St. Andrew’s University (Momoyama Gakuin Daigaku) in Izumi, Osaka.