The Fall of Hong Kong: How China-US Rivalry Ended A Geopolitical Neutral Zone - SOAS China Institute

//The Fall of Hong Kong: How China-US Rivalry Ended A Geopolitical Neutral Zone

The Fall of Hong Kong: How China-US Rivalry Ended A Geopolitical Neutral Zone

Photo credit: Ryan Mac (Unsplash)

By Brian C.H. Fong | 26 March 2024

In a meeting of the U.S. National Security Council held on June 8, 1960, John F. Dulles, the secretary of state of the Eisenhower administration, made an interesting comment on Cold War Hong Kong: “Hong Kong exists because it is useful both to the Free World and the Sino-Soviet Bloc.” Sixty years later, Dulles’ comment remains insightful to understanding Hong Kong today.


A Fall in Slow Motion, Not a Collapse


For decades, Hong Kong’s geopolitical neutrality was the very foundation of its freedom, autonomy, and prosperity. China-U.S. peaceful co-existence in the city had functioned as a magnet that attracted businesses, media, and NGOs from all over the world. Now, such a magnet no longer exists. 


Since 2020, Western businesses and talents have steadily retreated from Hong Kong. For example, more than 168 non-local companies have removed their regional headquarters in Hong Kong – with the U.S. firms topping the list in the wider context of decoupling or de-risking – reducing the total number from 1,504 in 2020 to 1,336 in 2023


Global media firms and INGOs are also leaving. Once an international media hub, news bureaus such as the New York Times have relocated some of their operation to other cities. Facing political risks under the National Security Law, Amnesty International and Human Rights Watch – two global human rights groups – both closed down their long-time regional offices in Hong Kong in 2021. Many other smaller INGOs, such as New School for Democracy and Global Innovation Hub also left quietly


Last but not least, middle-class professionals in Hong Kong are migrating to the West, bringing with them capital, skills, and knowledge. It is estimated that more than 200,000 Hong Kongers have emigrated since 2020.


But it is important to note that Hong Kong’s downfall thus far remains incremental — it has not been an outright collapse. Imagine Hong Kong as an ocean liner: It is now losing the fuel needed (exodus of capital, talents, and businesses) to sail as it used to. However, with a limited new fuel supplied, this ocean liner can still float in the sea – at least for the time being – because it is not heading for a titanic-style shipwreck (systemic collapse).


Evidently, there are still several important factors keeping Hong Kong afloat, though it is unclear how long these will last. 


First, the British systems left over since 1997 have not yet been completely dismantled. Hong Kong courts may no longer function as guardians of human rights and a check-and-balance on government power anymore, but they still largely function well in commercial and civil litigations. Hong Kong’s public service, business regulatory regimes, and banking systems remain world-class by international standards. If these good governance systems can endure, the exodus of capital and talents from Hong Kong may remain incremental rather than rapid. The Basic Law Article 23 legislation – which has just been enacted– will be a critical stress test for these systems. 


Second, Hong Kong still has excellent public finance. By the 2023-24 fiscal year, it still maintained a fiscal reserve of HK$642.4 billion and has a very low level of public debt by world standards. The relatively stable public finance means that the Hong Kong government can still effectively maintain public services delivery from education to welfare and health, which is a critical pillar for social stability. The slumping property and stock markets – which had significantly reduced revenues from land sales and stamp duties – are straining the public finance system, but an imminent budgetary crisis is still far off. 


Finally, the inflow of mainland capital, talents, and enterprises have to a certain extent plugged the leaking holes. The Hong Kong government has aggressively absorbed mainlanders through new immigration schemes in order to mitigate the impact of brain drain. More mainland enterprises have also moved into the city, partially compensating for the retreat of Western companies. Yet, the continuous slowdown of the mainland economy calls into question how far the Hong Kong economy could be sustained by the “China Factor.”


How Long Can Hong Kong Endure?


The only plausible path for Hong Kong’s turnaround is the phasing out of China-U.S. great power competition, which – if it happened – would offer a window for reviving some of its lost geopolitical neutrality. 


Historically, a tale of great power competition will often end in one of three ways: by great power war (which causes one of the powers to be defeated on the battlefield, such as Germany in 1918), by geopolitical burnout (which forces one of the powers to concede peacefully, such as the Soviet Union in 1989), or by an emerging common enemy (which causes rival powers to set aside their competition in order to contain a common enemy, such as the Anglo-Russian Entente amidst an emerging Germany in the late 19th century). 


Will China-U.S. rivalry head for any of these three scenarios – and, if so, when? 


This is the million-dollar question. History shows that great power competition often lasted for decades – not years – before it faded out through one of the three major avenues mentioned above. The current episode of China-U.S. rivalry only started to emerge in the mid-2010s. It would be unwise to predict that this round of great power competition will run out of stream anytime soon.


Can Hong Kong outlive China-U.S. great power competition? Time will tell. But time, unfortunately, appears not to be on Hong Kong’s side.

This article is an excerpt of a feature originally published in The Diplomat.

Brian C. H. Fong is a research associate at SOAS China Institute and full professor in the College of Social Sciences at the National Sun Yat-sen University, Taiwan. He is the lead editor of The Routledge Handbook of Great Power Competition. His research publications can be found at ResearchGate.


The views expressed on this blog are those of the author(s) and are not necessarily those of the SOAS China Institute.