My wife, 13-year-old daughter and 10-year-old son joined me among the throngs of people who jammed Hong Kong's central Victoria Park on Sunday. We stood for four hours, waiting our turn to join the shuffling column that stretched from 2:30 p.m. well into the night across several main roadways, including a six-lane highway, for the three-mile route to the Central Government Office on Sunday.
In all, 1.03 million took to the streets, according to Civil Human Rights Front, the group that organized the march. That is an impressive turnout, particularly when you consider that this city's total population is 7.5 million in all. Wearing white as a color of "light" and "justice," the throng's anger and frustration focused on a proposed extradition law. It would allow suspects to be sent from rule-of-law Hong Kong to face trial in rule-is-what-we-say-it-is Communist China. Beijing's enemies could even be nabbed in Hong Kong International Airport and sent to face a kangaroo court.
Does this matter to investors? Yes.
The U.S. Chamber of Commerce as well as Hong Kong's most-famous shareholder, David Webb, have voiced staunch opposition to the bill, likely to become law soon after its second reading on Wednesday. For one thing, Washington might be forced to reconsider the United States-Hong Kong Policy Act of 1992. That defines Hong Kong as a separate entity to China, giving it special treatment for trade and economics.
Law vs. Fiat
Hong Kong's legal system, based on common law, contains many protections that companies and individuals do not enjoy in the mainland. By linking the two jurisdictions, those advantages evaporate. That's not to mention the chilling effect on dialogue, whether it's analysts putting out critical research on Chinese state-owned companies or a consulting group that might hold a negative view on Beijing policy. It becomes less and less likely that in a professional capacity someone publicly would voice their opposition to, say, central government telecoms licensing, the lack of Chinese intellectual property protections, or the One Belt One Road scheme of infrastructure projects that have ensnared some nations in a "debt trap" held by Beijing.
Martin Lee, a former head of the Hong Kong Bar Association and ex-elected official, told the Guardian that "If we lose this one, Hong Kong is not Hong Kong anymore, it's just another Chinese city." A Reuters opinion column running here on Monay explains that "Hong Kong risks its future as global business hub."
Yet it does not appear to matter to investors, yet.
Hong Kong shares were positively buoyant on Monday. They closed up 2.3% when resuming trade after a three-day weekend for the Dragonboat Festival after global shares rallied 1.0% on Friday. Hong Kong's Hang Seng outdid its mainland counterpart, with the CSI 300 index of the top stocks in Shanghai and Shenzhen up only 1.3%. Shares were up because it looks likely Beijing may resort to stimulus to spur the Chinese economy in face of the trade war; three potential Federal Reserve rate cuts this year would add to that aid.
The divergence between the markets and the mood in the streets sums up the investor quandary and challenge in assessing China. Should investors take an ethical stand and avoid a totalitarian state, one that executes more people every year than any other and operates an increasingly sophisticated surveillance culture? Or should they cash in on the largesse generated by the world's fastest-growing economy (just having passed India again) and its booming middle-class wealth?
Tencent Holdings (TCEHY) , one of China's most exciting companies, saw its shares jump 4.4% on Monday. Among the "H shares" of mainland stocks listed in Hong Kong, only oil giant CNOOC HK:0883, up 5.3%, did better. You've doubled your money on Tencent since the start of 2017 -- no small change.
Chinese companies still will be making plenty of money to justify their stock values, tons of money in the case of companies such as Tencent and Alibaba Group Holding (BABA) . But little by little, Hong Kong's position as the gateway from which to operate safely in Chinese markets is giving way.
Fear of Expression
One investment banker told me that his well-regarded China analyst is terrified of his move, now underway, to Shanghai. The analyst must sign papers that he will operate by the mainland's rules. He is not certain he can while expressing what he sees with his expert eye. Then consider that in Asia, Singapore has a perfectly good legal system, stock market and financial center. So does Sydney in the Pacific. Taiwan, long a military dictatorship, is now the bastion of Chinese freedom and democracy.
It may not seem particularly impartial for a journalist to march against the extradition bill. But 3,000 members of the legal profession marched in their own demonstration on Friday, and senior judges have criticized it. The opposition comes from all corners of society -- my hardly radical 50-something housewife sister-in-law marched, too, tears in her eyes --fearing the city is losing its freewheeling nature and competitive edge.
The march is the largest mass demonstration since China got its hands back on Hong Kong in 1997. It may well be the biggest in the city's history. Hong Kong's Cantonese people, always outgoing seafarers, formed the base of many of the world's Chinatowns, so their cultural reach remains wide. Hundreds of people gathered in New York City and London, while 4,000 took to the streets in Sydney as supporters held rallies in 29 cities around the world.
In 2003, a demonstration of 500,000 people, half Sunday's size, successfully got a law shelved that would have outlawed sedition, treason and the "theft of state secrets" from the Chinese central government. Now, Chief Executive Carrie Lam is intent on ramming the extradition bill into law. She continues to insist that all those people in the streets, senior legal minds included, "misunderstand" it.
Many in the business and legal community do understand it, and that it's a mistake. My Cantonese wife is furious, and sometimes mentions leaving the city for good. Unable to elect a government that represents us, and if 1 million people are ignored, it may be the final solution not just for us but for many investors and companies doing business into China, too.