Why China's Iron Fist Hesitates in Hong Kong

There are complex reasons why the pro-democracy demonstrations in Hong Kong have not provoked a Tienanmen type response from Beijing.

Perhaps the most important of them are (1) Hong Kong’s important role in facilitating official corruption in China; and (2) The possibility that harsh action could cascade into a tidal wave of protests on the mainland and bring to the fore the serious rifts that exist within the political elite.

The role of a laissez faire Hong Kong in laundering the money of corrupt Chinese officials was Margaret Thatcher’s primary – if undeclared – argument for the “one country two systems” arrangement under which Britain transferred control of the city to Beijing in 1997.

The city has also been the conduit of major flows of laundered money from other parts of the world into the Chinese economy, a key factor in its so-called miraculous growth over the last two decades. Investments have accounted for more than 50 per cent of China’s GDP growth in recent years, a proportion unprecedented in history.

At a time when the Chinese banking sector is on the verge of collapse because so much of it is a vehicle for corruption and a long-running real estate bubble seems headed into what could be a precipitous bust, Beijing dare not send out the tanks in Hong Kong.

It could upset the larger apple carts of international corruption on which the regime depends for security and sustenance.

This explains why Beijing has been reduced to mobilizing a goonda army ostensibly in the pay of Hong Kong retailers irate at losing business.

Whether that will succeed in dealing with the problems remains to be seen.

The protesters include thousands of people employed in Hong Kong’s money-laundering industry, and they could wreak major economic havoc, setting off a larger political unwinding.

The next few weeks could be crucial to the future of China – and the world.