As Hong Kong transitioned back to Chinese hands after being a British Colony for over 150 years, a "one country, two systems" agreement was established to advance economic prosperity and social cohesion.
This unique relationship is what allowed Hong Kong to grow into a premier economic hub and operating base for conducting business with the mainland. Occasionally, friction occurs between China and the territory, manifesting itself most recently in the form of protests against a bill allowing for extradition to China. Viewed by some as another attempt to infringe on the "one country, two systems" agreement, as many as 2 million Hong Kongese demonstrated largely in a peaceful manner on the streets.
Unlike the Occupy Wall Street movement or the "Yellow Vest’" demonstrations in France, the Hong Kong protests are largely peaceful, well organized, and have produced only single-digit casualties as opposed to other protests around the world. Demonstrations are isolated, and objectives are clearly outlined in so-called "five demands." The well-structured and generally peaceful nature of these protests, while disruptive, mean that business remains relatively unaffected for the moment.
Hong Kong and Japan joined at the hip
The most recent round of protests saw Hong Kong's economy strain slightly, prompting concern among the region's largest trading partners. Japan, whose businesses and citizens are deeply intertwined with Hong Kong, is particularly affected by the prolonged disruption in the city. A sluggish Japanese economy, becoming increasingly burdened by an aging population and stretched social services, relies on its flourishing Hong Kong based companies for support.
Hong Kong is home to at least 1,400 Japanese companies, the second largest presence by nationality in the city after China. The disruptive protests have not only hindered staff members from traveling to work, but more drastically have resulted in weaker earnings for those companies. As a significant economic stakeholder in Hong Kong, Japan finds itself in a position where it has little to risk and much to lose if Hong Kong can not restore order in the territory.
Japanese creditors have also been pouring trillions of yen into foreign companies in a bid to attract returns that cannot be found at home. Among these foreign investments include over $21.6 billion of direct investments in Hong Kong. Hong Kong is also Japan's largest importer and bilateral trade between the two totals over $3.5 billion per year. In fact, Hong Kong is such a large buyer of Japanese products that it spent more than double of what the United States bought from the country in 2018. It is evident that the success of the Japanese economy is highly dependent on success and stability in Hong Kong.
Japan's interest in keeping the status quo
It is vital for Japan to support the "one country, two systems" policy that Hong Kong has been enjoying for decades - it maintains political stability and economic prosperity in Hong Kong and the Asia-Pacific. If the policy is undermined, whether through violent protests or through police crackdowns, Japan and its Hong Kong-based companies may not be prepared for the degree of change. A sudden shift in Hong Kong's stability would not only lead to the return of over 21,000 Japanese citizens residing there today, but it could also force residents and professionals to relocate to Tokyo. While certain Tokyo-based firms may welcome new talent, large destabilizing events would place stress on the already strained Japanese job market and social services.
Being the important business hub that it is, Hong Kong's stability is essential for the success of international commerce. Japan is not the only country that has an economy closely tied with Hong Kong – Taiwan and South Korea's economy are also heavily dependent on the territory. Indeed, while regional uncertainty grows, it is incumbent upon large regional stakeholders to help restore order.
Global support is vital to maintain stability in Hong Kong
Both Japan's Prime Minister, Shinzo Abe, and South Korea’s Kang Kyung-Wha have recently expressed concern about the safety of their businesses and citizens during the continued demonstrations. These sentiments are mirrored by governments around the world, who want to see their Hong Kong-based ventures operate unimpeded from disruption and violence.
Hong Kong's autonomous government allows foreign companies, including Japanese, to freely operate on soil that is technically Chinese but without the stringent regulations and oversights that burden foreigners on the mainland.
Avoiding a worst-case scenario
If the Hong Kong protests escalate into violence, it will disrupt commerce in the city to the point where its financial industries may begin to seriously consider pulling out. For regional leaders like Japan and South Korea, such a failure in Hong Kong will have substantial consequences at home, in turn threatening the region’s economic order.
The author is an analyst specializing in U.S., Middle East and Asian political and economic developments. Her work can be found at https://humanevents.com/author/joycetoledano/.© Japan Today