Business·Analysis

Falling Hong Kong markets another example of hardline failure: Don Pittis

A sharp decline in Hong Kong markets from growing violence is the latest reminder that taking a hard line often makes things worse.

Warning: This story contains a graphic photo some readers may find disturbing

An anti-government protester walks past a burning vehicle during a protest in Hong Kong Monday night. (Tyrone Siu/Reuters)

When is the time to take an inflexible stance?

As Hong Kong violence risks plunging the Chinese region into something much worse, wiser heads in the Hong Kong government and among demonstrators, and some in the national government in China may be regretting their earlier intransigence.

Clearly the escalating battles through the city centre's crowded streets, including newly horrifying scenes of violence, are about much more than money. But in a place where money has always played such an important role, markets tell part of the story.

On Monday the Hong Kong stock market, Asia's third largest and the fourth biggest in the world, plunged by 2.6 per cent as hundreds of billions of dollars in value was wiped off share prices.

Demonstrators are reacting Tuesday to a new police shooting, photos of a bloody attack and video of a motorcycle cop using his vehicle to run down protesters.

Universities and many businesses are closed. For many the main subway system, the MTR, has become a no-go zone after demonstrators accused the listed company of being in league with the government and police.

Reprisal targets

Yesterday, shares in the MTR Corporation did worse than the market as a whole and are down about 20 per cent in the last four months as the stations have become a target of reprisals including gasoline bombs, damaged pay terminals and smashed windows.

A fire aboard a subway car that resulted in injuries and the dangers of panic from smoke and tear gas have made people wary of taking what has been one of the most efficient and most crowded public transit systems in the world. But for many ordinary commuters there are few alternatives.

Not just the large listed companies are suffering. Besides the damage and loss of tourism, regular folks are staying home more and spending less in restaurants.

Strangely in such a law-abiding community, where muggings for example just don't happen, polls still show most Hong Kongers blame the police and government.

Protesters rallied once again in Hong Kong on Monday, as the Chinese-ruled region spiralled into rare working-hours violence in its 24th straight week of pro-democracy unrest. 0:51

It is not unreasonable to say that the escalating violence and its economic cost can be traced back to a single cause, the refusal of Beijing and the Hong Kong government that does its bidding to back off a plan to force the extradition of Hong Kong people to face Chinese courts.

For whatever reason, the Hong Kong government of Carrie Lam and her Beijing masters decided that despite strenuous objections from all parts of society to having their common law legal system overruled by Chinese courts, it was time to draw a line in the sand.

In these polarized times where people gravitate to contradictory conclusions, taking a hard line may seem like a powerful tool for politicians to invigorate their supporters and demonstrate the strength of their views. But as I pointed out a few months ago in the case of Brexit, taking a rigid stance also motivates your opposition. And the results may be contrary to what you hoped.

Precisely opposite effect

In a small way this week's battle over the wearing of poppies, or as commentator Adam Kassam described it, the weaponization of the poppy, was a similar example, which had precisely the opposite of its intended effect. Rather than encouraging people to wear poppies, many of us felt obliged to take them off this year rather than be seen as backers of what seemed like Don Cherry-style racism.

Failing to take a stand is often characterized as weakness. Former British prime minister Neville Chamberlain's name has been blackened by history for his supposed failure to take a hard line against Hitler, though the details are far more complex.

Undoubtedly there are times to take a stand. But it is a policy to be saved for special occasions when the alternative is extreme. It should also be reserved for times when the result of standing your ground is not worse than, as in the case of Hong Kong, what will happen if your bullheadedness is opposed.

Hong Kong is seeing horrifying escalating violence. A wounded man is attacked Monday during a protest in the Mong Kok area. (Thomas Peter/Reuters)

In the event, after drawing its line in the sand the Hong Kong government was forced to step back, first suspending and then finally withdrawing the extradition bill as protests mounted. But it was too late.

The early and repeated unwillingness to listen, to negotiate, to compromise came at a cost. As violence intensified and demands escalated, reaching out across the gulf is no longer as easy as it would have been when many people would have been happy with simpler concessions.

Almost bizarrely, Beijing representatives in the region are calling for harsher laws to draw yet another line in the sand. As if further escalation will calm a popular protest movement that has begun to spray paint the nihilistic slogan "Burn with us" on buildings. Students of Chinese history will know how explosive popular revolts can become.

Intervening with force majeure at this stage could well destroy more than it saves, smashing markets, resulting in pain and anger across China and threatening Communist Party legitimacy.

Rather than draw more lines, the government must urgently join with moderate demonstrators and business leaders to pursue a path to peace. It will not be easy at this stage. It may require concessions. But it may still be possible, and it is definitely worth the effort for Hong Kong, for China and for world markets.

Follow Don on Twitter @don_pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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