In the Mood for Loss

How finance facilitated China's authoritarian takeover of Hong Kong

Photo by Dan Freeman

Did Hong Kong ever have a belle époque? It’s difficult to say. Hong Kongers never had full control over their city’s political fate, no matter how hard they fought for it. Even now, it seems insulting to claim that the meager electoral reforms and quasi-autonomy afforded to the city at various points in its history ever set the stage for a sort of golden age. Yet it remains undeniable that there was a time spanning some set of years between 1980 and 2020––although I suspect that few will agree on which ones--in which there was a sense of political possibility in Hong Kong.

During those years, many Hong Kongers put their faith in what the writer Wilfred Chan has described as a “coercive bargain,” a belief that Hong Kong’s “culture, language, and ways of life might be kept precariously intact as long as the city continued being a ‘window to the world’”––which is to say, a free-market haven for international businesses. Over time, free markets became considered a sign of the city’s political health. For decades, Hong Kong topped global measures of economic freedom. When the Heritage Foundation finally removed Hong Kong from the Economic Freedom Index in 2021, it signaled the end of an era. A set of roundly mocked tweets proclaimed the death of the city. “RIP Hong Kong,” they read. “1842-2020.”

The suggestion that Hong Kong found its origins in the end of the First Opium War in 1842 was, of course, ahistorical, risible, and quite offensive. But we should think of 1842 as an important date nonetheless, one that marks the shotgun marriage of global capital markets to a conveniently placed port city that kicked off Hong Kong’s tragic and lengthy entanglement with international finance. From the colonial seizure onwards, Hong Kong became a zone of contact between western financial interests and the Chinese market. In the beginning, these interactions were a largely one-sided, exploitative affair; as the 20th century dragged on, they became much more mutualistic.

Certain things nevertheless remained the same. For many decades, Hong Kong was afforded an unusual degree of access to international capital. But the city was never home to any political arrangement resembling a real democracy. This was long considered a contradiction of Hong Kong politics, a source of friction that would eventually be resolved by either the broad opening of Hong Kong’s political life or the end of the city’s vaunted free-market system.

Unfortunately, the idea that Hong Kong’s free markets were one part of some free society to be realized in the future was never anything more than a comforting fiction. From the outset, Hong Kong’s liberal markets and illiberal politics were not in tension. Their coexistence was a built-in feature of the city’s political economy, one designed by British colonialists and adopted eagerly by Chinese capitalists after the handover.

Though it is rarely phrased this way, “market freedom” has always connoted the market’s right to be free from oversight, boundaries, democratic control, or anything else that might impede the forces of accumulation. In this sense, free markets are perfectly, or even optimally, compatible with the type of authoritarianism we find in Hong Kong. More pithily, the historian Quinn Slobodian once characterized neoliberal free-market statecraft as an “ongoing effort to protect capitalism from democracy.”

The history of Hong Kong’s relationship to free-market ideology tells us that we should consider it, like Chile or Argentina or Thailand, as one of many countries unwillingly converted into a laboratory for neoliberal policies. As outlined in Globalists, Slobodian’s intellectual history of free markets, Hong Kong became part of an effort by Milton Friedman, Friedrich Hayek, and others working in tandem with British authorities to create “the most libertarian major civilized community in the world.” The city was chosen in no small part because of its illiberal politics; in Slobodian’s description, Hong Kong became a “remarkable example of the neoliberal fix in a basic form: a model of a non-majoritarian market economy that limited popular sovereignty while maximizing capital sovereignty.”

The architects of the Hong Kong experiment even acknowledged as much. “There is almost no doubt,” Friedman said in a 1988 Hoover Institution speech, “that if you had political freedom in Hong Kong, you would have much less economic and civil freedom than you do as a result of an authoritarian government.”

It is tempting to blame the current political-economic arrangement in Hong Kong on a broad array of factors––a slurry of capitalist ideology, colonial legacies, and Chinese authoritarianism that swirled up around the city and swallowed it whole. But Hong Kong’s economic order was not formed through the accidental collision of some vague set of forces. Instead, it took shape around a specific trend: the financialization of the city’s economy.

The late David Graeber characterized financialization as a “profound shift in the nature of capitalism” wherein the generation of value in an economy moves away from production and trade towards the speculative manipulation of credit, debt, and regulated rents; in Hong Kong, this profound shift corresponded with massive changes in the city’s political and economic environment. Even as optimists hoped that Hong Kong’s role as a global finance hub would save the city, financial capitalism helped destroy it from without and within. The ascendance of finance capital caused inequality to skyrocket, driving up home prices and leaving wages behind. At the same time, an increasingly global system of financialization made the city a parking spot for the assets of international plutocrats, ultimately drawing in influences from the Chinese mainland that played a pivotal role in upending Hong Kong’s politics.

When we talk about Hong Kong, we must touch on the subject of the city’s history of major protest movements; when we talk about the city’s protests, we must inevitably discuss the housing crisis that has gripped Hong Kong for some time now. It has often been suggested, with varying degrees of condescension towards protestors’ democratic aspirations, that Hong Kong’s mass unrest was really just about the rising housing costs and the increasingly out-of-reach prospects of home ownership faced by the city’s younger generation.

There was, of course, an element of truth to this; but housing prices and living costs were at best a symptom of the larger economic order in Hong Kong. The city’s bizarre and inefficient land use regulations allowed for wealthy investors––many of whom were foreign speculators--to treat the city’s land as a financial asset, driving up the prices of individual plots to astronomical sums even as less than a quarter of the island’s land remained built up. Public housing, too, was financialized and securitized through a government-backed real estate investment trust, driving up rents and amenity prices in the name of increasing value for the trust’s shareholders.

The effects of these policies were, predictably, disastrous for the city’s residents. At the time of the protests, some three-quarters of Hong Kong’s adults under forty still lived with their parents. The down payment for an apartment in Hong Kong remains larger than a decade’s worth of income for the average university graduate. From 1980 onwards, housing prices rose so much that only a small fraction of citizens were deemed credit-worthy for mortgages, necessitating massive savings to even qualify for a housing loan.

Nor can we separate the broader frustration with this system from protestors’ struggle against mainland Chinese authorities, who themselves became closely intertwined with Hong Kong’s commercial real estate interests in the course of China’s increasing involvement in the city. By the time protests reached their peak in 2020, the Chinese government’s liaison office in Hong Kong had become a major landlord in its own right, presiding over a sprawling empire of more than $430 million in property investments administered through the help of a shadowy real estate firm that counted major Chinese officials among its board members.

All this is not to suggest that the Hong Kong protests were about financialization; certainly, the intricacies of finance capitalism were not the first things on the minds of demonstrators as they fled triads and fought police. But it remains true that the forces of finance capital lurked behind the grievances that drove Hong Kong’s people to the streets. The sociologist Randy Martin once argued that finance capitalism took shape through what he called the “financialization of daily life,” a process that has taken hold quite deeply in Hong Kong’s housing market:

Financialization integrates markets that were separate, like banking for business and consumers, or markets for insurance and real estate. It asks people from all walks of life to accept risks into their homes that were hitherto the province of professionals. Without significant capital, people are being asked to think like capitalists . . . soliciting curious forms of self-interest, particularly [when] individuals need to begin thinking through so many other selves.

Indeed, much of daily life in Hong Kong has already been financialized; the city’s people are now forced to involve themselves in sophisticated credit and savings decisions to meet even the most basic needs for shelter. In light of this, the question of the relationship between unrest, democracy, and rising cost of living in Hong Kong becomes, in a certain sense, meaningless. To be sure, the protests may have been motivated in part by the difficulty of securing housing. But this, too, was a problem of democracy. Demands for reasonable living costs and lower housing prices were, in effect, demands for economic democracy. Protestors aggrieved by the rising cost of rent were aggrieved by the fact that their lives were affected by financial markets beyond the control of Hong Kong’s people. When they took to the streets, they were asserting a democratic desire to wrest control of their lives away from the forces of finance capital.

Writing about another city with its own mass protests--Paris and its gilets jaunes--David Graeber argued that finance capitalism created a “new alignment of class forces,” one which pitted a broad array of well-off “techno-managerials . . . employed in pure make-work [white-collar] jobs” against the “caring classes . . . those who nurture, tend, maintain, [and] sustain.” Graeber’s observation holds across a great number of locales, but in no place was it more true than in Hong Kong, where, over the course of some thirty years, wage growth ground to a halt, even as capital markets continued to expand.

The city’s staggeringly high levels of income and wealth inequality are another product of the financialization of the Hong Kong economy. As with other financialized economies, increasing focus on maximizing shareholder profits at the expense of workers’ incomes caused wage growth in Hong Kong to stagnate. In turn, capital gains from speculative land investments, stocks, derivatives, and other financial products became a key source of income for Hong Kongers in the middle class and above. Workers without the savings to invest in financial assets--overwhelmingly workers in the blue-collar industries Graeber refers to as the “caring class”--saw their incomes lag behind.

Today, much of Hong Kong’s economy is disproportionately concentrated around financial holdings, capital accumulation, and the “techno-managerial” work needed to facilitate transactions in these types of assets. More than 20% of Hong Kong’s GDP comes from the financial services sector; when you include the highly financialized real estate sector and its associated industries, this number jumps to as high as 36%. As returns to capital far outpaced returns to labor, Hong Kong entered a state of what the economist Thomas Piketty has referred to as “patrimonial capitalism,” wherein inequality continued to grow as the wealth generated by accumulated and inherited assets shot past the value of even a lifetime’s worth of labor.

For Hong Kong, the emergence of patrimonial capitalism and the concentration of capital around the ownership of financialized assets had global implications. As finance capital began to accumulate in Hong Kong, the city’s financial services sector forged intimate connections with networks of international oligarchic corruption--most notably, those that emerged from mainland China. From the late 2000s onward, Hong Kong played host to a thriving private banking industry, which catered to the wealthy, and was minimally compliant with foreign law enforcement investigations; at the same time, the city boasted extremely low or outright nonexistent rates of taxation on foreign income, imports/exports, capital gains and dividends, corporate profits, and inheritances. As the finance industry expanded, Hong Kong became a de facto tax haven, hiding nearly $1 trillion in offshore wealth behind some of the world’s most secretive financial disclosure laws.

These practices made Hong Kong the perfect home for a tidal wave of money from mainland China, which swept not just into Hong Kong’s finance sector but also every aspect of the Hong Kong economy, reaping the benefits of capital returns at a safe distance from the immediate jurisdiction of mainland authorities. Enabled by the financialization of the real estate market, some wealthy mainlanders invested heavily in Hong Kong properties; others, enabled by the shift in Hong Kong incomes towards capital gains, dumped their money into the city’s financial instruments. When Chinese officials finally moved to stifle the city’s civil society, they were in turn aided by this type of expatriate capital from the mainland, which bought out media companies, spent heavily on politics, and otherwise greased the wheels of the Chinese takeover.

Even the Chinese government’s eagerness to quash protests in Hong Kong has a relationship to the city’s role as asset shelter. One major beneficiary of the speculatively inflated Hong Kong real estate market was a set of top Chinese officials whose families’ (known) personal investments in Hong Kong properties topped $51 million. As protests dragged on, these same top officials oversaw the quick ramming-through of Hong Kong’s infamous national security law. We of course cannot know, as a historical matter, whether this move was directly related to their reported desire to protect their investments from the economic shocks of pro-democracy protests. But the broader conclusion is quite clear. Finance capitalism, a system that Chinese authoritarians and global plutocrats viewed as a lucrative playground, was never going to bring about a better society for Hong Kongers.

Starting from the 1980s, the financialization of the global economy introduced a new term to the world’s business lexicon: “buy, strip, and flip.” The phrase referred to a common practice among finance capitalists that persists to this day: purchasing an undervalued company, stripping it of its non-essential parts to cause a short-term spike in shareholder value, and then selling it before it inevitably fails. We may conceive of what happened to Hong Kong in similar terms. The global finance economy took hold of Hong Kong, extracted massive economic returns out of the city’s parts, and then shunted off the crisis-ridden remains into the hands of the Chinese government. Today, much like how a failing flipped company might be absorbed into the maw of a larger buyer, what remains of Hong Kong is now being assimilated into what China calls the “Greater Bay Area,” a project seeking to link eleven Chinese cities together into an integrated financial hub.

In a cutting examination of the philosophical underpinnings of finance capitalism, the theorist Christopher Nealon wrote that the new preeminence of the finance economy is best understood as a “triumph of theory” under which value can only be conceived of as what might speculatively come into being. I think of Nealon’s writing often when I look back at the way Hong Kongers and the world thought about the city’s economic order. There was always something prettily appealing about the idea of finance and free markets as one part of an unfinished open society. But the kind of value Nealon describes is all that the “economic freedom” financialization brought Hong Kong ever was: a mirage assuring us that one day, things would become better, if only you looked away from how bad they were getting now.