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Is China responsible for Hong Kong’s socio-economic crisis?


From a small fishing town to a British colony to part of China’s one country, two systems policy, Hong Kong’s unique history has persistently managed to capture the world’s intrigue and attention.

Before the 19th century, Hong Kong was a small Chinese territory inhabited by a small fishing population. With its mountainous terrain, less than fertile soil and lack of freshwater, Hong Kong proved to be an unpopular destination for settlement. During this time, China was ruled by the Qing dynasty, which used to supply expensive tea and other valuable luxury goods to Britain. Tea was considered an integral part of English society and culture and due to expansive tea import payments, Britain’s treasuries started drying up. In order to deal with this crisis, the British government decided to start an illegal opium (a medicinal and recreational drug that was banned in China) trade with China. Hong Kong proved to be a relatively safe and undisturbed base for British sailors, who in 1821 began to use the harbour to anchor opium-carrying vessels.

The Qing regime eventually caught on to this illegal opium trade and decided to crack it down. This resulted in the first and second Opium Wars over the next few decades, with China eventually accepting defeat. Defeat, however, came at a high cost with China losing all of Hong Kong to Britain. However, it was no ordinary annexation. As part of their agreement in 1898, Britain leased the territory of Hong Kong for a period of 99 years. China would regain control of the territory on July 1st, 1997.

British Hong Kong’s trajectory was in stark contrast with that of mainland China, which became a communist country in 1949. Over the next century, Hong Kong became a place of political refuge for Chinese exiles from the mainland. This meant increased labour and rapid growth for capitalist Hong Kong, which was thriving under foreign capital inflows and industrialization. By the late 1980s, Hong Kong had become one of the wealthiest places in Asia.

As the treaty’s expiration date loomed, the UK and China began to discuss Hong Kong’s future, starting in the late 1970s. After years of negotiation, the Sino-British Joint Declaration was signed between the two countries. The terms of the agreement stated that China would give some political and social autonomy to Hong Kong through a ‘one country, two systems’ policy for a period of 50 years.

Hong Kong’s political crisis

When Hong Kong first became a British colony, despite certain setbacks to its economic growth in the form of wars and political protests, its economy managed to develop at an impressive rate, especially in the years following World War 2. The market economy and the laissez-faire policy of the British colonial government provided the stimulus for industrialisation, and from the late 1960s, the economy started attracting greater foreign investment and financial transactions.

In the early years after China’s takeover, Hong Kong's economy continued its upward trajectory with its citizens enjoying considerable political and civil liberties in comparison to their counterparts in mainland China. However, as the second decade of this century opened, things gradually started to look bad for Hong Kong. With Xi Jinping becoming the Chinese President in 2013 and China’s growing dominance in the global market, its Hong Kong policy witnessed a sudden pivot. This came as a shock to the people of Hong Kong, who were expecting Beijing to honour its promise and respect their autonomy at least for a few more years. As Xi Jinping’s government began to exert increasingly authoritarian policies over the region, a society that was built on western democratic values of free markets, constructive political dissent and freedom of speech, became a police state.

Is China also destroying Hong Kong’s economy?

The economy and politics of a country are not exclusive of each other. Both are deeply intertwined and thus the ramifications of a change in political structures and ideology are often able to slink their way into the economy’s development as well. However, while many western publications and media houses try to paint Hong Kong as a “dying” society and economy, the reality is a lot more complex.

To understand why Beijing crushed Hong Kong when it did instead of doing so earlier or not at all, we need to look at China’s side of the story. When the ‘one country, two systems' policy was adopted in 1997, the Chinese communist party felt that a flourishing post-handover Hong Kong would be a valuable source of capital, trade and business expertise. However, in the years following the takeover, the Chinese economy, military and overall importance proliferated on an unprecedented scale and beyond imagination. Hong Kong’s economy, on the other hand, remained relatively stable. The graph below draws this comparison.

As a result, Hong Kong’s contribution and significance to the Chinese economy declined rapidly. In 1993, Hong Kong’s GDP accounted for more than a quarter of mainland China’s output. Today, China’s remarkable rise means that Hong Kong’s economic output makes up less than 3% of the mainland’s.

This shift explains why China was suddenly not reluctant to take over Hong Kong’s autonomy and impose its dominance freely over the region.

Even as the city’s civil liberties are diminishing, it retains a vital place in the Chinese economy.

In succeeding years, with China adopting a more open foreign policy, Hong Kong–China trade surged. Hong Kong developed not only in manufacturing, trade, and shipping but also as a regional financial centre and as an agent in China’s pursuit of modernization.

The service sector constitutes approximately 90% of Hong Kong’s GDP. A massively restrictive society with negligible civil liberties is making many professionals including lawyers, teachers, academics, and researchers emigrate to more democratic societies. Hundreds of thousands of Hong Kongers are now either wanting to leave or have already left the city. Many believe that this trend does not look good for an economy solely dependent on highly skilled white-collar workers.

But on the flip side, the departing Hong Kongers are creating space for an increasing number of Chinese workers to move to the city and join its labour force. Moreover, Hong Kong remains the major choice for Chinese companies to list outside of the mainland. Major Western banks and financial institutions still derive a large proportion of their revenue from Hong Kong and hence, are not so readily willing to leave the country. For now, Hong Kong’s role as China’s financial gateway to the world remains intact.

Hong Kong’s future

Even though Hong Kong still continues to be an influential economy, its status as a global financial capital is eroding. China’s oppressive regime and efforts to root out all western influences from the city has taken a toll on Hong Kong. Citizens of Hong Kong, especially the youth, are fighting every single day to protect their fundamental rights, liberties and a future where the colours of democracy will colour the skies of their beloved city.

With the Sino-British agreement expiring in 2047, speculations remain on Hong Kong’s fate. Constant pronouncements that Hong Kong is “dying” simplify the reality of what’s happening here. It is a deliberate transformation being carried out under the direction of Beijing, which cares little about the civil liberties being lost while retaining the city’s financial hub status. As the city fights hard to hold on to the last vestiges of its old self, it remains to be seen what the future holds for Hong Kong.


  1. “Hong Kong - Settlement patterns.” Britannica, Accessed 2 December 2022.

  2. Yip, Hilton. “Beijing Needs Hong Kong's Financial Status, Not Its Freedoms.” Foreign Policy, 12 August 2021, Accessed 2 December 2022.

  3. Zheng, Sarah. “Hong Kong Predicts Economy May Shrink More Than Expected in 2022.”, 11 November 2022, Accessed 2 December 2022.

  4. “Economic and Trade Information on Hong Kong.” HKTDC Research, Accessed 2 December 2022.

The Economist, How China crushed Hong Kong’s Economy, An anatomy of erasure.

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