October 6, 2014 | Commentary on Economic Freedom, Index of Economic Freedom, Hong Kong, China

Beijing Should Let Hong Kong be Hong Kong

Back in 1997 when control of Hong Kong was ceded from the British to the Chinese, the question was whether the Chinese governing system would take over Hong Kong, or Hong Kong capitalism would take over China.

Well, now we know the answer — or at least the answer that the repressive leaders of China are seeking.

The tragedy of Beijing blocking Hong Kong’s right of self-determination isn’t just a setback for the island, but perhaps more so for mainland China itself. It is a declaration to the world that Beijing still doesn’t get the freedom thing. The hope had always been that economic liberalization in China and the abandonment of 60 years of savage Maoist autocratic communism would lead to an inexorable march toward political freedom and an elevation of human rights.

Or not. Is there any wonder, as China’s leaders try to squash the freedom fighters in the streets of Hong Kong, that investors around the globe are pulling back? Anyone regretting buying the Alibaba hype?

Hong Kong’s China stock market has taken a beating — down more than 7 percent in September — as investors cringe at the thought of Beijing imposing its political will over the island. This is a wake-up call. The people who gave us Tiananmen Square are still calling the shots. Suddenly, freedom isn’t marching forward, but backward. Should we be surprised that a nation that censors the Internet, that dumps political dissidents in hideous prisons, that has no concept of freedom of the press, that still hasn’t renounced it’s one-child policy — arguably the greatest human rights violation of the last half-century — and thinks it can centrally control a $10 trillion economy, would try to stomp out free elections in Hong Kong?

Economic freedom in China has advanced but only as a practical matter — the Chinese adopted free-market reforms as a sort of last resort when communism’s failures were beyond dispute — and especially compared with the meteoric rise of Hong Kong. The Chinese leaders are still control freaks when it comes to pulling the economy’s strings, which is one of many reasons to suspect a bubble after 20 years of phenomenal growth. China’s market reforms have lifted more than a half-billion people out of abject poverty — one of the great economic triumphs in human history — as it has moved to pseudo-capitalism. Just think of the prosperity if they went all the way.

Hong Kong is the real economic triumph of human history, though. It’s an inconvenient free-market success story for the left. How do you explain its prosperity?

After all, as Milton Friedman reminded us in “Free to Choose,” this is a tiny port island with relatively few natural resources, the highest population density of virtually any nation (except for Singapore and tiny Monaco) — and has no military power. This should be a Malthusian nightmare — with more human misery than the poorest province of India or village of Africa.

Instead, the average Hong Kong resident had a standard of living five times higher than the average mainlander, in terms of gross domestic product per capita. Skeptics say: Well, that’s only because Westerners — Britons and Americans — invested so much there. Which raises the question: Why did they invest there?

The answer is obvious. What Hong Kong has going for it is economic freedom. My colleagues at the Heritage Foundation rate Hong Kong the most economically free country on the planet. Mainland China ranks way down at No. 137 (see chart). The island has long had a 15 percent flat individual income tax, it is a free-trade mecca, government spending is low, regulations on small businesses are light, education is largely private, and capital moves freely in and out — unhindered.

In a rational world, it would be Hong Kong taking over China. We are witnessing the reverse.

The hope for not just the Hong Kong Chinese is that Beijing will stand down. Let Hong Kong be Hong Kong. Why, oh, why aren’t our feckless leaders in America more forcefully condemning Beijing for its political thuggery?

What are they afraid of? That Beijing will sell their U.S. bonds? Let them. With interest rates at such low levels, there are clearly plenty of buyers.

The enduring lesson of the Hong Kong economic miracle is that freedom works to create prosperity. Sadly, what we don’t know right now is whether freedom will win out over tyranny.

 - Stephen Moore is chief economist at the Heritage Foundation.

About the Author

Stephen Moore Distinguished Visiting Fellow
Project for Economic Growth

Originally appeared in The Washington Times