Behind the Revolt

The rise of people power has changed Hong Kong and China forever

It has been a kid-glove uprising. On July 1, a half-million Hong Kongers took to the streets, but they marched peacefully, even respectfully. Police never took their batons from their belts. Parents brought their children. Kids walked hand-in-hand with their grandparents. Then on July 9, as many as 50,000 more came out for a vigil in the dusk. Instead of candles, they used glow sticks -- the better to avoid sullying the Central district's pristine streets with wax drippings. They wore color-coded ribbons: Red to protest bad government, yellow to show opposition to a new national security law, blue to demand the resignation of Hong Kong Chief Executive Tung Chee-hwa. Even T-shirts calling for Tung to step down said: "Please."

Peaceful, yes. But for the Communist Party leadership in Beijing, Hong Kong's summer of discontent is nevertheless a nightmare. The demonstrators against repressive legislation represent one of the biggest political challenges to the Chinese hierarchy since the pro-democracy movement in 1989 that ended with the Tiananmen Square massacre. Beijing has always worried that democracy would spin out of control in Hong Kong -- precisely the kind of thing the disputed national security law was designed to prevent. Instead, attempts to ram the law through Hong Kong's usually toothless legislature have accelerated the city's democratization. "Because of what the government has done, people are willing to stand up and be counted," says Ronnie Tong, former chairman of the Hong Kong Bar Assn.

The unprecedented demonstrations kicked off a political crisis that shows no sign of abating. The imminent passage of enabling legislation for Article 23, the national security portion of Hong Kong's Basic Law -- the mini-constitution that governs Hong Kong -- brought the demonstrators together: They feared the statute would give Hong Kong officials sweeping powers to crack down on dissent, the press, and organized religion. It's a deeply held fear rooted in the fact that many of Hong Kong's 6.8 million residents fled the oppression of the mainland.

Although Tung eventually watered down some provisions, he otherwise refused to back down, saying he was just fulfilling his constitutional duty. But then on July 6, a key pro-Beijing member of Tung's Cabinet, James Tien, resigned when Tung refused to postpone a vote on the law in Hong Kong's Legislative Council. After a hurried, late-night Cabinet meeting, a shaken Tung emerged at 2:00 a.m. on July 7 to announce that he would indeed postpone the vote. The swelling ranks of Tung's enemies now want the chief executive out as well.

The civic spirit of the marches is real -- a surprising show of political engagement for Hong Kongers, who had long been considered most passionate about making money. But the protests also crystallize a host of grievances against Tung's administration. Protesters blame him for mismanaging the economy, bungling the fight against SARS, and listening too carefully to Beijing and not enough to local opinion. The anger also reflects a deep fear that under the 66-year-old Tung, Hong Kong is losing its uniqueness despite Beijing's pledge to create and maintain "one country, two systems," turning the city into just another troubled Chinese megalopolis. "Tung is pulling Hong Kong down and narrowing the gap between us and China," says camera-shop owner K.K. Poon. Many Hong Kongers want to stop that degradation. Tung "has converted an apathetic and apolitical mass into an angry populace," says Gordon Chang, an author and critic of Beijing.

The question is, how will Hong Kong's newfound defiance affect not only this city but the vast and roiled political landscape of mainland China? There's no concern that Beijing will send its People's Liberation Army troops stationed in Hong Kong into the streets. That itself is remarkable, given the fears that surrounded the 1997 handover to China. But if Beijing were to mishandle this crisis, the damage to China's international standing would be huge. For untested President Hu Jintao and Premier Wen Jiabao, the alternative -- sacking Tung -- is every bit as risky. It could put them at odds with the old guard in the central government and show that taking to the streets gets results -- not a message the leadership wants to send either to the mainland or Hong Kong. "Once people have participated in one demonstration, it's much easier to get them to a second and a third," says Martin Lee, former head of the opposition Democratic Party and a leader of the clamor against Article 23.

This demonstration of people power comes at an especially uncomfortable time for Beijing. The country is still recovering from its encounter with SARS, which shook popular faith in the central government until Hu fired two officials and acknowledged the severity of the crisis. And further meddling in Hong Kong would send the wrong signal to already-skittish Taiwan, which Beijing hopes to entice into a relationship like the one it has with Hong Kong.

Officially, Beijing is at ease with the events in Hong Kong. "We believe Hong Kong citizens, under the leadership of Tung Chee-hwa's administration, will sail through the current difficulties," a foreign ministry spokesman said on July 8. But it is no secret that Hu has little allegiance to Tung, who was handpicked by former President Jiang Zemin. By dumping Tung, Hu and his allies could gain an edge in their power struggle against Jiang, who still wields enormous clout as head of China's military. "The government is not bound and chained to Tung," says a Western diplomat in Beijing. "He's not Hu's man, and he is not widely liked in Beijing." Technically, Beijing has no power to force Tung out, and Hong Kong law doesn't provide for the recall of the chief executive. But most observers figure Hu could get Tung's resignation if he applied enough pressure.

But Hu's biggest fear is that by bowing to the demonstrators in Hong Kong, he will encourage domestic dissent. In a sign of just how nervous the protests made China's leaders, mainland newspapers completely ignored the July 1 march. Yet millions of residents of neighboring Guangdong province watch Hong Kong TV and saw blanket coverage of the masses of demonstrators crowding between skyscrapers and filling Victoria Park. "There have been all kinds of reports on the protests we can see on Hong Kong television," says a Guangzhou businessman. Enterprising Internet surfers were also able to catch wind of the protests. If mainlanders "see Hong Kong people peacefully go out on the street and get what they want, that will be a threat to the rule of the Communist Party," says Albert Cheng, a popular radio talk-show host and longtime Tung critic. Already, China faces impromptu protests across the mainland practically every day by laid-off workers, overtaxed farmers, and city-dwellers booted from their homes. "The central government sees this quite clearly now as its own crisis," says Shi Yinhong, a professor at People's University.

The irony is that Hong Kongers are focusing their wrath on Tung, not Beijing. "No one wants to overturn the Chinese government," says Stephanie Choi, a 65-year-old shopkeeper who attended both demonstrations. "Most of us like the new Mr. Hu." In the crisis over SARS, Hu won popular support by admitting the government's failings. His administration encouraged the trend of greater openness by revealing a submarine disaster in China's northeast in May and punishing top naval brass. When China's media reported that a graphic designer in Guangdong died in police custody, Beijing changed laws that had allowed the detention of workers without local residency permits.

Meanwhile, Tung's popularity keeps sinking. He's losing the support of the all-important business community -- which until now had generally backed him. Some think he bows too much to Beijing. Others grumble that he's too soft on the opposition. "The government has no credibility anymore," says a pro-Beijing industrialist. "Something has to change." Several Cabinet members could well be sacked. Prime candidates are Finance Secretary Antony Leung and Secretary for Security Regina Ip, who helped write Article 23 and ran the drive to ram it through the legislature. "It's time for Tung to make some major changes," says Ma Lik, a legislator at the National People's Congress in Beijing.

In the middle is Tung, an avuncular ex-shipping tycoon with a fondness for reading Chinese history and doting on his grandchildren. When he was tapped to run Hong Kong after Britain's departure, Tung appeared to be a gentle oligarch, an insider with enough pull in the mainland to manage the handover and still preserve what was unique about Hong Kong.

But from the start, Tung committed a series of gaffes and presided over a number of economic reversals, some of his own making:

-- Unemployment has climbed steadily, to a record 8.3%.

-- Tung angered land magnates by awarding a choice waterfront parcel to tycoon Li Ka-shing's son Richard to develop without putting the project up for bid.

-- A 65% drop in land values savaged the fortunes of ordinary Hong Kongers and created the most ruinous deflation in Asia outside of Japan. Tung planned to put government-owned apartments on the market -- a sure way to depress prices further. A popular protest stopped him.

-- The budget, once the most tightly run in Asia, swung into deficit -- a gap that will probably reach 7% of gross domestic product by yearend. And he angered Hong Kongers by raising taxes. That's a huge issue anywhere, but it's especially sensitive in Hong Kong, whose low taxes lured businesses from around the world.

Throughout, Tung's political skills were clearly lacking. There was widespread anger at his refusal to sack Finance Secretary Leung when he secretly bought a Lexus sedan just weeks before announcing a tax hike on new cars in February. Then, as the threat of SARS was receding, Tung put Health Secretary E.K. Yeoh -- the target of much criticism for his handling of the outbreak -- in charge of an investigation into the causes of the crisis, provoking even more outrage. And as the debate on Article 23 gathered steam, Tung and his advisers dismissed initial opposition as the work of the anti-Beijing fringe. "It's incredible how they underestimated the sentiment," says the head of a large Hong Kong trading company.

Tung has said little since the crisis started. On July 7, looking exhausted, he read a brief statement to the press, refusing to take questions. "What is most important is to get our economy going again," he said. Then a few hours before the July 9 vigil, he told government radio, "We will be listening to their concerns." So far, investors aren't panicking. The benchmark Hang Seng index is up nearly 5% since July 1, buoyed by Wall Street's performance and the hope that Tung might step down.

Ultimately, though, the economy could suffer. The territory has promised to eliminate its budget deficit by 2007. But to do that, the Legislative Council will need to again cut spending. If the government's legitimacy suffers because of the protests, Hong Kongers will have little stomach for any austerity -- and they'll be more likely to take to the streets. "The outcome would be pressure for easier fiscal policy and more spending on social services -- which isn't compatible with bringing the deficit down," says Michael Spencer, chief economist for Asia at Deutsche Bank in Hong Kong.

The crisis also threatens to pull the central government into Hong Kong's affairs more than anyone in the territory wants. Under the Basic Law, Hong Kong has the right to run its internal business for 50 years after the 1997 handover. But since the crisis erupted, high-profile advisers from Hong Kong have jetted to Beijing, and the central government has sent fact-finding teams to assess the mood. That sort of involvement is deeply unsettling. "The last thing we want to do is ask the central government to intervene," worries a former senior official. "It really is a very delicate situation."

While it's too early to say where the political crisis will end, nearly everyone agrees that when the legislature again considers the national security bill this autumn, it will be a far milder version than the original. "Article 23 is over -- it has been defanged," says Mark Simon, deputy general manager at Apple Daily, a newspaper that has led the opposition to the law. "The next thing is Tung." Whether or not Tung is, in fact, the next thing, the political opposition vows to press on. Hong Kong's Basic Law allows for direct elections of all legislators and even the chief executive after 2007 -- something Tung has refused to discuss. "The bigger picture must be the demand for political reform," says opposition Legislative Council member Emily Lau. "This is a watershed." That's certainly true for Hong Kong -- and for China, too.

By Mark L. Clifford, Bruce Einhorn, and Frederik Balfour in Hong Kong and Dexter Roberts in Beijing, with Miguella Lam in Hong Kong

    Before it's here, it's on the Bloomberg Terminal.