When the 1906 earthquake led to the deaths of about 3,000 people and destroyed about four-fifths of San Francisco, the esteemed Journal of Commerce (a publication as well respected as The Economist or the Wall Street Journal are these days), the front-page report focused on how the disaster would affect business and stock prices of companies with interests in that city.
Six years later, and when reports confirmed the sinking of the Titanic in April 1912, the same publication placed much emphasis on the prospect that its sinking would lead to the largest ever loss by insurance company Lloyd’s.
In May 1915, the Lusitania ocean liner was sunk by German submarines during the latter’s policy of ‘unrestricted submarine warfare’. This drastically turned public opinion in America against Germany and contributed greatly to America abandoning isolationism in joining the European War, and in doing so, decisively tilted the balance in what was a war of attrition in favour of Great Britain and France.
Given that whether America would intervene or not was then balanced on a knife’s edge, it was immediately apparent that the Lusitania’s sinking could well decide the issue. Yet the JoC largely focused on what the sinking would mean for stock prices that week.
The editors at the time would say that they were writing for a business audience and that is what their readers would want to read about. This sells short the intelligence and interests of their readers.
The lasting significance of the sinking of the Titanic or the San Francisco earthquake is the human devastation rather than commercial loss. The sinking of the Lusitania was not just a human tragedy but a global political and economy-shaping event that went beyond the impact on weekly stockmarkets.
What’s the relevance of these events some one hundred years ago in this column space?
Take the Australian Chamber of Hong Kong’s warning that the pro-democracy protests -- including the Occupy Central movement -- might be detrimental to the business interests of its members, which was commented on this site last week. (, October 15). Austcham’s comment was backed up by an anti-Occupy article by French banker and former president of the French Chamber of Commerce, Gerard Millet, who
The commerce chambers from Canada, Italy and India made similar comments. Talk about business entities missing the bigger picture -- not just political, but also economic!
This is part of what Austcham says: “The present situation is damaging to Hong Kong's international reputation, may harm Hong Kong's international competitiveness, and is creating an uncertain environment that may be detrimental to investment, to job creation and to Hong Kong's prosperity into the future.”
To be sure, the protest movements are stopping normal business from taking place and are disruptive in an immediate sense. But these business entities should stop and think about why Hong Kong is the essential financial and equity listing gateway in and out of mainland China: it is so because Hong Kong does not operate like mainland China.
For example, why did companies like Legend, which was founded in mainland China in 1984 incorporate in Hong Kong in 1988 under the new name of Lenovo? Because rules in Hong Kong about transparency, prohibitions on conflicts of interests by management and shareholders, protection for shareholders and other stakeholders, recourse to independent and reliable courts and arbitration procedures, and enforceability of judgments are taken seriously. Political influence over business affairs is prohibited, or at least closely regulated. The flow of capital is determined by commercial logic, not political power. In essence, there is rule of law in Hong Kong, and politics is largely separated from economics and business. Hong Kong is mainland China’s ideal future destination, not the other way around.
What does this have to do with the pro-democracy protests?
To be sure, most of the protesters are agitated about political issues, particularly the way candidates for Hong Kong’s Chief Executive will be limited to just two or three that require the majority support of a select committee, the majority of which will be filled with pro-Beijing members. Liberal democrats will be distressed. But why should business groups care?
If pro-mainland China leaders are invariably elected, do the business groups really think that there will be no change -- no matter how gradual -- in the way Hong Kong is ruled and governed? Will the economic interests of mainland state-owned-enterprises and Chinese Communist Party entities and individuals really be treated the same as the economic interests of Hong Kong entities and its people? Do these commerce chambers really believe that Beijing will be able to restrain itself and exercise a hands-off policy when it comes to the way economic and commercial affairs in Hong Kong are conducted?
What about the institutional environment in a future Hong Kong? Beijing, through its Hong Kong White Paper released earlier in the year, has already indicated that judges are to be ‘patriotic’ to the mainland.
If a Western company has a dispute with a Chinese SOE in Hong Kong in the future, are those in the commerce chambers confident that the judicial system will adjudicate impartially and solely on the legal merits of the case? It doesn’t happen in China, so why be so sure a future Hong Kong will retain its British rule-of-law traditions that Western companies represented by the commerce chambers rely upon?
Finally, remember that Hong Kong is competing with Singapore and Tokyo to be the financial hub of Asia and one of the leading hubs in the world (along with London, New York, Zurich and Geneva). Hong Kong is winning when it comes to being a gateway into and out of China. But Singapore is gaining ground on Hong Kong when it comes to being the financial hub for non-yuan currencies and finance.
Much of this is because foreign entities are hedging against the worsening of political risk factors in Hong Kong and maintaining a foothold in Singapore just in case. If Hong Kong cannot maintain its ‘way of life’, which includes its institutions and separation of business governance from politics, political and institutional risk in Hong Kong (or at least the perception of it) will become worse. This means that Hong Kong’s reputation as a safe and predictable financial hub will decline. And this is what much of Hong Kong’s economy is dependent on.
Hong Kong -- a private sector-driven economy defined by a system where the government stays out of economics and business -- is not mainland China’s version of where it wants to be. Those from the various commerce chambers and bankers heaping criticism on the pro-democracy protesters should ask themselves this question: given what is happening in Hong Kong, would they be prepared to bet their personal wealth that Hong Kong will be just as sound an institutional environment in 20-30 years as it is now? I doubt it -- and so would most companies or individuals.
So the bottom line is that there is more at stake here than a few trading days or even weeks lost to protest activity. With respect to the commerce chambers and Mr. Millet, being somewhat mean of spirit is not a good look. But more important from a professional point of view, being silly and short-sighted will not serve stakeholders well.