[This article was originally published by the Independent Institute]
Hong Kong has been in the news recently for the sheer size of its protests. Residents so badly want to remain separate from China that an estimated 2 million of its 7.4 million population marched on June 16. The specifics of the protest are technical, regarding extradition laws. But the larger issue is whether Hong Kong will maintain its “one country, two systems” relationship with China, or be engulfed by the powerful nation. Protesters are thus defending something worthwhile: the ability for Hong Kong to maintain its economy and governance, which rests on a free-market urban blueprint.
Hong Kong has been a part of China for centuries, and technically still is. But it’s modern incarnation as a sort of special economic zone came in 1898. For decades, Britain and China had fought trade wars, with ownership of the port city at the center of the dispute. That year, the British Empire agreed to lease Hong Kong from China for 99 years, and operate it under a Westernized model. In 1984, Margaret Thatcher renegotiated the lease so that when it expired in 1997, Hong Kong would remain a semi-autonomous region for another 50 years. While tensions with China have ebbed and flowed since the 1997 transition, Hong Kong still more or less remains a democracy.
The results over this 122-year period have been stunning, especially when compared to China’s trajectory. During that time, China endured decades of communism, and still is largely socialized. Hong Kong, by contrast, is arguably the world’s closest thing to true capitalism. Since the Heritage Foundation started its economic freedom index in 1995, Hong Kong has ranked first each year (China ranks 100 out of the 180 countries ranked). According to Heritage’s profile of Hong Kong, it has strong property rights, minimal taxation and government spending, an efficient regulatory climate, and open trade.
“Despite the political unrest,” states the report, “Hong Kong’s open and market-driven economy continues to flourish, increasingly integrated with the mainland through trade, tourism, and financial links.”
This has led to nothing short of an economic miracle. Hong Kong has one of the world’s busiest ports, and a near-perfect export-import balance. As one of the world’s leading financial centers, it has significant startup and IPO activity. It has a higher net GDP than Colombia, a relatively prosperous Latin American nation with nearly seven times the population. Hong Kong’s nominal per capita GDP is $49,000, which is 15th-highest in the world, and five times higher than China’s.
The embrace of markets has also led to streamlined bureaucracy. There’s little corruption or public debt, and some services are outsourced. The shining example of this is MTR, Hong Kong’s public-private transit company. It runs arguably the world’s best transit system, a 221km network of highly-profitable heavy and light rail trains that have 2-minute headways and an effective on-time rating of 100%.
If Hong Kong has a flaw, it is the most socialized and illiberal aspect of the place: housing. Because China owns and leases the land, it is managed by the Hong Kong government. A recent Vox documentary showed that the government has underutilized much of this land to inflate its value—in fact, Hong Kong, despite being this dynamic economy, has almost no new housing construction. This combo of prosperity and scarcity has made it the world’s least affordable housing market, with home price averages of $1.2 million, and reports of the elderly poor living in cages. If Hong Kong allowed developers to build to the market, the 488 square mile territory would become even more modern and dense than it already is.
But the Hong Kong territory nonetheless remains an incredible success story. Residents are right to protest any perceived takeover of their governing or legal system by China. And Western political leaders—who theoretically support the idea of liberal democracy over tyranny—would be right to give louder support to Hong Kong at this time.