Hong Kong: Where do we go from here?
Hong Kong: Where do we go from here?
As social unrest in Hong Kong enters the sixth month, confrontations between protesters and the police continue to lead to extensive disruption and other operational challenges for businesses. Heightened protest-related violence over the past two weeks has also resulted in higher incidental personal security risks and raised widespread concern about how the situation will develop in the coming months. There was a respite leading up to and immediately after the district council elections, which saw record voter turnout and landslide support for pan-democrats. However, protests are likely to continue in the wake of the polls, with the results both strengthening the momentum of the protest movement and increasing the pressure on the government to recalibrate its approach to address underlying discontent.
We continue to assess that security forces are unlikely to directly intervene. At the same time, there is also little prospect of the Hong Kong Special Administrative Region (SAR) government acceding to all of the protesters’ demands or of demonstrations dissipating altogether. This means that, while a continuation of unrest is still the most likely scenario for the coming months, the long-term outlook remains uncertain.
The trajectory of the protest movement will depend in large part on how the government and demonstrators respond to the election results. As such, much uncertainty remains. For businesses, this uncertainty, combined with the highly emotive and politically sensitive nature of the situation, makes assessing and responding to the Hong Kong crisis especially challenging, both internally and externally. It is therefore useful to review key assumptions and consider scenarios for the coming year.
Even over a 12-month timeframe, the most likely scenario is that there will be no decisive resolution to the crisis. Unrest will continue to be a feature of the environment. The level of tensions and extent of the resulting disruption will continue to involve significant developments and variations including:
- Periods where violence intensifies, but with the worst unrest still relatively localised, and without a total breakdown of public order in Hong Kong.
- Periods where the frequency or intensity of protests declines, only to re-escalate later when notable incidents or police or government actions renew anger.
- Increased use of force by and augmentation of the police, and emergency measures to control movement or communications if circumstances worsen.
This baseline scenario is a worrying one, involving unrest, continued damage to public and private property, personal injury, occasional loss of life and business disruption. The crisis will also remain a serious drag on the economy in 2020, and increasingly undermine multinational companies’ fundamental perceptions of Hong Kong.
That does not mean businesses will pack up and leave Hong Kong, but it does imply an erosion of confidence in the long-term stability of the city’s institutional and security environment. This could influence certain decisions on locations for new investment or hiring, as some firms will look to diversify away from reliance on Hong Kong.
This deterioration in conditions and perceptions is dramatic by Hong Kong’s own standards. However, relative to global benchmarks, Hong Kong is still not a high-risk security or political environment, which is reflected in Control Risks’ global risk ratings. Security risks are sufficiently localised and specific that companies have options to mitigate and manage them. Rather than a hostile overall security environment, the main challenges involve:
- Duty of care considerations and international communications regarding staff welfare and safety.
- Sustained logistical and operational disruption, and adjustments to business continuity plans.
- Political, reputational and external communication difficulties due to conflicting pressures from mainland China versus other jurisdictions (including home country governments, public perceptions and media scrutiny).
The duty of care considerations arising from the baseline scenario do not involve direct physical security threats. Instead, duty of care considerations involve establishing intelligence, communications, travel and working-from-home systems that minimise potential exposure to incidental security risks stemming from localised violence. Many companies have already put these types of measures in place.
Duty of care extends to all Hong Kong-based employees (regardless of nationality), visiting staff, and in many cases dependants. A robust approach will include monitoring escalation triggers and planning for more negative scenarios. However, for firms with adequate systems in place, the primary challenges in 2020 are likely to remain those described above.
In addition to our baseline scenario, the high degree of uncertainty regarding the outlook calls for serious consideration of – and planning for – other scenarios as well. Although the details of these scenarios could vary, deviation from our baseline scenario would ultimately be characterised by either an eventual de-escalation of unrest or direct intervention by paramilitary or military forces. Although we continue to view both scenarios as unlikely in the coming months, we present them here to help businesses prepare for them. Neither one would be precipitous and each would involve advance indications.
Optimistic alternative – De-escalation
A de-escalation of the unrest over the next 12 months is not beyond the realm of possibility. A de-escalation could be driven by limited government concessions, stronger police and court enforcement, a change in vocal public sentiment or a combination of these factors. Stronger enforcement measures that could weaken the protest movement include steadily increasing arrests of violent actors and their supporters who are then sentenced to significant prison terms.
The government is highly unlikely to accede to most of the protesters’ demands. However, following the pan-democratic camp’s landslide victory in the 24 November district council elections, the government will be under increased pressure to recalibrate its approach to address underlying discontent. The successes of pro-democracy candidates were seen as a lack of confidence in the current SAR leadership and support for certain causes underlying the protests. Under these circumstances, limited concessions are possible – particularly the establishment of an independent inquiry into police actions during the demonstrations, which we assess to be the most important demand to many of the protesters. The government could also work to create an effective means for communications among key stakeholder groups that may ease the intensity of confrontations and rally public opinion against violence.
It is important to note that protests would still occur under this scenario, particularly on sensitive dates such as 12 June – the anniversary of the first police-protester confrontation related to the anti-extradition bill movement. However, the weakened capacity of the more radical demonstrators, combined with less outrage from their more peaceful counterparts and backlash against violence among the general public, means that intense confrontations would likely diminish. Police are also likely to quickly contain isolated violent incidents, which would result in less severe disruption to social order and the city’s operations.
Equally important to acknowledge is that a de-escalation would likely not be permanent, as root causes persist. Moving to enact a national security law in the near term, as required by Hong Kong’s mini constitution, could spur another period of unrest. Pursuing a policy for patriotic education could also provoke discontent. These types of moves, along with Hong Kong’s continued incremental integration with the adjacent region, if done without broader public support, are likely to trigger a new wave of outrage, laying the groundwork for large-scale protests.
In this scenario where we see a de-escalation, businesses would face lower operational and incidental security risks. However, the underlying tensions in Hong Kong would not fully revert to pre-crisis levels. The general public’s trust in the government – and the police in particular – has hit a low point and is unlikely to be restored anytime soon. Anti-mainland China sentiment is also likely to remain, and businesses will continue to face reputational risks in Hong Kong if they are perceived to support the central government at the expense of Hong Kong.
Pessimistic alternative: Military intervention
There are many reasons to avoid paramilitary or military intervention involving major deployments. However, it is possible to imagine an extreme scenario under which significant and sustained deterioration of public order ultimately leads to that result. In this scenario, the government would have to be convinced that the costs of intervention, including international condemnation and severe economic disruption, are less than the costs associated with a possible loss of effective control. While it is difficult to foresee the specific circumstances that would lead to military intervention, it would likely follow a very substantial and prolonged increase in violence that leads to large numbers of serious injuries or fatalities, destruction or long-term debilitation of critical infrastructure or a fundamental breakdown in public order.
Although businesses should consider this risk, it is important to note that this step requires the SAR government to first request military assistance because of a disintegration of public order, which it is unlikely to do. The military stationed in Hong Kong have a national defence mission, and the SAR government is charged with maintaining public order. In addition, the SAR government still has many tools to contain violence without requesting military intervention.
Even in the event of a large-scale deployment of military forces, it is worth considering that:
- Besides Chinese People’s Liberation Army (PLA) troops already stationed in Hong Kong, deployment would likely involve the People’s Armed Police (PAP) – basically the world’s largest paramilitary protest and riot control force.
- Although the PAP has authority to use lethal force, it is also trained and equipped primarily for non-lethal containment and de-escalation.
- Security forces would likely focus on establishing control of key infrastructure and protest areas and enforcing emergency restrictions on movement.
A scenario like this would be deeply alarming and disturbing, and would result in severe economic losses, international backlash and a period of disruption under some form of quasi-martial or emergency rule. However, it is unlikely to involve prolonged action, as there are almost no means for any segment of the population to access arms that could effectively challenge the military. An intervention would aim to end violence and re-establish public order as rapidly as possible. Security risks would be mainly concentrated in areas around protest sites, with security forces also securing key infrastructure, political and other strategic locations.
One implication of this scenario is that most companies should not be overly focused on evacuation in considering possible escalation. It is important to monitor escalation triggers to understand the threat levels under which a business operates in any circumstance. However, calibrating triggers to pre-empt such a scenario with early warning signs is a very inexact and unreliable exercise. Triggers could prompt disruptive “false alarm” evacuations or come too late for plans to be feasible. Attempting to leave Hong Kong while a security operation is imminent or underway could increase risk, compared with following well-understood protocols for minimising exposure while remaining in place. For firms able to reduce non-essential staff presence without major business disruption, doing so at a deliberately “too early” stage is also an option, if warranted by developing circumstances. In the current uncertain environment, companies should continue to focus on duty of care, business continuity and managing their exposure to political and external communications risks.