China can only castigate Hong Kong so much, due to the corporate ties that bind
Rather than focus on uncomfortable root causes, President Xi Jinping’s administration has blamed the continuing unrest on shadowy UK, US and other ‘foreign forces’
When millions of Hong Kong residents marched peacefully against a controversial extradition bill in early and mid-June, it was relatively easy for companies and investors in the territory to avoid taking sides.
But as initially peaceful marches have given way to an increasingly violent “flash mob” rebellion, with pitched battles between protesters and police breaking out at multiple locations every weekend, Chinese officials are beginning to lose their patience. They are now demanding — and receiving — overt demonstrations of corporate support for an end to the protests.
Over the weekend, prominent Hong Kong business figures signed a public petition urging a cessation in the protests. The signatories all want to avoid the controversy that has recently engulfed Cathay Pacific, Hong Kong’s flagship airline controlled by the Swire Pacific group.
On Friday, China’s aviation regulator criticised the airline for not moving fast enough to punish a pilot arrested by Hong Kong police for allegedly participating in a riot, as well as two other employees suspected of leaking the flight itinerary of a Hong Kong police football team. Cathay subsequently suspended the pilot, fired the two staff implicated in the information leak, and warned the rest of its employees that participating in illegal protests not authorised by the police could lead to dismissal.
On Tuesday, as protests disrupted flights at Hong Kong’s airport for a second consecutive day, Swire issued a statement condemning “all illegal activities and violent behaviour”.
The reasons for the durability and intensity of the protest movement are complicated and deep-rooted. They range from fears that Hong Kong’s civil freedoms are rapidly eroding to sky-high property prices and Hong Kong CEO Carrie Lam’s botched handling of the extradition bill saga.
But rather than focus on these difficult-to-resolve root causes, President Xi Jinping’s administration has instead blamed the continuing unrest on shadowy UK, US and other “foreign forces” supposedly bent on undermining Beijing’s sovereign authority over Hong Kong.
The longer Hong Kong’s protest movement rumbles on, the more such awkward situations Cathay and other Hong Kong companies will have to navigate
In such a febrile climate, Cathay and its Swire parent were always going to be tempting targets for Chinese nationalists intent on blaming anyone other than Lam and Beijing for Hong Kong’s crisis. Swire, alongside Jardine Matheson, is one of two British trading groups established in Hong Kong during the 19th century. While neither provides a detailed breakdown of revenues or profits by country, in its 2018 annual report Swire noted that its “principal” focus was Greater China.
By contrast, Jardine Matheson moved decisively over the years to reduce its dependence on both Hong Kong and Greater China more generally. Even before the former UK colony reverted to Chinese sovereignty in 1997, Jardine Matheson redomiciled itself in Bermuda. Thanks largely to its hugely successful investment in Indonesia’s Astra group, last year Southeast Asia accounted for 40% of Jardine Matheson’s group profits.
For now, the disciplinary actions taken by Cathay against the three employees whose alleged actions irked Beijing appear to have mollified Chinese aviation authorities. They have so far only required the airline to guarantee that its China-bound flights are not staffed by anyone who has participated in illegal protests.
But what to make of the masked Cathay flight attendant who held up a sign critical of Lam while walking through Hong Kong International Airport’s arrival hall on Saturday, having just staffed a flight back to the territory? The defiant gesture electrified hundreds of protesters who had gathered at the airport without police permission for a peaceful — but also technically illegal — rally.
Most Hong Kong residents would say the attendant was simply exercising her right to free expression as she headed home. Chinese authorities would probably argue that she had aided and abetted an illegal protest.
The longer Hong Kong’s protest movement rumbles on, the more such awkward situations Cathay and other Hong Kong companies will have to navigate. But Xi, too, faces some difficult dilemmas as he tries to force Hong Kong Inc to toe the line.
Thanks to a longstanding cross-shareholding agreement, Beijing’s flagship carrier, Air China, has a 30% stake in Cathay. In 2018, that stake accounted for 20% and 8%, respectively, of Air China’s revenues and profits. Such are the corporate and economic ties that bind China and Hong Kong together in an increasingly fraught political union. For all of its huffing and puffing, Beijing cannot punish Hong Kong companies without punishing itself.
© The Financial Times Limited 2019.