Hong Kong’s small stockbrokers are technologically backward, lack economies of scale and account for a declining share (now just 10%) of trading. It is hardly surprising that they oppose modern regulatory reforms that would keep the city’s market world-class – the amazing thing is that they succeed.
Bloomberg asks why, and concludes that it comes down to the city’s ‘unique political system’. Its report suggests that the political system failed to evolve with the stock market, and this accidental quirk has left the small brokers a disproportionate number of votes in the 1,200-strong Election Committee that picks the Chief Executive.
However, if Bloomberg looked around, it would find Hong Kong full of these accidental quirks – groups able to convince government to protect outdated models and practices when change would benefit the wider community and economy. A well-known example is the holders of taxi-licences who got Uber banned. You could include property and other cartels, the rural Heung Yee Kuk lobby, and various professions.
These are interests that were co-opted by the Chinese government as a local support base back in the 1980s and 90s. They subsequently received privileged positions in the election body and legislature. A superficial reading of the dynamics is that this gives them clout to push government around (hence the brokers bullying Carrie Lam in the Bloomberg story).
But this presumes that they have actual votes to wield in an actual competitive electoral process. The reality is that Beijing chooses the Chief Executive first, and the ‘election’ that the brokers and others go through is a rubber-stamp charade. As shoe-shiners who will grovel to the Communist Party in an instant, the brokers (taxi-owners, developers, HYK, etc) will obey instructions anyway. (And in Carrie’s case, she didn’t even want the damn job.) So what’s with the wheeling-and-dealing-for-votes thing, as if this were a genuine Western-style lobby-corrupted democracy?
The best explanation lies with Beijing’s obsession with control – or its insecurity.
Anyone connected with a business ‘functional constituency’ will know that Beijing’s pre-ordained winner in a Chief Executive ‘election’ does indeed beg for support (for nominations and then votes). Beijing’s local Liaison Office seems to be fairly hands-off in letting its co-opted sectors extract favours from the ‘candidate’.
This might seem like a reward for loyalty. But why value the 1980s-era vested interests’ loyalty so highly in this day and age? These same sectors hold Hong Kong back economically, damage it socially and sap the hapless Chief Executive of credibility. They are more trouble than they are worth. Beijing would surely be better off ditching the geriatric parasites and dinosaur-dynasties and winning the support of the entrepreneurial, innovative, techie sectors that would at last have room to grow.
But Beijing is paranoid, and it does not see alternative or replacement ‘friends’ in a city it increasingly alienates. So it clings to these sorry and shabby old vested-interest relics. They, unsurprisingly, milk the situation for all it’s worth. (This may be above their heads, but they even have an interest in perpetuating the HK alienation-CCP paranoia cycle.)
The Bloomberg analysis is that the ‘political structure’ causes the problem. It might be better to say the reverse – the problem causes the political structure.