Beijing reminds Hong Kong who's boss

China has issued a blunt warning to Hong Kong, showing who's the boss in the relationship, just days after tens of thousands of people staged a vigil in memory of the 25th anniversary of the Tiananmen Square massacre.

The State Council -- China’s cabinet -- published a White Paper that strongly asserts Beijing’s control over the former British colony despite the promise to maintain the so-called “one country, two systems” structure for 50 years after the handover in 1997.

The White Paper affirms that the central government in Beijing has “comprehensive jurisdiction” over Hong Kong and is the final arbiter of authority. Though it stresses that Hong Kong can choose its own head of government in the future through direct election, the candidates must be patriotic and acceptable to Beijing.

“The central government exercises overall jurisdiction over the Hong Kong Special Administrative Region, including the powers directly exercised by the central government, and the powers delegated to the HKSAR by the central government to enable it to exercise a high degree of autonomy in accordance with the law,” the white paper says.

The central government exercises overall jurisdiction over the HKSAR, including the power of the HKSAR to exercise a high degree of autonomy, the white paper said.

The editorial from Beijing’s official newsagency Xinhua, made it clear the foundation of the so-called “one country, two systems” formulation, which guarantees Hong Kong’s capitalist economic structure and inherited British legal system, was based on recognition that China was a unitary state.

The Xinhua editorial also warned against “foreign interferences” in Hong Kong, firing shots at pro-democracy legislators and protesters who enjoy close relationships with the US and Britain.  

Beijing’s blunt warning comes at a time when the relationship between the mainland and Hong Kong is increasingly strained. Pan-democracy legislators and protesters are increasingly frustrated with the progress on universal suffrage and more radical elements are agitating to occupy Central, the island’s financial district.

At the same time, anti-mainland sentiment is brewing among Hong Kong residents and there has been a widespread backlash against mainland tourists and migrants.  Some young people even managed to storm the gates of the Chinese garrison in Hong Kong.

The growing tension between Hong Kong and Beijing is a concern for the business community, both internationally and locally. The Hong Kong General Chamber of Commerce, in conjunction with a number of foreign business chambers, has placed a quarter page advertisement in the South China Morning Post this week, urging people to refrain from taking part in a planned pro-democracy demonstration.

“We respect the fact that politics is part of community life here,” says the advertisement, “however, we cannot, and should not, sit idly by when political actions threaten to disrupt general business activity and with it, livelihoods of Hong Kong’s workers and their families.”

“Occupy Central could potential cripple commerce in the Central Business District, impacting small local businesses and large multinational operations alike.”

The poisoned political environment is threatening Hong Kong’s future as the international financial hub in the Asia Pacific region.  This is especially true at a time when Shanghai is positioning itself to be a global financial centre with the creation a free trade zone.

The chief executive of ANZ bank, Mike Smith, told a group of visiting Chinese journalists that the creation of the free trade zone was a gentle warning to Hong Kong.

Hong Kong’s prized position as an international financial centre rests on its sound British common law system, closeness to China and stable political environment. The important third leg is under threat now as some Hong Kong residents seek a more confrontational approach with Beijing over its political reform agenda. 

At the same time, Beijing’s heavy-handed and more interventionist approach in Hong Kong will also undermine the territory’s confidence as well as its stability. Most importantly, it will further strain the relationship with Hong Kong’s six million residents who are still suspicious of Beijing’s ultimate designs for the island.

At a time when cities around the region are vying to become financial hubs, political instability will undermine Hong Kong’s claim to be the most important financial centre in the Asia Pacific region.