Will the tensions in Hong Kong be the straw that breaks the global economy's back? That question is on many investors' minds as they watch the Chinese government's response to one of the biggest challenges it has faced in recent years.
Some are quick to use history to dismiss any lasting economic impact, both domestic and global, of the Hong Kong protests. They rightly point to the repeated ability of the Chinese government to quash internal protests, and without altering the country's growth trajectory. For them, it is only a matter of time until the current civil disobedience in central Hong Kong dissipates.
Yet this view ignores two more recent historical insights. First, the combination of the internet, social media and better mobility makes it easier to coordinate and sustain protests, while also reinforcing individuals' confidence in meeting their aspirations.
Second, China has been engaged in the delicate task of revamping its growth model. This includes reducing its reliance on external sources of demand and on excessive state and credit-led investments.
This is not to say that the stability of the government is in any danger today from the protest movement and that an economic contraction in China is about to send tremors through the world economy. Indeed, the Chinese government is likely to prevail over the Occupy Central movement in Hong Kong. But in doing so, it will probably be inclined to slow certain economic reforms for now, seeking instead to squeeze more growth from the old and increasingly exhausted model. And while this would be part of a broader strategy to avoid an immediate shock to both China and the global economy, it would undermine the longer-term economic vibrancy of both.
Editorial on 10/01/2014