A protester holds up a yellow umbrella, the symbol of the Occupy Central movement, at a protest in March 2017. Photo: Reuters / Tyrone Siu
A protester holds up a yellow umbrella, the symbol of the Occupy Central movement, at a protest in March 2017. Photo: Reuters / Tyrone Siu

Are you thinking about Canada? Not surprising. You might already have connections there. Some 1.3 million Chinese immigrants form about 4% of the Canadian population and are 40% of the population of all Asian immigrants to Canada. They form significant voting blocks in the cities of Vancouver, Toronto and even in relatively insular Montreal in the province of Quebec (lots more about that region a bit later).

Chinese investors in Canada, private and government-linked, are an important presence in many sectors: energy, foreign trade, real estate and small business.

Prior to 2014 most China-originated foreign direct investment (FDI) in Canada came from state-owned enterprises (SOEs), which put big money into Alberta energy projects. But things have changed: In 2016, C$7.15 billion (US$5.75 billion), or 95% of Chinese FDI money, came from private players. Between January and August of this year, 80% of Chinese FDI, totaling C$4.3 billion, was from private firms.

Comparative China/Canada geography and demography suggest exchanged opportunities for expanded connections. China and Canada are about the same geographic size: China occupies 9.6 million square kilometers; Canada’s size is 9.9 million. But China is crowded with 1.4 billion people, while Canada’s population is one-thirty-eighth that size, for a total of less than 36 million. Canada has a vast endowment of natural resources, and China needs exactly that kind of raw material to fuel its continued growth.

Canada may have an advantage over the US when it comes to attracting Chinese people and money: Both Barack Obama and his successor, President Donald Trump, have blocked proposed Chinese investments (in Aixtron SE and Lattice Semiconductor respectively) on national-security grounds, and current American sensitivity to immigration questions is well known.

Our readers have some of this information already. But we are here to tell you about more subtle parallels and contrasts between the two nations that may affect your trans-Pacific interests, investments, and plans. Hong Kong versus mainland China and Quebec versus the ROC (rest of Canada) is a most interesting situation. We are not here to judge it, just to report it.

Key sectors in both Canada and China – that is, Quebec and Hong Kong – “pull at the leash” and are open to the idea of separation, secession or independence. They are places where serious discussions/threats of departure-from-the-center (DFC) occur.

Some folks in Quebec wish to become independent of ROC. For the past many years, they have succeeded in creating a special Quebec status for themselves – they have obtained distinctly separate-from-ROC linguistic, social, educational and economic cultures.

The French language, despite Quebec’s position as an island in the midst of a North American English ocean, is given artificial albeit legally mandated dominance over all other languages. Separation has advanced to such an extent that a special police force exists, with power, among other things, to require that, for example, only French appears on public billboards. All public signs, public advertising, even restaurant menus must appear in the French-language form, and if any other language is involved, the font size of the French part must be significantly the largest.

Quebec has its own immigration department, tax rates, international presence, business climate, welfare, education and public-health rules.

Quebec’s political tilt is decidedly to the left (compared with the ROC) and it uses the vague but never absent threat of secession to punch well above its weight in all intra-Canadian political, social and economic discussions.

For its part, ROC needs Quebec. Secession would open the door to now-submerged separatist inclinations in Canada’s eastern and western provinces, create a relationship/border problem with the US, raise questions about the value of existing federal and provincial public debts and bond prices, reduce the significance of Canada in places like the United Nations and harm the economic vitality of whatever governments would organize themselves, on America’s northern border, after a Quebec exit.

We have seen a similar set of issues, conditions, challenges and tensions characterize the relationship between Hong Kong and the mainland. The basis for the distinction between the Cantonese South and the Mandarin North is certainly not language (although it may be a factor) but rather culture – but indeed that is really also true in the Canadian case, and it may help our readers to see the similarity between the two versions of “separateness”.

The facts on the ground show distinctions between China/Hong Kong and Canada/Quebec. Quebec’s population is 8.1 million, Canada’s is 35.1 million. Quebec is the largest of Canada’s provinces, at 1.3 million square kilometers. (The northern territory Nunavut spans 1.8 million square kilometers, but has a population of only 35,000.) The population ratio between Hong Kong and mainland China is 1:186 (Hong Kong’s is 7.35 million while the mainland’s is 1.36 billion. Hong Kong’s population density is almost 7,000 per square kilometer, and China’s is about 150.) The most generous estimate of the Fragrant Harbor’s area gives it at about 2,750 square kilometers, with more than 1,600 square kilometers of seawater included. The mainland is 10,000 times as big.

Nonetheless, the Canada/Quebec tension displays significant but subtle parallels with China/Hong Kong. And so, thoughtful citizens on both sides of the Pacific have something to learn from each other.

In the early 1970s, the time just before Quebec’s separatist movement gained ascendancy, Montreal was the de facto capital of Canada, not merely of Quebec, and the only internationally significant city in Canada. Then and now Quebec’s official provincial capital is the historic Quebec City, settled more than 300 years ago at a militarily important narrowing of the mighty St Lawrence River.

But then as now, Quebec City was a culturally remote, economically insignificant museum-piece – the sort of once-was-Camelot not-quite backwater that Montreal has become during the emergent separatist hegemony that has arisen since the mid-1970s. We say there may be a lesson for those who hope that Hong Kong might pull itself freer of the ties it has with the mainland.

Montreal and the rest of Quebec have retained and even attracted more investor interest over time, but the investments have been made by big companies with international or at least North American import/export exposure.

The aircraft/transportation company Bombardier is an example. It is a rare example of a “home town” firm (it started out making snowmobiles for the local market) that grew big and fast.

Bombardier is now involved in a life-or-death struggle with US aircraft giant Boeing. The US firm complains, with reason, that its ability to sell products in its home market is diminished because of the billions of dollars in Canadian and Quebec taxpayer money that subsidizes the price that US airline Delta pays for Bombardier products, unfairly tilting the competitive balance against “all-American” Boeing.

Bombardier is not Quebec’s only economic big boy. A walk-around in Montreal’s “Underground City” – a vast interconnected “snow-proof” buyer’s paradise – reveals shops with international names and presence: from Tiffany’s to Starbuck’s, MacDonald’s, Dior and many more. Come up out of the mall for air and find that the economic landscape includes Uber, Walmart, Costco, Ford, Mercedes-Benz, Bechtel, Enbridge and Pepsi.

But where are the little guys? Mom-and-pop enterprise seems confined to tiny convenience stores, and family farms that depend upon Quebec subsidies for chickens and milk. In general, small businesses are supported by artificially cheap electricity and protected domestic markets.

Special cases get special treatment. Individual “artists” get protected jobs in Canada’s media world, subsidized employment consequent upon generous government grants for Quebec’s numerous festivals and on-the-street celebrations ranging from jazz sessions to electric-car races.

Even so, Quebec’s small-scale economic players, even those that benefit from this array of subsidies and benefits, ranging from aspiring movie actors to McGill University-trained pediatricians and dermatologists, are driven south to the US and west to ROC by Quebec’s high taxes, heavy-handed regulation, and unreasonable limits on personal decisions such as the language of children’s schooling.

Separation has produced an unwelcoming atmosphere that denigrates non-French cultural practices of all kinds. The result is an economy that is overweighted by successful large firms and struggling small players. Montreal has declined from being Canada’s version of Paris to being a great restaurant town, with low rents but an even lower degree of attraction for its own youth and its own small businesspeople.

Ongoing discussions over problems associated with Quebec’s separation are relevant to any number of places around the world where members of “distinct societies” believe they should (or optimistically say “could”) “escape” from the “domination” of the larger society in which they feel “trapped”. Some Catalans want out of Spain; some Scots would readily leave the United Kingdom; the Sicilian independence movement, founded in 1943, experienced a resurgence beginning in 2012; and there are well-known tensions within the European Union, where economically strong members wish to oust weaker states that are a drain on the shared tax base.

In Canada, critics of Quebec’s separation movement say that a breakaway province would have a hard time setting up a new currency, or getting the central authority to agree to a shared money base. Negotiations over border crossings, new and old tariff structures, citizenship questions for folks who do not wish to lose Canadian status, taxpayer obligations, and the creation of diplomatic processes for the solution to these are other challenges have all been the subject of much internal debate.

Could the fate of Montreal and Quebec – a consequence of an actual albeit partial degree of independence from Canada’s center – be a warning to Hong Kong?

Hong Kong remains, while still connected with the mainland, in some respects China’s international, sophisticated, wealthy, dynamic city-of-choice. Might its current balance between secession and integration be the correct one? Are both its separatists and the mainland magistrates who would clasp it closer be making a mistake? Will Quebec’s problems with small-scale business, if wisely addressed, offer an opportunity for medium-sized Chinese investors? We say so.

A problem facing Hong Kong’s “separatists” parallels a similar situation in Quebec/Canada. Economic forces in both places are causing much new investment (in Hong Kong and Quebec) to be made by giant firms with worldwide markets. Small outfits are being squeezed out or become dependent on the “bruisers”.

Recent numbers quoted by US television channel CNBC suggest that Hong Kong has “lost its cool” – maybe has gone past the point where its viability as a separate entity is assured. The strong Hong Kong dollar, linked to the strong US dollar, makes shoppers from the mainland look elsewhere (even toward expensive Japan) for bargains.

Hong Kong retail sales in the period from December 2015 to December last year were down 8.5%. In 2015, tourist arrivals were down by 2.5%.

David Dubois, an assistant professor of marketing at French business school INSEAD (the “Business School of the World”) says (about “lost cool”) that Hong Kong has lost its place as the best place in Asia to find low prices for high tone luxury goods.”

More evidence that Hong Kong may be “overripe” is found in a Financial Times report. One of the top jewelry stores along the city’s Causeway Bay super-expensive district has seen, according to its manager Jacky Sze, a drop of “60-70%” in customer flow since 2013.

FT reported that luxury sales in Hong Kong between 2015 and 2016 were down by 22%. The newspaper put some of the blame on Chinese President Xi Jinping’s anti-corruption policy, and as well on an “increasingly testy relationship with mainland China … that has deterred many Chinese visitors”.

We ask if additional separation pressure will make the problem better or worse.

A problem facing Hong Kong’s “separatists” parallels a similar situation in Quebec/Canada. Economic forces in both places are causing much new investment (in Hong Kong and Quebec) to be made by giant firms with worldwide markets. Small outfits are being squeezed out or become dependent on the “bruisers”.

For example, in Hong Kong, China Construction Bank Corporation and Haitong Securities Company (mainland outfits) are big operators in the IPO (initial public offering) game, once a playground monopolized by local Hong Kong financial outfits. In the first half of this year they participated in raising almost US$5 billion in Hong Kong IPO funds. That is money the smaller guys need to set up shop.

But the big boys won’t or don’t play by restrictive local rules or customs. In Quebec, the children of high-flying English-speaking engineers at Bechtel don’t send their kids to the French grammar schools required of “ordinary” English-speaking immigrants. In Hong Kong, the big boys are based on the mainland, and they follow rules made there.

Back in the 1990s, mainland state-owned “red chip” firms raised “bootstrap” capital in Hong Kong in order to finance their later economic buildup. Those same firms, still headquartered on the mainland, are now super-successful. They are, ironically enough, putting big money back into Hong Kong, by way of setting up operations there. But that money, one way or another, has “strings” that go back to the mainland, and would certainly “tangle” with any Hong Kong separatist ambitions.

The “big guy” problem exists for both Hong Kong and Quebec in respect of large companies based “too near and too strong” to suit the interests of either. Mentioned above is the pressure US-based Boeing has been putting on Quebec’s much weaker Bombardier.

Mainland China, following a model first used by Japan, creates SOEs in many diverse businesses, via cheap financing, protected domestic markets and subsidies for exports, along with semi-destructive taxes and regulations that burden private competitors. This game is played in order to speed economic development in China proper, but its implications put pressure on non-government actors, both in Hong Kong and “back home”.

The South China Morning Post reports that a privately owned cement plant in Wuxi in the eastern province of Jiangsu is “lucky” to survive a government order to cut its capacity. Among other outlays, the family-owned firm spent tens of millions of yuan to meet green requirements. The article implies that, despite the evidence of good citizenship, the company is purposely being weakened in order to make it easier for an SOE to buy it up, merging it with other acquisitions thus allowing it to face off against “world-class competitors”. Hong Kong family firms should be taking notice.

But Hong Kong may not be ready to accept the idea that it is facing problems or “losing steam”. According to a 2015 poll reported by the firm Quartz, residents of Hong Kong, calling themselves Hongkies, differentiate themselves from mainland folks in the following ways (and, we surmise, these are the differences that in some Hongkies’ minds suggest they could or should be, in terms of some real political institutions, a bit more separate from the mainland than they now are).

The online site Quartz displays these differences with pictures. First, and symbolized by a parasol, they say Hong Kong is not China (symbolized by a hammer and sickle).

Second, symbolized by contrasting Venn diagrams, they show a contrast between diverging ways (Hong Kong versus the mainland) the three branches of government (executive, judicial and legislative) overlap one another. On the mainland, the Venn diagrams say, the three branches are mingled together, under the powerful unifying force of the Communist Party of China. In contrast, in Hong Kong (as described by Hongkies) the three branches are entirely separate, and “swim in a sea” of the people.

The next factor shown by Quartz is about television. About China Central Television (CCTV) on the mainland, the diagram says: “China has a TV channel which everyone is (must be) watching.” In contrast, the depiction of Hong Kong TV has the following title: “Hong Kong has a TV channel that no one is watching.”

Hong Kong (in contrast with de facto partly separated Quebec) has both big investors and small business. Hong Kong “gives birth” to new business, small and large, at an admirable rate. Hong Kong folks have an international point of view.

The third set of pictures that Quartz reports tells about public attitudes is about the Internet. The “eyeball” telling about mainland Internet says: “You can only use ‘Weibo’ in China.” The contrasting picture says: “You connect to the free world in Hong Kong.” There are, above the caption, symbols for Facebook and Twitter.

The next pair of pictures is about e-mail. The China graphic has the following text: “Gmail is not available in China. You have to settle for QQ.“ The Hong Kong graphic contains these words: “There are lots of options for e-mails in Hong Kong.” Those words appear beneath a generalized symbol for e-mail.

The next pair of graphics is about smartphones. The China picture contains this remark: “Chinese use ‘Wechat’ on smart phone.” The Hong Kong pic says: “Hongkongers are busier than Chinese.”

There then follow some even more controversial picture-contrasts. For example, one depiction shows a (fictitious) mainland street banner, “Loves the Communist Party and Country,” while the supposed Hong Kong street banner declares: “God will destroy the Chinese Communist Party.” (Other depictions by Quartz of contrasting Hong Kong versus mainland attitudes are equally intense.)

To the extent that this particular report of alternative Hong Kong versus mainland attitudes is even vaguely accurate, there seems to be a tension between these two parts of Greater China that could give support for the idea of further separation.

But right now, Hong Kong (in contrast with de facto partly separated Quebec) has both big investors and small business. Hong Kong “gives birth” to new business, small and large, at an admirable rate. Hong Kong folks have an international point of view that drives them, for example, to think about investing in or even moving to faraway Canada and perhaps even to faraway Quebec. Those audacious Hongkies are not running away from their homeland – they are merely extending their definition of their economic, social and political portfolio.

Once again, it may be said that the status quo for Hong Kong, balanced between two forces, the mainland and the ROW (rest of world) might be quite defensible.

Our essay is also balanced between two forceful ideas: Around the world, from the Brexit vote in the UK, to the Catalonia and past Quebec referenda, and even to Sarah Palin’s husband’s supposed interest in Alaska’s secession, some folks say “less is more”, “buy local” “Ottawa/Beijing is too far away”.

On the other hand, other folks say “open those borders”, “good neighbors don’t need fences”, “economies of scale make good cheaper and production more efficient”. Our purpose has been to talk about these contending potentials in a way that may help you to “pick a side”.

Tom Velk and Jade Xiao

Tom Velk is a libertarian-leaning American economist who teaches and lives in Montreal, Canada. He is the chairman of the North American studies program at McGill University and a professor in that university's economics department. Jade Xiao is a McGill University graduate.

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