Why ties between Beijing and Hong Kong’s property bosses are unraveling

As far back as the early 1980s, when talks with Britain over Hong Kong's future began, the city's property tycoons were Beijing's main political allies.

As the handover in 1997 neared, Beijing's main preoccupation was to ensure Hong Kong's continued stability. That meant retaining the confidence of the business community.

"Winning the support of major property developers was its top priority," said Anthony Cheung Bing-leung, former secretary for transport and housing.

But two decades later, the relationship is coming under strain. If Beijing once looked to the property tycoons to help keep Hong Kong stable, it now appears to believe that they have failed to deliver.

There are signs that the partnership has become untenable amid skyrocketing property prices and a severe shortage of affordable public housing in Hong Kong.

Recent commentaries and editorials in China's state media indicate Beijing is convinced Hong Kong's housing crisis is to blame for the increasingly violent anti-government protests now in their fourth month.

Developers owning massive land banks have found themselves targeted by China's state media, with billionaire Li Ka-shing personally coming under fire.

The 91-year-old drew swift criticism earlier this month for urging those in power to "provide a way out" for Hong Kong's mostly young protesters, whom he described as "masters of our future."

An article published on September 13 in an official WeChat account of Beijing's political and legal affairs commission seized on his phrase "provide a way out" and equated showing leniency to lawbreakers as being "nothing more than condoning crime."

As a major developer, it said, Li should be the one instead to provide "a way out" for Hongkongers struggling over the lack of housing.

Unfazed, Li hit back, saying it was regrettable his remarks had been misinterpreted, and that "tolerance does not mean connivance and disregarding any legal procedures."

Commentaries also published on September 13 by the official Xinhua news agency and People's Daily, and an editorial in the tabloid Global Times, singled out unaffordable housing as a "root cause" of the protests.

The message seemed all but clear: the tycoons need to play ball and back the chief executive and the government's policies or risk some unspecified consequences.

Soon enough, state media then endorsed a proposal by the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), the city's largest pro-Beijing party, for Chief Executive Carrie Lam to invoke a land ordinance to take back large swathes of unused rural land to tackle the housing problem.

Ironically however, even as Beijing has been beating the drum on housing, the issue did not figure prominently among younger Hongkongers polled in a random telephone survey conducted last month by the Hong Kong Public Opinion Research Institute.

Only 58% of respondents aged 14 to 29 said their discontent stemmed from housing problems, whereas 91% cited distrust in Beijing, 84% said they distrusted city leader Lam, and 84% said they were moved by the "pursuit of democracy."

A person familiar with the central government's views on Hong Kong said Beijing was unwilling to make concessions to Hongkongers' calls for democracy and thus preferred to step up efforts to alleviate social ills, focusing for now on the housing shortage.

In this approach, a mainland Chinese expert familiar with Hong Kong said Beijing was not off the mark as there was a consensus among various sectors in the city itself that the government badly needed to tackle deep-rooted problems like unaffordable housing and the lack of social mobility for the young.

So, will Beijing succeed in forcing the developers to recognize their "social responsibility" and how will the relationship be recalibrated?

A person close to property developers said Beijing's liaison office in Hong Kong was behind the DAB's call to invoke the Lands Resumption Ordinance to take back unused rural land.

"Many developers know that Beijing can't offer any meaningful solutions on political issues in Hong Kong. So it is shifting the focus to deep-seated problems like housing," the person said. "The developers feel helpless as they can't do much given Beijing's growing assertiveness."

Lawmaker Abraham Razack, who represents the real estate sector in the Legislative Council, believed the government intends to invoke the Lands Resumption Ordinance more frequently to show it was "doing something" to arrest the decline in its popularity.

Another source close to developers, however, felt that the government was just making property developers the scapegoat of the protest crisis.

There is little doubt that developers wield considerable influence in Hong Kong's political system.

Former minister Cheung said the post-handover political system was designed to protect the interests of the business sector.

The four-sector committee which selects the chief executive comprises the city's business elite, professionals, unionists and politicians, and developers are represented strongly among them.

How did developers rise to such a level of power and influence, and how did Hong Kong's housing situation become so dire?

One of the first things Tung Chee-hwa did on becoming Hong Kong's leader after the handover was to announce ambitious housing targets: 85,000 apartments a year, comprising 50,000 public and 35,000 private units.

But the Asian financial crisis followed and hit the property market so hard that Tung was forced to declare in 2000 that his plan for 85,000 flats a year no longer existed.

By then, too, the government had introduced an "application list system" through which it published a list of available sites for sale each year.

Interested developers could make private offers to the government, and a public auction was arranged if the offers met the undisclosed reserve price.

"This system allowed developers to take the initiative in controlling land supply," said Stan Wong, a political scientist at Polytechnic University who has studied the political influence of the real estate elite. The system was abolished in 2013.

I hope Beijing will analyse Hong Kong's deep-rooted conflicts in a comprehensive way, rather than reduce the root of the crisis to unaffordable housingAnthony Cheung, former secretary for transport and housing

Tung's government also suspended indefinitely the Home Ownership Scheme, which provided subsidized flats for sale to lower-middle-income applicants.

"It was a tragedy for Tung to close down the public housing program and allow developers to shrink the supply of private housing," said Leo Goodstadt, head of the colonial government's Central Policy Unit think tank from 1989 to 1997.

That move rescued private developers from the acute pressure of the market in the wake of the financial crisis, he said.

But it also removed the element of government competition that came when subsidized public flats provided an alternative to those built by private developers.

The government went on to tighten supply during the administration of Donald Tsang, the city's second chief executive.

The annual housing supply of private, subsidized and public rental flats was more than halved from 59,800 units in 2006 to 25,700 by 2016.

A government source familiar with land matters said on hindsight, it was too late for Tsang to resume the Home Ownership Scheme in 2010, eight years after it was suspended.

But it is clear that the impact of the further tightening under Tsang is still being felt to this day.

Cheung said Leung Chun-ying, who succeeded Tsang as chief executive in 2012, spared no effort in boosting land supply.

"Leung was also never hesitant to take on developers when it came to reining in the red-hot property market," he added.

Leung also revived the city's long-term housing strategy, under which private and public housing targets are set and reviewed annually.

Leung set an ambitious pledge to provide a total of 480,000 public and private units by 2025, of which 200,000 will be public rental flats, 90,000 will be subsidized flats for sale and 190,000 will be private homes.

He failed to meet the target for public housing and was out after one term. The ensuing shortage caused home prices to soar over a decade right until the end of last year.

Today, there is little dispute that developers have the upper hand in land ownership.

Currently, there are 256,100 applications for public rental flats alone, with a waiting period of 5.4 years.

Does Beijing's recent tirade against the Hong Kong developers signal that a 40-year honeymoon is coming to an end?

Ray Yep, a professor with City University's department of public policy, does not believe so.

"Beijing just wants to rally their support in putting an end to the violence in the city," he said.

But others point out that Beijing began cooling its ties with developers well before the current protests, ever since Xi Jinping became president in 2012.

They note that Beijing leaders hold fewer meetings with Hong Kong tycoons when they visit the city these days compared to the past, to avoid criticism that they care only about the rich.

The source close to Beijing noted that today, the central government was not at all worried about alienating or offending Hong Kong's developers.

He pointed out that Beijing was in a much more powerful position now than in the 1980s when it needed the developers' support in an uncertain period, and where its own international standing had yet to be firmly cemented.

Former Hong Kong minister Cheung said Beijing could see that the ongoing protests as largely a youth-led movement must have deeper underlying causes that needed fixing to prevent it festering into the future.

But he suggested Beijing might not be doing a thorough enough assessment.

"I hope Beijing will analyse Hong Kong's deep-rooted conflicts in a comprehensive way, rather than reduce the root of the crisis to unaffordable housing," he said.

But Edmund Cheng Wai, a political scientist at Baptist University, felt housing woes did affect some protesters, particularly those born after 1990.

He noted that 48.4% of more than 6,100 demonstrators interviewed by a research team from Chinese, Baptist and Lingnan universities since June were aged between 20 and 29, the so-called "post-90s generation."

"Many suffer from lower social mobility and their career prospects can't compare with that of the older generations," he said.

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