Unmasking the Roach Trap: Why Roach is Wrong About Hong Kong

The highest form of political struggle is not an election. It is not even war. It is ideological struggle.

I have recently been reading the comments on Hong Kong by Stephen Roach, former chairman of Morgan Stanley Asia. Roach says Hong Kong has become just another Chinese Mainland city. His remarks carry the unmistakable flavor of ideological struggle.
 
Roach is not really focused on finance or economics. He is focused on politics, treating the National Security Law as the watershed between Hong Kong’s success and failure. He seems to have forgotten that the United States has far more national-security laws than Hong Kong, with around 20 in the United States and only two in Hong Kong.
 
What makes Roach’s remarks strange is his constant swing from one position to another. Two and a half years ago, he advanced the “Hong Kong is finished” theory. A year ago, he said “too early to declare Hong Kong over.” Now he says once again that “the Hong Kong of old is, indeed, over.”
 
For such an experienced financial professional to swing so wildly, there are two possible explanations.
 
The first is stupidity. His analysis may not be deep enough, leaving him easily swayed by surface appearances.
 
The second is malice. The forces behind Roach may be far from simple. Those forces may keep pushing him to make bearish remarks, leaving his statements adrift between his own views and the pressure behind the scenes.
 
China’s central leaders have said that the world is undergoing “profound changes unseen in a century.” Behind that phrase lies the rise of the East and the decline of the West. Put plainly, it describes the struggle between China and the United States.
 
Roach’s comments are part of that ideological struggle. Hong Kong practices “one country, two systems.” It is a capitalist international city within the framework of one country, and it serves an important role for the nation.
 
To deny Hong Kong’s status as an international financial center is to break one of the country’s arms, a crucial strategy to weaken China.
 
The precision of Roach’s moves, and those of the forces behind him, lies in targeting the heart of the issue. They seek to shape people’s thinking. Roach’s remarks have three layers of negative impact.
 
First, they deny Hong Kong stocks’ key selling point.
 
Hong Kong’s stock market has been transforming for more than two years. With strong support from the central government, a large number of exceptionally high-quality Chinese Mainland companies have listed in Hong Kong.
 
Global giants such as CATL, which holds a dominant position in strategically important industries and has chosen to establish a presence in Hong Kong.
 
For international investors bullish on CATL, Hong Kong is the most convenient place to buy its shares.
 
The listing of first-rate Chinese Mainland companies in Hong Kong has directly lifted market turnover. Average daily turnover has climbed from about HK$90 billion three years ago to around HK$300 billion today.
 
Hong Kong has become an international stock market with unique access to the Chinese Mainland’s best listed-company resources. London and Singapore may covet this China-specific advantage, but they cannot obtain it.
 
Yet Roach turns the story upside down. He portrays the listing of high-quality Chinese Mainland giants in Hong Kong as a negative Mainland factor. He turns Hong Kong stocks’ strength into a weakness.
 
This is like performing surgery on people’s thinking at its most fundamental level. If Hong Kong people accept this narrative, and officials become constrained by Roach’s thinking, they may eventually feel embarrassed to say that so many Chinese companies are listing in Hong Kong. That would be exactly what the “Roaches” want.
 
Second, his remarks intimidate capital away from Hong Kong.
 
Roach’s article is mainly about politics, not finance. He drags the National Security Law into the discussion and cites criticism of Hong Kong’s rule of law from former non-permanent judges of the Hong Kong Court of Final Appeal who are hostile to China.
 
But the reality is that there is no sign that the National Security Law has affected investors’ ability to buy stocks in Hong Kong.
 
Since 2018, the U.S. government has openly and quietly urged funds not to buy Chinese stocks. Anti-China lawmakers have even written directly to university investment funds, questioning why they buy Chinese shares listed in Hong Kong.

As time passed and China-U.S. relations eased somewhat, that sense of fear had begun to fade. But Roach is now reviving the issue. In effect, he is refreshing foreign funds’ memories and intimidating them against investing in Hong Kong.
 
Third, this thinking hijacks the minds of Hong Kong officials.
 
In my observation, many Hong Kong elites, including financial officials, genuinely love their country and sincerely hope for national prosperity and strength. But they are also highly vulnerable to being hijacked by ideas like Roach’s.
 
They often believe Hong Kong must return to its old self and restore close ties with the United States and Britain. They believe the SAR government should say less about the National Security Law, while financial officials should intervene less in the market and allow U.S. capital to take the lead. In their view, that is the true meaning of “one country, two systems.”
 
Frankly, this view ignores the reality that the United States seeks to suppress China. It is somewhat outdated. The issue is not whether Hong Kong wants better relations with the United States, but how much the other side wants better relations with Hong Kong.
 
On July 17, President Xi Jinping attended the World Artificial Intelligence Conference in Shanghai. He said that “AI development is not a solo performance by one country, but a symphony for the whole world,” and called for openness and win-win cooperation.
 
At almost the same time, China’s Kimi K3 large AI model topped global rankings. Huawei unveiled its massive Atlas 950 SuperPoD supernode, which combines 8,192 Huawei Ascend 950 AI accelerator cards. That far exceeds rival Nvidia’s supernode, which can combine only 144 chips.
 
Yet as China’s AI development made major breakthroughs, Chinese AI and chip stocks listed in Hong Kong plunged. Whether that was coincidence or deliberate is unknown.
 
There is ideological struggle in the financial world, too. Hong Kong’s response is simple: do not let Roach’s thinking hijack us. We must step outside his ideological framework.
 
Do not judge finance through politics. Do not believe that a stock market with many China-related factors cannot be a good market. We should return to capitalist thinking and recognize that a market with rising turnover is a good market, not only one tilted toward the United States.
 
Hong Kong’s financial officials should return to capitalist principles and build a strong stock market. Their work should focus on three main areas.
 
First, do not be afraid to talk up Hong Kong stocks.
 
When the forward price-to-earnings ratio of Hong Kong stocks is less than half that of U.S. equities, why should Hong Kong not compare the two markets and speak positively about its own stocks?
 
Second, do not be afraid to buy more Hong Kong stocks.
 
Do not chase U.S. stocks simply because they are rising. Recognize the value of Hong Kong stocks and support Hong Kong at the same time. If even the Hong Kong Government does not increase its holdings of Hong Kong stocks, how can it ask others to buy them?

Third, do not be afraid to work harder to attract Chinese Mainland capital into Hong Kong stocks.
 
Do not assume this is merely self-evident. Chinese Mainland capital must be actively won over. Central financial and economic ministries and commissions have many responsibilities: they must maintain the renminbi exchange rate and keep A-shares performing well.
 
Fundamentally, they do not want too much capital to flow out.
 
On July 20, China Securities Regulatory Commission Chairman Wu Qing met face-to-face with eight representatives of retail investors of different sizes. He emphasized that retail investors are the foundation of the market. This was indeed an innovation, and it also shows how difficult it is to maintain the healthy development of the A-share market.
 
If Hong Kong financial officials do not make a strong effort to compete for Chinese Mainland capital, the Mainland may genuinely have little capacity to spare for Hong Kong.
 
The conclusion is clear: we need to think in reverse. Whatever Roach tells us not to do, that is what we should do.
  
Lo Wing-hung

Bastille Commentary

** 博客文章文責自負,不代表本公司立場 **

Two national security cases have recently wrapped up in quick succession.

On Thursday (10 September), two members of the "Hong Kong Democratic Independence Union" were sentenced to three years, and three years and two months in prison respectively. Both had pleaded guilty to "conspiracy to commit secession" under the Hong Kong National Security Law.

Then today (11 September), sentence was passed in the "incitement to subversion" case against the Hong Kong Alliance in Support of Patriotic Democratic Movements of China (the Alliance). Albert Ho Chun-yan, who pleaded guilty, was jailed for five years and two months.

The two defendants who pleaded not guilty, Lee Cheuk-yan and Chow Hang-tung, were jailed for seven years and seven years and three months respectively. 

The judge made it clear in sentencing why the Alliance case fell into the "serious circumstances" category. The case did not involve violence or any concrete method put forward by the defendants for "ending one-party rule."

But society was in turmoil at the time of the offence.

The defendants' activities continued for a full 14 months after the National Security Law came into force. Those activities were citywide in scope and attracted widespread attention.

The defendants believed that what they advocated might be unlawful, yet persisted regardless. The offending was premeditated.

The trials and tribulations Hong Kong has weathered since the handover amount to one giant political experiment. Every kind of political proposition has been put to the test, and we have seen the results.

Had these cases arisen in the early days after the handover, the verdicts might have read very differently to some.

Two young men aged 25 to 27, jailed for more than three years over a "nation-building union" that looked doomed to fail, might have seemed like the court making a mountain out of a molehill.

The same goes for the Alliance. Had its standing committee members been prosecuted in those early days, some might have felt they were merely chanting slogans to promote democracy. Perfectly harmless, undeserving of arrest and imprisonment.

But after more than two decades of development, we can now see with total clarity what these incendiary political activities can achieve. 

From the mass march against Article 23 legislation in 2003, to the illegal Occupy Central movement in 2014, to the all-out riots of 2019, unlawful activities escalated step by step until violent protests spun completely out of control.

The breaking point came on 11 November 2019 with the Ma On Shan incident, in which a man was set on fire. An utterly depraved manifestation of violent lawbreaking. 

The perpetrators believed they held the truth in their hands. They doused an unarmed civilian in flammable liquid and set him alight, intending to burn him to death. His only fault was trying to stop rioters vandalizing the MTR station.

Political violence had reached a point of no return, spiraling beyond control.

At the core of the Alliance stood the so-called traditional pan-democrats. They claimed to be promoting democracy in Hong Kong and the country. Yet they turned a blind eye to the street violence they themselves had incited, at times even tacitly condoning it. 

One need only look at what was exposed during the trial of Jimmy Lai to see this plainly. 

Back then, Lai instructed the senior management of Apple Daily to uphold "no distinction between the peaceful and the valiant".

In other words, they were not to draw a line between themselves and the valiant faction advocating violent struggle. That alone showed that the movement's descent into violence had the backing of big bosses behind the scenes. 

And behind these local opposition bosses stood the political forces of the United States and the West. 

Take Lee Cheuk-yan, a central figure in the Alliance case.

The Hong Kong Confederation of Trade Unions (HKCTU), to which he belonged, relied for years on funding from the National Endowment for Democracy (NED). Beginning in 1994, the HKCTU applied every year for grants from the NED-affiliated American Center for International Labor Solidarity. The cumulative total came to HK$13 million. 

Here was an organization directly funded by a foreign government, running labor and social movements in Hong Kong. Who could believe it thinks independently?

Piece the whole picture together and the through-line becomes complete. Beginning in the late 1980s, in the closing stages of the Cold War between the United States and the Soviet Union, the CIA set out to overthrow the entire socialist camp led by the Soviet Union. 

China's "June Fourth incident" also occurred against this backdrop.

While China and the United States had not yet fallen out completely, such activities proceeded in the shadows. After the rupture, and especially after Washington launched its trade war against China in 2018, the United States embarked on subversion against China without scruple. 

These were not activities to promote the development of democracy in China. They were subversive operations aimed at toppling state power. 

Consider this: the CIA today openly recruits spies targeting China. That tells you how grave the situation is.

With the Alliance case tried and sentenced, the legal boundary for such acts of subversion has now been clearly drawn. Do not imagine that chanting a few incendiary slogans or setting up some reactionary organizations is harmless. A single spark can start a prairie fire.

Drawing the legal red line is precisely about nipping these subversive activities in the bud.

Lo Wing-hung