Nearly three decades after the 1997 handover, Hong Kong has become a paradox: a place where financial dynamism coexists with political repression — a reality Taiwan cannot afford to ignore. Despite a sharp contraction of civic freedoms since 2020, Hong Kong remains a major global financial center. It has recently overtaken Switzerland as the world’s largest offshore wealth hub, supported by steady inflows of capital from China and across Asia.
The territory continues to serve as a key intermediary linking Chinese firms, multinational investors and global markets. Institutional continuity has played a role.
The Hong Kong dollar’s peg to the US dollar — introduced in 1983 amid uncertainty over the territory’s future — stabilizes financial markets, even during periods of global volatility. At the same time, a new wave of Chinese initial public offerings has reaffirmed Hong Kong’s status as China’s principal gateway to international capital. The widespread use of the yuan in cross-border transactions further reflects Beijing’s broader effort to internationalize its currency through the territory’s banking system. Yet this economic vitality has unfolded alongside a rapid deterioration of political life.
Public dissent has been curtailed. Opposition parties and independent unions have dissolved. Media outlets such as the Apple Daily have closed. Annual public commemorations, including the Tiananmen vigil and July 1 marches, have been banned.
Many democracy advocates and former legislators now face prosecution under national security laws. Within a few years, the boundaries of permissible political expression have narrowed drastically. For Taiwan, the significance of Hong Kong lies not only in its democratic erosion, but also in the fact that this political shift has not triggered an immediate economic collapse. Hong Kong challenges the assumption that prosperity necessarily depends on democratic governance. In the short term, markets can remain highly functional even under authoritarian constraints. This resilience stems from several structural factors.
Hong Kong’s bureaucratic efficiency, legal framework and global connectivity anchor investor confidence. Meanwhile, talent-admission programs targeting Chinese professionals and students have partially offset population losses caused by emigration. These measures are gradually reshaping the territory’s social composition while deepening its incorporation into the Greater Bay Area. The result is a system in which market functionality persists even as political participation recedes. Nevertheless, Taiwan should resist drawing the wrong conclusion.
First, economic success does not eliminate political risk. Hong Kong’s competitiveness still relies on trust, transparency, the rule of law and international credibility. As political control tightens, these qualities might erode over time. Increased scrutiny from Western governments, including high-tech export restrictions and sanctions linked to human rights concerns, has introduced new compliance and reputational risks for companies operating there.
While these pressures have not displaced the territory’s financial status, they have added layers of uncertainty.
Second, economic integration creates opportunity and dependency. Hong Kong’s prosperity is tied to China, but that dependence has weakened its ability to chart an autonomous political and economic course. Financial mechanisms such as the stock-connect and bond-connect schemes, along with digital payment systems, have aligned the territory closely with China’s regulatory framework. Taiwan faces similar pressures through cross-strait investment and supply chains. Preserving strategic flexibility would require diversification of trade partners, capital networks and technological ecosystems.
Third, administrative efficiency cannot substitute for democratic legitimacy. Under the framework of “one country, two systems,” Hong Kong’s limited autonomy operates through an internal power-sharing arrangement among politicians approved by Beijing, rather than through genuine electoral competition. To many residents, the local government appears to be capable of delivering practical results in areas such as infrastructure and crisis management.
Yet efficiency without accountability risks eroding public trust over time. Current governance trends have placed greater emphasis on ideological conformity and political alignment with Beijing. Tensions within the ruling system are evident: petitions from pro-Beijing actors and instances of bureaucratic noncompliance have exposed frictions between centralized expectations and local administrative realities. Institutional restructuring after the 2019 protests has deepened this gap.
Beijing reportedly reshuffled personnel within the Liaison Office of the Central People’s Government in Hong Kong, an influential body overseeing local authorities and reporting to the State Council. Many new appointees from national agencies possess limited experience in Hong Kong affairs and are discouraged from direct engagement with local communities. As a result, policymakers increasingly rely on information filtered through loyalist networks rather than broad public feedback.
Administrative culture presents another challenge. Some career civil servants remain cautious toward politically driven initiatives, including proposals to delink the Hong Kong dollar from the US currency, mandate patriotic education as an examination subject and extend ideological oversight into religious communities. These dynamics underscore an unresolved tension between administrative pragmatism and autocratic rule.
By contrast, Taiwan’s democracy safeguards judicial independence, press freedom, religious liberty and institutional credibility, ensuring political authority remains accountable to voters. Meanwhile, many young Hong Kong residents, disillusioned after the 2019 protests, now prioritize career mobility and personal consumption, while frequent travel to Shenzhen reflects the normalization of cross-border lifestyles.
However, in Taiwan younger generations are concerned with democratic identity and political sovereignty. Maintaining this civic commitment while expanding economic opportunity would be critical.
Finally, Hong Kong highlights a broader global change in the relationship between governance and growth.
Digital surveillance, data-centric governance and platform-driven economies have enabled new forms of state control that bypass traditional liberal-democratic accountability.
Economic performance alone is no longer an adequate measure of societal well-being. Institutional integrity — and the freedoms it protects — matters even more.
Hong Kong’s experience offers Taiwan a clear, if sobering, lesson. A society can remain commercially vibrant even as political freedoms contract, but only up to a point.
For Taiwan, freedom is not a constraint on growth; it is the foundation that sustains long-term prosperity in an increasingly volatile era.
Joseph Tse-Hei Lee is a professor of history at Pace University in New York.
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