Thanks for sharing your perspective.

A few disagreements:

> As I mentioned in other comments, the protestors know that the real pressure is from the “Hong Kong Human Rights and Democracy Act of 2019”, which China cannot ignore.

As a sovereign nation, China can and will completely disregard anything the U.S has to say about what China perceives to be its internal affairs. This is completely consistent with the way China has always externally responded to foreign powers (including the U.S) taking such measures. In my opinion, this will be the case regardless of any sanctions levelled by the U.S. administration against HK or Mainland officials who they deem to be suppressing basic freedoms in HK.

Furthermore, the Act’s ultimate trump card (the suspension of Hong Kong’s special trade status should a national security law harming human rights be enacted in HK) would be a bit of a pyrrhic victory, would it not? I can’t see the termination of HK’s special trade status gaining popular support even from within HK as the damage it would do to HK’s economy would be irreparable.

Outside pressure is more likely to force China to double down on its position rather than concede an inch on what it believes to be a matter of national sovereignty.

> Currently, Hong Kong is extremely important for China in terms of capital flow: more than half of Chinese capital inflow and outflow go through Hong Kong [1].

> If the capital flow is restricted, it severely hurts China, especially when she needs foreign capital where her credit expansion is unsustainable, not to mention the ongoing trade tariffs and the bigger ”new cold war” [2].

> Many protestors understand that China needs Hong Kong much more than Hong Kong needs China (as for food, water, and electricity, Hong Kong may follow Singapore’s example in how she deals with Malaysia).

I think the economic importance of HK to mainland China is overstated here. The importance of HK has for the most part to do with territorial integrity.

First of all, China is not reliant upon foreign capital inflows. China’s public and private external debt is a paltry 15%~ of GDP [1] - one of the lowest in the world for an economy of its size. It is consistently among the world’s top three creditor nations [2]. The majority of its debt is internal, regional government debt, issued in local currency [3]. China has also accumulated massive foreign reserves over the years ($3T USD worth [4]) due largely to its trade surplus with the U.S.

In addition, simply looking at capital inflows and outflows to and from HK can paint a misleading picture on what is actually going on. The only thing the inflow and outflow figures show is that capital is being intermediated through HK as a base for investment into China. This can be partially explained by China’s quid pro quo policy of allowing foreign firms access to the Chinese market in return for partial IP transfers via joint ventures [5]. HK currently provides a safe, stable middle ground where these joint ventures can be domiciled but frankly, this is a precarious position and seems to be more of a product of historical circumstance and geographic/cultural proximity to the Mainland than anything else.

The other major driver of this capital movement is China’s preferential tax treatments of FDI, the most important of which are lower corporate tax rates and tax bases for ‘foreign’ investors. This created a loophole where Chinese businesses and wealthy families can ‘round-trip’ their capital through HK, sending it abroad then bringing it back again as FDI at favourable tax rates [6][7]. There are many other factors involved such as bypassing Chinese currency controls [8] and money laundering [9] -all of which are enabled by HK’s well-oiled financial system which has been facilitating these types of transactions since the very beginning. This has much more to do with Mainlanders evading taxes efficiently and foreign firms wanting to do business in China than China’s need for foreign capital or any kind of dependence on attributes exclusive to HK's financial system.

All of this is not to say that HK doesn’t contribute anything economically to China. But its whole existence is predicated upon the good graces of Chinese economic policies and foreign firms’ eagerness to gain access to the Chinese market. HK is not intrinsically economically significant or self sufficient. Contrast this to a city-state such as Singapore which has major industries other than finance such as electronics and chemical manufacturing, oil drilling/refining [10] and most importantly, proximity and partial control of the Strait of Malacca via the Port of Singapore (the world’s second busiest port).

> In addition to real change in how elections will be done in Hong Kong, the bill specifically targets Hong Kong officials and business people who are restricting the democracy in Hong Kong and will freeze their assets in the US. It is fair to say that many business people who are pro-Beijing do so out of financial interests, so this bill will make them think twice before taking side. When the bill is passed, China also needs to choose: between worse financial access versus democracy for Hong Kong.

Well, the bill will supposedly not be targeting business people since it’s not the business people who propose or enact the laws. Only the lawmakers will be targeted, and the lawmakers are ultimately beholden to the CCP. For the reasons stated above, I’m of the opinion that the passing or non-passing of this particular bill will be of little consequence to China. Tax loopholes can always be closed or moved, new preferential tax zones can be created, etc. It’s the foreign firms who will need to choose between HK or China. If a foreign firm is forced to choose between losing access to the Chinese market via HK versus interacting directly with China from a business hub like Shanghai, it will most definitely choose the latter. From China's perspective, the question of democracy is likely not even on the bargaining table.

> This was similar to my thought last month, that the protest might end like the Umbrella protest, losing support from the public. But judging from recent events, this is unlikely to be the case. One recent survey discovered that people are understanding the need for real disruption to achieve actual change (See [4] in Chinese), and the protestors know how to aim at the government without causing too much trouble for local businesses (unless they showed express support for Beijing over Hong Kong [5]).

I'm not entirely sure this is possible. The very point of protesting is to disrupt the status quo. They're not going to disrupt the status quo and enact change by allowing the city, its businesses and government to simply go on functioning as usual. But none of us can know the future so I guess we will just have to wait and see what happens.

[1] https://en.wikipedia.org/wiki/List_of_countries_by_external_...

[2] https://en.wikipedia.org/wiki/List_of_creditor_nations_by_ne...

[3] http://www.cadtm.org/An-Overview-of-Chinese-Debt

[4] https://www.ceicdata.com/en/indicator/china/foreign-exchange...

[5] https://academic.oup.com/restud/article-abstract/82/3/1154/1...

[6] https://www.minneapolisfed.org/~/media/files/pubs/eppapers/1...

[7] https://pdfs.semanticscholar.org/2580/70dc632993c44d4f7d6c73...

[8] https://www.economist.com/finance-and-economics/2014/01/18/h...

[9] https://www.hongkongfp.com/2016/04/06/how-hong-kong-makes-it...

[10] https://en.wikipedia.org/wiki/Economy_of_Singapore