Shenzhen's going through a Manhattanization. In the 60s and 70s, the U.S. transformed Miami from a struggling Florida backwater into a shiny example of successful capitalism through direct investment to contrast themselves with the Soviet Union and Cuba. Beijing appears to have learned the lesson, seeking to have the rapidly growing Southern port city serve as a 'demonstration area' of the benefits of Chinese socialism. All of this effort comes at the expense of Hong Kong's status as the premier financial center of Pacific Asia. With their traditional role as the investment conduit into China diminishing, Hong Kong has also found themselves to be economically vulnerable to Beijing.

Hong Kong is dependent on Mainland China for the majority of its resources. Attempting to sustain a population of 7 million is unmanageable using the tiny areas around the city-state. The region obtains 70% of its water from the East River in Guangdong, a transfer that is heavily subsidized by the Hong Kong government [1]. The Hong Kong electrical grid is interconnected with the mainland's Southern Power Grid and it imports nearly a quarter of its energy from this same region [2]. Mainland China also provides most, if not nearly all, of Hong Kong's food[3]. Beijing has yet to threaten to restrict energy supplies, but Hong Kong's water and energy security has historically been a major issue for the city state in times of political turmoil.

The Chinese Communist Party cannot afford for Hong Kong's tensions to affect the rest of the country, as I've described here. It remains a major international financial and business center, as well as a special administrative region that enjoys unique relationships with the U.S., the U.K., and other countries. A liberated Hong Kong would be disastrous for the CCP's national image. That's not to say Beijing will need to use military force to ensure that Hong Kong remains a part of Greater China. Leadership in Beijing has become much subtler than Deng Xiaoping's inflammatory policies that dealt a major blow to China's international reputation. China's economy suffered terribly post-Tiananmen, having loans from the World Bank and Asian Development Bank rescinded and their entry to the World Trade Organization delayed by a decade and a half.

Beijing is stuck in a difficult position - the 2019 Protests have no leader, therefore there is no one to negotiate with. Chinese culture would also make it difficult to resolve this dispute, even if there was a central unifying figure - neither side wants to lose face (the CCP cannot afford to look weak). Therefore, Beijing has no real options to de-escalate through diplomacy. However, it possesses one main asset in lieu of direct military oppression: economic leverage. Hong Kong only sends 8% of its total exports to the United States, but has its currency pegged to the U.S. dollar. There are no restrictions to foreign banks in the city, and its entire business culture is enticing to FDIs. This is all allowed by Beijing by keeping Hong Kong as a special administrative region. Despite the shared markets between Hong Kong and the U.S. (and Europe for that matter) are tiny compared to others, having Beijing restrict their ability to manage capital would be devastating to the Hong Kong economy and their reputation as a financial hub.

These attempts to strangle Hong Kong economically - through finances and food - may come back to bite Beijing. 58% of Chinese outbound foreign direct investment flows through the island [4]. Without Hong Kong, Chairman Xi's One Belt, One Road initiative would crumble. Shanghai and Shenzhen cannot serve as China's replacement centers anytime soon, capital controls placed by the government prevent money from moving in and out easily. Hong Kong also has numerous financial advantages over the mainland, all revolving around their special administrative status and financial transactions. Neither Shanghai, Beijing, nor Shenzhen possess Hong Kong's combination of a registration-based IPO system (stock listings are faster and easier to accomplish), no capital controls, little international exposure or history, sound financial infrastructure limiting operational costs, transparency, and effective financial regulations [5]. Hong Kong is also the premier investment center in the mainland - 54% of all FDI that Beijing has ever received has come from Hong Kong [6].