The dark clouds of "one country, two systems" are heading south toward the Taiwan Strait.

On September 26 at the Great Hall of the People in Beijing, Chinese President Xi Jinping told a visiting Taiwanese delegation: "Peaceful reunification and one country, two systems are the fundamental principles for the mainland in resolving the Taiwan issue….In implementing them in Taiwan, we will consider Taiwan's existing situation."

Taiwan's reaction at every level, from the government and the opposition Democratic Progressive Party to civic groups, was swift and unambiguous in condemning Xi's proposition and branding it unsuitable for Taiwan.

The clearest evidence of why Taiwan feels that way resides in Hong Kong, about 1,000 kilometers away. Before Hong Kong was handed over to the People's Republic of China in 1997, Beijing pledged to maintain a "one country, two systems" model for the then British colony for 50 years. Over the past 17 years, however, it has taken a markedly different approach.

Hong Kong has been dubbed by some as the "Pearl of the Orient," but it now faces political tumult of almost unprecedented scale after China's National People's Congress rejected Hong Kong's demand to democratically elect its own leader, instead insisting that the nominees for the chief executive election in 2017 be vetted by a pro-Beijing election committee. That has resulted in massive "Occupy Central" protests and student boycotts of classes that drew a heavy-handed response on Sept. 28 when riot police launched a baton charge at protesters and fired volleys of tear gas.

Seventeen years after the imposition of the one country, two systems model, Hong Kong faces several challenges – an economy dependent on China, deep political divisions and a highly divided society. Why has it come to this?

Competitiveness on the Decline

"The international community likes to talk about the 'China Model' and sees it as being better than the 'American model.' But it's still hard to tell if the China Model is good or bad," a media veteran tells CommonWealth Magazine during a conversation at a private club in Central District.

The Chinese interpretation of one country, two systems in Hong Kong has replicated the China Model, resulting in economic functionality, political centralization and social confrontation.

By any measure, Hong Kong remains economically prosperous. A global financial center and gateway for the world to China's market, Hong Kong ranks eighth in the world in foreign trade, has the fourth biggest port and was the world's second biggest center for raising funds through IPOs in 2013. Its economy has more than doubled in size since it reverted back to China in 1997 and boasts per capita income of US$38,000, according to Hong Kong government statistics.

Yet in the authoritative world competitiveness rankings issued by the International Institute of Management Development in 2014, Hong Kong slipped out of the top three for the first time, falling behind Singapore.

Hong Kong now also lags behind Shanghai and Singapore in per capita income after ranking higher than the two cities at the time of the handover in 1997.

"Hong Kong's status in the Pearl River Delta is like Tokyo's in Japan. It's a base for finance, services and new product marketing," says Thomas Chan, head of the China Business Centre at Hong Kong Polytechnic University.

"The special administrative region's government has only focused on the financial services and property markets since the handover, unlike the more balanced approach of the previous government under the British. The result is today's one-dimensional (economy)." 

Chan's sense reflects a general feeling in Hong Kong that the local government has collaborated with Beijing in strengthening the territory's functional roles, striving, for example, to build up its financial sector by expanding the number of banks and listed companies and turning it into a major center for offshore renminbi transactions.

The government has also initiated land finance measures to attract big developers and spur investment. But according to a survey by Ming Pao, an independent Chinese-language daily, many of Hong Kong's good macroeconomic numbers have largely been driven by the injection of Chinese money in the property, retail and tourism sectors.

This approach of catering to Beijing's needs rather than considering measures suitable for Hong Kong's own economic structure has led to a gradual decline in the region's overall competitiveness and growing shortages of tax revenues, talent and innovation.

Cozying Up to Business, Leaving Behind the People

A main culprit in accelerating the former British territory's economic decline appears to be the political design of the one country, two systems model. Beijing has described the structure of governance as "Hong Kong people administering Hong Kong," but Beijing has intervened from time to time, starting by co-opting the authority of the special administrative region's chief executive. The controversy over the 2017 chief executive election is a case in point.

Two years ago, when Hong Kong held its most recent chief executive election, its business sector threw its full weight behind Henry Tang, who had a business background before serving as financial secretary from 2003 to 2007 and chief secretary from 2007 to 2011.

Leung Chun Ying, the preferred candidate of Beijing, was originally seen as the underdog, but intensive lobbying by China's liaison office in Hong Kong eventually mobilized 689 votes among the votes cast by the 1,200-member election committee. The people of Hong Kong did not have any say in the matter. 

On September 22, as Hong Kong students began boycotting classes, Xi Jinping was meeting a Hong Kong business delegation led by tycoon Li Ka-shing in Beijing. The scene was widely interpreted as the latest move to promote reconciliation between Hong Kong entrepreneurs and Chinese authorities. Beijing was seen as continuing to protect the business community's interests in exchange for the entrepreneurs' support for its policies, a quid pro quo engineered to avoid the conflict seen two years earlier.  

This initiative to cozy up to business has meant growing wealth for big tycoons and the rich, a trend that when combined with the opening of Hong Kong's property market to Chinese investors following the global financial crisis has left the average resident unable to afford to buy a home.

The Legislative Council should have played a role in helping check and balance the situation, but many lawmakers were themselves seeking support from Beijing to increase their influence. In a legislative body of only 70 seats, there are representatives of 27 different political parties and independent groups, and "those who call themselves independents are actually dependent on China," says Democratic Party Chairman Emily Lau with a sense of helplessness. 

Growing Contradictions, Intractable Differences

An even more serious problem spawned by the "one country, two systems" model is cultural friction resulting from "excessive" interaction between mainland Chinese and Hongkongers. Even if the opening to Chinese visitors and investment has brought economic benefits, it has failed to win the support of Hong Kong residents.

Having less cultured mainland Chinese take over more cultured enterprises or govern a more sophisticated population has proven extremely difficult.

Beijing has tried to gain the support of Hong Kong residents since 1997 through three policies crafted to directly benefit them economically: independent travel to Hong Kong, the Closer Economic Partnership Agreement (CEPA) and the Shanghai-Hong Kong Stock Connect program.

In 2003, to deal with the recession spurred by the SARS scare, China allowed its nationals to visit Hong Kong independently rather than as part of tour groups, launching a trend that resulted in 40 million visitors to the special administrative region last year. Over those 10 years, the scale of Hong Kong's tourism market, encompassing hotels, restaurants, retailers and transportation companies, grew threefold, and unemployment fell from 7.9 percent to 3.4 percent.

Also in 2003, mainland China and Hong Kong signed the CEPA, enabling Hong Kong goods to enter China, or third countries with free trade deals with China, duty free.

The relationship will grow even closer this year when the Shanghai-Hong Kong Stock Connect program is launched in October. The link-up will allow investors in either market to buy shares listed on the other, and overseas investors will be able to buy shares on the Shanghai Stock Exchange in Hong Kong.

Even with these deepening economic ties and China's efforts to "provide economic benefits" to Hong Kong, however, the cultural differences between the mainland and the special administrative region have caused repeated confrontations between Chinese and Hongkongers.

In just one example, Hong Kong lifeguards went on strike in early August over the huge hordes of Chinese tourists invading Hong Kong's public pools and even occasionally defecating in them, forcing emergency closures to clean up the facilities. "The anger of these 300 lifeguards is easy to understand," says Leung Kam Cheung, chief editor of Local Press, an online media company in Hong Kong. 

The cultural clash has descended into name-calling, with local residents calling Chinese tourists and immigrants in Hong Kong "locusts," and mainland Chinese denigrating Hongkongers as "running dogs." 

"In the past, many (Hongkongers) thought poorly of mainlanders, but they never showed their feelings because they knew it was not the proper thing to do. But now it's become politically correct when a few people get together to criticize (the mainlanders) and just vent," observes Annie Zhang, a freelance writer.

On Sept. 22, the results of an opinion poll published in Ming Pao found that 60 percent of respondents agreed that relations between mainland China and Hong Kong were growing closer, but 71 percent said that their good will toward Chinese people was on the decline.

Similarly, in a long-term tracking poll on ethnic identity conducted by the Public Opinion Programme of the University of Hong Kong, only 19.5 percent of Hong Kong residents polled in June identified themselves as "Chinese," just 0.9 percentage points higher than at the time of Hong Kong's handover to China in August 1997.

Discord Growing by the Day

The problem with China's heavy-handed political reform that has sparked tensions between Hong Kong and Beijing boils down to the same issue as in the past: how "one country, two systems" is interpreted. People in Hong Kong want an election system respecting "two systems" that protects their right to vote, but China insists on the idea of "one country," seemingly leaving little room for compromise.

But "if Hong Kong were to abandon the Basic Law, it would effectively allow Beijing to handle China-Hong Kong relations through political means," Shenzhen University professor Zhang Dinghuai said bluntly in an interview with Hong Kong media.

An article in the overseas version of the official People's Daily on Sept. 24 explained Beijing's position in no uncertain terms: "There is a voice in Hong Kong that says Hong Kong people should fully control political reform and that the central government should not get involved. But in fact, Hong Kong is a special region of China, and the central government has the final say on political reform there. That is consistent with basic political theory and is something that was stipulated in the Basic Law long ago."

The concept behind "one country, two systems" was for Beijing to preserve Hong Kong's long-standing independent judicial system and freedom of expression and maintain its economic vitality and prosperity for at least 50 years. But the definition of "one country, two systems" has changed based on the thinking of successive Chinese leaders, something Legislative Council president Jasper Tsang, a pro-Beijing loyalist, has sensed as much as anyone.   

As the leader of Hong Kong's highest representative body, Tsang early on conveyed the yearning of Hong Kong's people for universal suffrage, but "more than six months ago, Beijing's answered that the risk was too great," he says.

Even as the gap between ideals and reality in Hong Kong has grown wider, the voices of people there have become increasingly muted because Beijing not only has absorbed Hong Kong economically, but also divided and conquered it politically and systematically promoted the mainland's ideology throughout society. From mobilizing groups to counter opposition campaigns and building deep-rooted canvassing networks for low-profile grassroots elections to co-opting media power, China's influence in Hong Kong has become pervasive.

Suppressing Dissent, Backing Pro-China Forces

The clearest example of this growing influence in Hong Kong society may be in the media. Several media companies have changed ownership in recent years, with the new owners either representing big conglomerates or known as being friendly to Beijing.

Independent media, on the other hand, have been the victim of intimidation, with one media veteran admitting to living in fear.

"The atmosphere of a white terror permeates society. I've felt this pressure," wrote   Tony Tsoi, the founder of House News, in a Facebook post on July 26 when he announced the end of the venture. House News was drawing more than 300,000 unique visitors a day in June but was still shunned by advertisers for political reasons, and his family had come under political pressure, Tsoi said.

Over the past two years, a dark cloud of violence has enshrouded Hong Kong media circles. Three media company offices and the car of a media executive have been damaged under suspicious circumstances and half a dozen workers in the media have been violently attacked. One of them, the former editor-in-chief of Ming Pao Kevin Lau, was hacked by an assailant with a meat cleaver in late February that left him critically injured. In June 2013, the owner of Next Media, Jimmy Lai, had the front gate of his home rammed with a car, and weapons were left at the scene in a clear threat.

In the invisible battlefield for public opinion, China has systematically co-opted Hong Kong at the grassroots level. Pro-democracy activist Ada Wong says that since 2003, when pro-democracy forces scored a big victory in district council elections, China's liaison office in Hong Kong has worked hard to gain sway in communities. It has recruited retirees and housewives to participate in neighborhood organizations and supported staunchly pro-Beijing "royalist" parties, such as the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB).

Those efforts have paid off. In the 2013 district council elections, pro-Beijing parties and candidates fared far better than their pro-democracy rivals. 

At the same time, China's liaison office in Hong Kong has attracted local youth to the DAB by inviting them to participate in activities in China and giving them opportunities for career development there in the future.

"That's very hard for young people to resist," Wong says.

Though China has used various means to dominate public opinion, Hongkongers have continued their tradition of taking to the streets to voice their displeasure with Beijing that began following the Tiananmen Massacre on June 4, 1989, when 1 million Hongkongers rallied in support of China's democracy movement.

In 2003, 500,000 people demonstrated against the proposed Article 23 of the Basic Law (regarded as an anti-subversion law designed to suppress dissent against China) that was later shelved.

More recently, 200,000 people besieged the Hong Kong government in July 2012 to protest efforts to introduce Chinese "patriotic" education to the territory, and on July 1 this year, 500,000 crowded the streets to demand universal suffrage.

Though the movements against Article 23 and the national education lessons were successful, the most recent "Occupy Central" campaign to put the chief executive election completely in the hands of Hong Kong's people has encountered stiff resistance.

That's because pro-democracy campaigns have been quickly met with powerful responses from "anti-Occupy Central" groups that have left a deep impression on Gary Fong, the external vice president of the Student Union of the Chinese University of Hong Kong.

"It was only after fighting them that I understood what 'mass struggle' really means. Mobilizations by the Communist Party are really scary," Fong says.

Even more frightening to Hongkongers is that even as a democratic consciousness has returned, traditional allies have disappeared. In recent months, many countries, including the United States and Britain, have offered only moderate responses to China's restrictive election reforms, suggesting that Beijing has developed the means and the tactics to keep foreign countries from intervening in Hong Kong's affairs.

This "worst of times," however, may actually be an ideal beginning for a new era. In the face of "two systems" obviously tilted toward the interests of "one country," people in Hong Kong are starting to ponder how to demand change.

During the major rally for universal suffrage on July 2, Fong gained experience in being "carried away" by police, but he quickly let go of the hurt he felt and is now thinking about how to get involved in communities and develop an understanding of their problems.

"Boycotting classes is simply to give us more time to get to know society better," Fong says.

Four Lessons for Taiwan

One thousand kilometers away from the former British colony, Taiwan may be less sensitive to being under oppressive "one country, two systems" clouds, and it is also quite different from Hong Kong politically, socially and economically. Yet China has also targeted it for adoption of the "one country, two systems" model, and Taiwan has to be cautious and learn from Hong Kong's experience. During its coverage of the pro-democracy protest, CommonWealth Magazine found four lessons that Taiwan would do well to remember.

1. Don't focus on the short term; think about the long term. Since 1984 when Britain and China issued their first joint statement, Hong Kong has always been a "spoiled city." London and Beijing have used competing policies over the past 30 years to vie for the hearts and minds of Hong Kong's people, resulting in an increase in wealth in the short term but declining competitiveness over the long term that has prevented the development of a rational industrial structure.

2. Balance social and economic development. Hong Kong's predicament shows there should be no illusions about any "residual powers" remaining in the hands of local authorities under "one country, two systems." Taiwan has to defend its sovereignty and its right to govern itself, but to do that it needs to be buttressed by a diverse array of economic, social and cultural strengths.

3. Weak Legislature can drag down governance. Hong Kong's rulers have not been eager to foster checks and balances between the executive and legislative branches of government, and Hong Kong's fractured Legislative Council has not led to strong and effective administration. Instead, its inability to pull together its many voices has made it difficult to pass laws, impairing administrative efficiency.

4. Cherish democracy. The movement by young people in Hong Kong to occupy Central and lead a civil disobedience campaign has legitimacy because residents do not even have the most basic right to directly nominate and elect their chief executive. Taiwan's democratic system has already experienced changes of power among political parties, and the people have more choices and more opportunities to express their opinions within the system than in Hong Kong. This establishment of durable democratic institutions should be cherished, and efforts to deepen democracy should be sustained.

Translated from the Chinese by Luke Sabatier