china and hong kong game theory in a one country, two...

Midterm Paper – Game Theory in a One Country, Two Systems Framework Morgan’s Money Grabbers

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China and Hong Kong

Game Theory in a One Country, Two Systems Framework

Morgan’s Money Grabbers

Miran Ahmad, Somit Guha, Kurt Sheline, Hiu Yu

“We fight for our goal without analyzing the possibility of success. If. . . you have to consider the possibility

to reach the goal, you should not involve [yourself] in the social movement or student movement.”

- Joshua Wong (Hong Kong Student Activist and Founder of Scholarism)

Late September early this year saw an unusual sight on Chinese soil - thousands of demonstrators, armed

only with umbrellas and makeshift gas masks, surrounding government buildings protesting for democracy.

In a socialist country, strictly controlled by a government with such strong authority, where could this be?

The only part of the country that can challenge their government openly – Hong Kong.

Hong Kong’s recent “umbrella revolution” protests mark the latest installment in the region’s ongoing

demonstrations against the Chinese government for universal suffrage since it was handed back to Chinese

control in 1997. These protests highlight the obvious tension between communist party leaders in Beijing

and the existing democratic rights of Hong Kong citizens and pose an interesting question of what the long-

term future between these two regions holds.

The China – Hong Kong Relationship1

The Treaty of Nanking signed on 29 August 1842 marked the end of the First Opium War between the UK

and the Qing dynasty of China. As part of the Treaty, China relinquished possession of Hong Kong to the

UK, agreeing to make the island a crown colony. In 1860, the colony was extended with the Kowloon

peninsula and in 1898, the Second Convention of Peking further expanded the colony with the 99-year lease

of the New Territories.

With the expiration of the 99-year lease (1997) over the New Territories approaching, in 1982, the UK

Prime Minister, Margaret Thatcher, visited Beijing to discuss the future of the colony. The UK’s initial

proposal was that while China regain sovereignty over the territory, the UK would retain administrative

control over Hong Kong. This initial proposal was rejected by China’s Communist leadership and led to

the Chinese Supreme Leader, Deng Xiaoping proposing a “one country, two systems” formula for Hong

Kong. Under the proposal, Deng suggested that China and Hong Kong would be united as one country,

however both regions would be seen as distinct, with Hong Kong retaining its own capitalist economic and

political system and China maintaining its own socialist system.

In 1984, the UK and China announced in a joint declaration, that China would resume the exercise of

sovereignty over Hong Kong on July 1, 1997. As part of the declaration, it was noted that China would

respect Hong Kong citizen’s freedoms of speech, religion, and association and that there would be an

independent judiciary system for the region. Under the joint declaration, Hong Kong would observe a “high

degree of autonomy” in all matters except defense and foreign affairs. The declaration stipulated that the

region would maintain its capitalist economic system and guaranteed the rights and freedoms of its people

1 Source: BBC, Wikipedia

http://en.wikipedia.org/wiki/New_Territories


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for at least 50 years after the 1997 handover. These guarantees over the region’s autonomy are enshrined

in Hong Kong’s Basic Law, which outlines the system of governance but is subject to the interpretation of

the Standing Committee of National People’s Congress.

From the years since the joint declaration through to 1997 when China regained sovereignty over Hong

Kong, Beijing maintained a commitment to the agreement, noting that Hong Kong citizens would have all

the rights that were outlined. Notably in 1993, China’s senior official for Hong Kong stated that the

universal suffrage method for electing Hong Kong’s Chief Executive, who would replace the post of

Governor, would be completely within the sphere of the autonomy of Hong Kong and that the Chinese

central government would not interfere.

In reality, this has not been the case. When Hong Kong was handed back to Chinese control in 1997, and

whilst the legislation governing the regions is in line with the “one country, two system proposal,” it did

not offer the rights of universal suffrage. The region’s first Chief Executive was Tung Chee-hwa, a

Shanghai-born former shipping tycoon with no political experience, who was hand-picked by Beijing to

rule the territory following the takeover. Since 1997, the Beijing government has constantly tried to limit

Hong Kong citizens’ right to universal suffrage, which has led to tensions in the region. In 2003, Beijing’s

proposed anti-subversion law known as Article 23 led to large scale demonstrations in the territory and as

a result, the bill was indefinitely shelved. As a means of trying to exert further influence within the region,

in 2004 China ruled that its approval must be sought for any changes to Hong Kong’s election laws, giving

Beijing the right to veto any moves towards more democracy.

In 2007, whilst a decision made by the Standing Committee of the National People’s Congress ruled out

universal suffrage for the selection of the 2012 Chief Executive, Beijing did open up the possibility of

having fully democratic elections in 2017. This possibility was ruled out earlier this year with the release

of a Chinese “white paper” in which Beijing demanded that any future Hong Kong Chief Executive must

“love” China. This translated in to the future elections for Chief Executive, with Beijing noting that whilst

the position will be elected by universal suffrage, only candidates approved by Beijing may run and

furthermore any appointment would be subject to “final” approval by Beijing.

This latest announcement from China around the election process triggered the umbrella protests that are

being witnessed in Hong Kong today exacerbating a precarious situation. Since handover, it appears that

whilst in theory China agreed to a fully democratic Hong Kong operating under the “one country, two

systems” premise, practically China is not willing to implement this. In all instances, when Beijing has

raised the possibility of universal suffrage, at the time of reckoning, there has been a movement away from

implementing the democratic process and reason to revisit the subject in the future. This constant

postponement has caused tension with the Hong Kong citizens, leading to the current situation and standoff

between Beijing and protesters.

The goal of this paper is to analyze the situation being faced by the Chinese government and the Hong

Kong Protesters through a game theoretic lens, and offer some potential conclusions and plans of action to

“change the game”.


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Hong Kong’s Place in China

With the rapid economic growth of China over the last 20 years, Hong Kong’s economic importance in

terms of absolute contribution is slowly declining, however it is still important to Beijing in terms of

providing an eye to the western world.

Although Hong Kong only accounts for 0.5% of all of China’s population, it accounts for over 3% of

China’s total GDP (notably, this figure declined from approximately 17% of GDP at the time of handover

in 1997). Furthermore, Hong Kong’s continued importance as the leading financial hub within Asia-Pacific

and its judiciary system under Hong Kong Basic Law, provides an attractive center within the region for

companies to establish their Asian headquarters. Hong Kong is also a means for Chinese corporations to

access foreign capital for domestic and international investment, and acts as a valuable financial bridge to

world markets. Hong Kong’s unique position at the crossroads of China’s access to the Western world has

translated to a generally higher quality of life for Hong Kong citizens over their counterparts in mainland

China (with a GDP per capita of $41,000, almost six times as high as the GDP per capita of $7,000 seen in

China).

Table 1. Hong Kong and China Comparison

Metric China Hong Kong

Population 1,400 million 7.2 million

GDP (nominal) $9,500 billion

$7,000 (per capita)

$303 billion

$41,000 (per capita)

Economic Activity Services: 46.1%

Industry: 43.9%

Agriculture: 10.0

Services: 59.7%

Trade: 26.4%

Industry/Other: 13.9%

Stock Exchange

Global Rank

Hang Seng: 6th Shanghai: 7th

Shenzhen: 11th

Source: Wikipedia

Moving forward, the interactions between Hong Kong and Beijing could have far-reaching implications

(both temporally and geographically). Commentators have noted that Hong Kong may hinder hopes of the

RMB becoming a world reserve currency as China’s economic development continues. Furthermore, others

have stated that Hong Kong’s position and continued dominance in the Asian finance industry could hamper

China’s goal of positioning Shanghai as a worldwide financial hub. If these assumptions are correct, it

leaves an important dynamic between Hong Kong and China that could inform future interactions. The

environment is rich with stakeholders, competing interests, and a gamut of strategic and competitive

capabilities.


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Civil Disobedience History

To provide further context around the most recent protests, a review of prior civil disobedience in China is

important. The most striking and historically significant incident occurred in China in 1989, and is formally

known as the 1989 Democracy Movement. The protests, which lasted over one month, were spread across

400 Chinese cities, with the majority of protesters converging on Tiananmen Square in Beijing (at the peak,

over one million protesters occupied the Square; and in Hong Kong, 1.5 million protesters converged to

show support for those in the Square). Ultimately, the protests were forcibly repressed through the use of

military force (300,000 troops used), and became known as the Tiananmen Square Massacre (casualty

estimates range from a few hundred to a few thousand). After the protests, the Chinese government enforced

martial law for seven months in the capital and conducted widespread arrests of protesters, expelled foreign

journalists, and strictly controlled coverage of the events in the press. International reactions to the protests

were severe, as many Western governments imposed economic sanctions and arms embargoes on the

Chinese. In Hong Kong, the protests made citizens fear that the PRC would not follow the commitments

made under the “One Country, Two Systems” formula beginning in 1997, and resulted in many losing trust

in the Chinese government. The only other notable pro-democracy movement in China occurred in 2011,

when protesters assembled in a dozen Chinese cities. The Chinese government’s reaction, while less severe

than in 1989, was still swift and strong. Protesters and journalists were arrested, and censorship was utilized.

These events serve as context for Hong Kong’s political struggles and the region’s relationship with Beijing

in the years leading up to the handover.

Table 2 provides an outline of pro-democracy protests in Hong Kong. As shown, Hong Kong has had a

consistent record of protests since 1997 (a record that is much more numerous than pro-democracy protests

in China). Each year on July 1st, rallies are held to commemorate the handover of Hong Kong to the Chinese

and to demand democracy, universal suffrage, the protection of freedom of speech, and a variety of other

concerns.

Table 2. Hong Kong Civil Disobedience History

Date # of Protesters Notes

1997-2002 0-65,000 per year Organised annually by The Hong Kong Alliance in Support

of Patriotic Democratic Movements in China.

2003 700,000 - 1,000,000 Opposing the anti-subversion Hong Kong Basic Law

Article 23, which would erode freedom of speech.

2004 ~500,000 The National People's Congress Standing Committee

attempted to modify the Basic Law on April 6, 2004 to

deny direct elections for the Chief Executive in 2007 and

the Legislative Council in 2008.

July 2005 NA “Oppose government collusion, striving for universal

suffrage” was the theme of the protest. Built on the

momentum of the 2004 protests, and emphasized that a high

degree of autonomy must accompany democracy.

December ~100,000 A timetable for universal suffrage was demanded, and 2017

http://en.wikipedia.org/wiki/The_Hong_Kong_Alliance_in_Support_of_Patriotic_Democratic_Movements_in_China

http://en.wikipedia.org/wiki/The_Hong_Kong_Alliance_in_Support_of_Patriotic_Democratic_Movements_in_China

http://en.wikipedia.org/wiki/Hong_Kong_Basic_Law_Article_23

http://en.wikipedia.org/wiki/Hong_Kong_Basic_Law_Article_23

http://en.wikipedia.org/wiki/National_People%27s_Congress_Standing_Committee

http://en.wikipedia.org/wiki/Chief_Executive_of_Hong_Kong

http://en.wikipedia.org/wiki/Legislative_Council_of_Hong_Kong


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2005 was considered.

2006 58,000 “Creating hopes for universal suffrage and democracy with

an equal and just Hong Kong” was the theme of the protest.

2007 ~60,000 “Achieving universal suffrage, improving livelihood” was

the theme of the protest.

2008 40,000 NA

May 2009 150,000 20th Anniversary of Tiananmen Square

July 2009 100,000 NA

2010 52,000 NA

2011 218,000 Just two days before the protest, the government led by

Stephen Lam tried to pass a bill to no longer allow by-

elections

2012 400,000 The fact that universal suffrage was still denied, as well as

the suppression of freedom of speech in Mainland China

were featured in the protests.

2013 ~63,000 NA

2014 500,000 The National People’s Congress set limits for the 2016

Legislative Council election and the 2017 Chief Executive

election, resulting in protests through Hong Kong that are

ongoing.

Source: BBC, Wikipedia, Financial Times

As shown, protests have ranged in size each year, with the most significant protests occurring in 2003-2004

in opposition to the Basic Law Article 23 anti-subversion legislation (the Hong Kong public was worried

that civil rights and liberties would be taken away as a result of the proposed legislation). The current

protests, the largest since 2004, were sparked by the National People’s Congress’ decision to limit the 2016

Legislative Council election and the 2017 Chief Executive election. Stated simply, Hong Kong has a history

of protesting for universal suffrage, and the Chinese Government has a history of consistently resisting their

demands.

Competitor Analysis (Isolated and Inward Thinking)

This context serves as the basis for our isolated competitor analysis (looking specifically at a Hong Kong-

centric view). The details of this analysis are provided in Tables 3 and 4. From the Chinese Government’s

perspective, the Hong Kong protester’s short-term goals include negotiations, and their capabilities and

strategy are highlighted by non-violent protests with the increased use of social media to rally others and

enhance solidarity. The very fact that protests are so numerous are likely to result in the Chinese government

downplaying the importance of the protests, and its concern. As a result, in the longer-term, the Chinese

Government is likely to suffer from representativeness bias. Protesters are likely to follow prior protest

http://en.wikipedia.org/wiki/Stephen_Lam


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timelines, and are highly likely to give up, give in, and lose resolve for the cause. This belief, in the isolated

game, is likely to form the foundation of the Chinese government’s strategy.

Table 3. HK Protesters Competitor Analysis

Assumptions Strategy Goals Capabilities

Short-Term Negotiations

possible

Non-violent

demonstrations, scale,

solidarity

Social media

Negotiations Protests

Long-Term Give up Non-violent/violent

demonstrations

Social media

Universal

Suffrage

Scale

Tech savvy

From the Hong Kong protester’s perspective, the Chinese government is likely to engage in a strategy of

containment and downplaying the importance and size of the protests (as they have done in the past). In the

long-term, the government is likely to utilize a variety of other strategies to stop the protests and ensure that

pro-democratic ideas are not disseminated to the mainland (most notably, the use of third-party non-state

actors, and increased censorship of the situation across mainland China).

Table 4. Chinese Government Competitor Analysis


Short-Term PRC want increased

influence in HK

Containment via

police

Stop protests Police,

political

Long-Term Communism in HK

Fear democratic

uprising in PRC

Negotiations

Containment via

police/other means

(e.g.triads)

Political and

economic

stability

Military, third-

party groups,

censorship,

technology,

political

The Isolated Ordinal Game

Having analysed the assumptions and goals of the rivals, Figure 1 shows the initial game between the HK

protesters and the Chinese Government. An ordinal system (1-4 scale from best to worst) has been chosen

as the exact payoffs are difficult to estimate, as they include intangible assets (such as nationalism and

patriotism). The HK protesters have two options: [Fight] - Protest against the proposed legislation, or [Not


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Fight] - Do nothing. The Chinese Government has two options; [Fight] - To crackdown on the HK populace

or [Not Fight] - Do nothing.

Figure 1: Isolated Game Matrix

To assign rankings to the ordinal payoffs (1 is highest), we have utilized our context and competitor analysis

information discussed above. First, from the HK protesters perspective, we have assigned a status quo

scenario [HK: Not Fight, PRC: Not Fight) as least desirable (ranking of 4). The [HK: Not Fight, PRC:

Fight] is 3rd best as the Chinese Government will pass the election legislation (not allowing full universal

suffrage) and a crackdown on the HK populace and taking away their rights would create additional support

for democracy. Of the [HK: Fight] options, the HK protesters would prefer that the Chinese Government

not to fight them and listen to their objections. Therefore [HK: Fight, PRC: Not Fight] would be the HK

protesters most desired option, given a 1, and [HK: Fight, PRC: Fight] is ranked second.

From the Chinese Government’s perspective, the best situation is for the legislation to pass (no true

universal suffrage), and for the HK protesters to not put up a fight. [HK: Not Fight, PRC: Not Fight] is

ranked first. The worst choice for the Chinese Government is to [Fight] the HK populace when they are not

doing anything. The negative impact of this would be severe, and would harm the credibility and reputation

of the government and country on an international stage. The economy of HK would be negatively affected,

and the Chinese government’s rationality would be seriously questioned. Foreign corporations based in

Hong Kong would likely flee to Singapore, and China’s use of Hong Kong as a gateway to the western

world would no longer be available. [HK: Not Fight, PRC: Fight] is given a 4. When the HK Protesters

[Fight], the Chinese Government has the option to [Fight] or [Not Fight]. Although HK has protests yearly

about gaining universal suffrage and other concerns, previous protests in HK have largely been short and

unimportant. Considering the importance of HK as a global business city in Asia, and the effect [PRC:

Fight] could have on the HK economy suggests that the Chinese Government would prefer to [Not Fight]

over [Fight], making [HK: Fight, PRC: Not Fight] number 2 and [HK: Fight, PRC: Fight] number 3.

As the ordinal payoffs for the rivals have been determined, we can easily determine the Nash equilibrium

for the isolated game as [HK: Fight, PRC: Not Fight]. This is what was seen at the very beginning of the

Umbrella Protests: the Chinese Government allowed the protests to happen, with no crackdown apparent.


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Refining the Payoffs

The previous analysis was centered on a very simplistic game, when in reality, the situation is much more

complex. Further refinement of the competitor and behavioral analyses is provided below to match the true

complexity of the game.

On a competitive basis, we believe that little changes when compared to the isolated game. Regardless of

scope, the landscape of assumptions, strategy, goals, and capabilities is the same: the HK protesters will

protest, and want universal suffrage.

Starting with a more in-depth and refined analysis of the competitors, the Chinese government is likely to

believe that the motivations and goals of the HK Protesters remain the same (Table 5).

Table 5. HK Protesters Competitor Analysis


Short-Term Negotiations

possible

Non-violent

demonstrations, scale,

solidarity

Social media

Negotiations Protests

Long-Term Give up Non-violent/violent

demonstrations

Social media

Universal

Suffrage

Scale

Tech savvy

On the behavioral side, the game’s terminal period provides an added complication that could change the

protesters actions. The historical declaration signed between the United Kingdom and China stipulated the

HK region would maintain its capitalist economic system and guaranteed the rights and freedoms of its

people for at least 50 years after the 1997 handover. Elementary analysis using ‘look forward reason back’

would dictate that since ‘legal’ reunification in 2047 is inevitable, protesting in 2046 is a moot cause.

Reasoning this logic backward until today, this would suggest that there is no point in protesting today as

the result - legal reunification will still happen. This is not how the HK protesters see the situation; the main

reason for this is loss aversion. The Hong Kong protesters are accustomed to certain rights; they have had

these rights since British rule began over a century ago, and as a result are likely to behave more irrationally

(potentially risk-seeking) in situations in which these rights could be taken away. In the near-term, this risk-

seeking behavior is likely to be muted due to the lack of immediacy of the ultimate results of the situation

and the perception that the fight will continue. As the fight continues and the potential loss of freedoms

becomes more immediate and pronounced, the HK protesters are likely to begin acting more irrationally;

the incentive to fight is increased. In this situation, historical perspective may misinform the Chinese

Government’s strategy, and protesters may not give up as the Chinese Government expects.

As shown below in Figure 2, Hong Kong’s confidence in the ‘One Country, Two Systems’ policy has

deteriorated to an all-time low in July 2014, indicating that resolve for protester’s goals is likely at an all-


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time high. Commitment decreases susceptibility to threats from the Chinese government, and increases the

chance of strategically raising the stakes. This behavioral analysis of the protester’s changing situation as

time progresses should inform the Chinese government’s strategy. But has it?

Figure 2. Confidence in the Hong Kong Governance System

Source: Financial Times, University of Hong Kong, Public Opinion Program

From the Chinese government’s perspective, the increased scope of the game to a national and global scale

changes the competitive analysis as shown in Table 6. Hong Kong, while possibly strategically valuable,

remains a very small portion of China in terms of geographic size, GDP and, population, yet appears a very

large potential threat to the stability of the majority. That being said, the Chinese government likely balances

the protests in Hong Kong in the context of other national and global concerns. The additional national and

international goals China potentially has for the long-term include, promoting Shanghai to an international

financial center, thereby replacing Hong Kong, and elevating the RMB to world reserve currency status,

thereby challenging the U.S. dollar. With these added goals, it is possible that China is more willing to

fight, but again, this must be balanced with the fact that on an international stage, how the government deals

with the Hong Kong situation is likely to severely impact the ultimate achievement of these goals.

Table 6. Chinese Government Competitor Analysis


Short-Term Increased PRC

influence in HK

Containment via

police

Stop protests Police,

political


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Long-Term Communism in

HK

Fear democratic

uprising in PRC

Negotiations

Containment via

police/other means

(e.g.triads)

More to lose, more

willing to fight

Political and

economic stability

Shanghai as financial

hub

RMB as world’s

reserve currency

International

reputation

Internal security

Military, third-

party groups,

censorship,

technology,

political

On a behavioral basis, the Chinese government is likely to suffer from various biases, both related to the

history of dealing with protests in Hong Kong. First, with years of successfully ruling both mainland China

and Hong Kong, the Chinese Government likely suffers from hindsight bias in its analysis that this protest

would be similar in length and voracity to previous protests. Second, the Chinese Government is also likely

overconfident, overstating their understanding of the situation and understating Hong Kong protester’s

resolve, while assuming that they are fully prepared to deal with any changing dynamics of the situation on

a reactive basis. With this behavioral analysis, the Hong Kong protesters have several strategic moves that

are capable of capitalizing on the Chinese Government’s prevailing biases, given that their short-term

interactions with the government lead them to believe that they still suffer from a flawed mental model.

The Chinese Government is likely to respond to the HK protests in a way that balances its national and

global concerns. Currently, the Chinese Government has banned any mention of the HK protests from being

reported in the Chinese social and traditional media for fear the HK protests may incite other dissident

groups (shown in Figure 3). The Chinese Government must act carefully as the protests currently underway

in Hong Kong are illegal in Mainland China. Given that current protests have remained non-violent, the

current policy of media censorship by the PRC matches the strategic decision to simply contain the

protesters. However, if the protests were to become violent, the Chinese Government may respond in-kind

and shift from censorship to openly broadcasting the crackdown on protesters to serve as a warning to other

dissident groups in Mainland China.


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Figure 3. Social media censorship in Mainland China

Source: i100, Independent

After taking this refined analysis into account, the payoffs and game outcome are likely to change. From

the HK protesters perspective, there is no change in the ordinal rankings. If anything, their behavioral

aversion to losses and added incentive to seek risk while operating in loss space has increased their

commitment to the dominant [Fight] strategy. As time progresses towards 2047 (when the ‘One Country,

Two Systems’ policy ends), their commitment to the cause will only increase.

From the Chinese government’s perspective, the rankings of the payoffs do change. The desired outcome

for the Chinese Government is still the status quo with [HK: Not Fight, PRC: Not Fight] and its worst is

cracking down on a non-protesting populace [HK: Not Fight, PRC: Fight]. The two options where the HK

populace are protesting are more difficult to rank. If the Chinese Government chooses to not fight, their

global reputation may be improved, as it makes the Chinese Government seem fair. However, this reaction

could raise the risk of copycat protests in Mainland China, of paramount concern due to the threat to national

security and the government’s very existence. Aware of its potential susceptibility to hindsight and

overconfidence bias, and its paramount goal of maintaining control over the country, fighting is now more

likely (ranking of 2).

Refining the Game

The Nash equilibrium is now [HK: Fight, PRC: Fight]. This is beginning to be seen in Hong Kong, with

the HK Police taking down barricades and being accused of violence against the HK protesters. There are

also accusations that the Chinese government is paying pro-Beijing protesters to participate and incite

conflict, and using third-party non-state actors to quell the protests.


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Figure 4. Refined Game Matrix

Overview of the Game

After analyzing the two games above, it is clear that the situation is rich and dynamic. What is interesting

to note, is that the HK protesters maintain a dominant strategy to fight proposed legislations, regardless of

the PRC’s moves. It is also important to note that the PRC changes from [Not Fight] to [Fight] as its ordinal

payoffs change due to global considerations. The Nash equilibrium of the second game [Fight, Fight] is not

sustainable in the long-term for either party. So what are the options available to both competitors to best

change the game to their advantage and move out of the [HK: Fight, PRC: Fight] world?

This is a dynamic environment, nothing is static and the players should seek to change the game. So how

do HK protesters, as the entrant, compete against the breadth of resources and internal capabilities of the

PRC? In much the same way as disruptive entrant businesses succeed in a hostile environment, by turning

incumbent strengths into weaknesses. HK protesters should aim to make the future process of reunification

as painful as possible for the PRC by properly understanding what matters most to the PRC and exploiting

it, they should up the stakes. If the PRC relies on its communist strength for internal security, then HK

protesters must find a way to export democracy to the mainland. If PRC fears economic isolation, HK

protesters must find a way to make Hong Kong a financial hub, impossible to replace.

Acting independently, the HK protesters may raise the stakes either financially or socially to change the

PRC’s payoffs for also fighting. Protesters may demonstrate the value of commitment by preemptively

partnering with leading HK corporations who would openly consider leaving Hong Kong if the political

environment moved towards communism. Hong Kong protesters could also seek internal support from

Macau, a former Portuguese colony facing similar reservations about fully reunifying with China. Lastly,

Hong Kong could seek to raise the stakes by creating an international agreement of support with Taiwan,

another region with a complicated relationship with China. The added advantage of this relationship stems

from the Taiwan Relations Act, which could ultimately get the United States involved in the situation

(raising the stakes for the PRC exponentially). Purposefully vague, the Act states the “United States will

make available to Taiwan such defense articles and defense services in such quantity as may be necessary

to enable Taiwan to maintain a sufficient self-defense capabilities”2. The Act’s strategic ambiguity both

inhibits Taiwan from unilaterally declaring independence and China from unifying Taiwan with the PRC.

2 Source: Wikipedia


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A common motif throughout these potential actions is that they broaden the protesters’ previously held HK-

focused viewpoint, essentially making HK a larger, more global issue to the PRC, thereby potentially

changing the responses from the PRC. Of course, the main determination in such a situation is whether any

nation, corporation, or entity would actually partner with the protesters. There is very little incentive to be

the first partner, as such a situation would alienate that party from one of the biggest countries and

economies in the world (China). The ensuing strategic disadvantage of that country, corporation, or entity

after being shunned by China could be catastrophic. If Hong Kong were able to offer concessions that would

ensure the protection, or decrease the consequences of Chinese ‘punishment’, to the potential partner, it is

possible that a partnership could be formed. In addition, it is also possible to rally support from the

international community by baiting the Chinese government into acting inappropriately or irrationally to

the point that condemnation would necessitate action by others in support of Hong Kong. Critical to the

success of this plan is the accurate and timely dissemination of information about the protests to critical

parties and potential partners.

From the PRC’s perspective, it may also act independently by appearing or acting irrationally and using

third-party organizations such as Triads to change HK protester payoffs, and avoid detectability or

accountability. Separating itself from the protests while achieving its objectives is a win, win situation for

the PRC. That being said, the behavioral analysis of the HK protesters indicates that over time, the resolve

and commitment to the cause (and a feeling of being more and more entrenched in loss space) could serve

to exacerbate the situation and any potential solution as time progresses (and especially as we reach the end

of the game in 2047). Knowing this, the Chinese government should seriously consider making concessions

on the universal suffrage issue before the situation escalates (as we predict will occur over time). Hong

Kong has become less and less of a contributor to the overall Chinese economy, and is expected to decrease

in proportionate size even further. The PRC must balance this decreasing influence with the increasing

resolve and commitment of the Hong Kong people to preserving their rights.

Lastly, both competitors may find it in their respective best interests to cooperate, coordinate or

compromise. Lebanon, as an example, escaped from a [Fight: Fight] scenario by customarily allocating

public office along religious lines: the President is a Maronite Christian, the Speaker of the Parliament is a

Shi’a Muslim and the Prime Minister a Sunni Muslim. Thinking creatively could allow both parties to claim

success, change the payoffs for both players, and shift the game to a [Not Fight: Not Fight] Nash

equilibrium.

Conclusion

The Hong Kong populace is in a life changing situation, and the Chinese Government is seeking to deny

their right to universal suffrage by adding legislation to be able to choose who runs for the Chief Executive

office. The situation has the potential to snowball into an international incident depending on how the

Chinese government reacts, and how the protesters change strategy (if at all). With so many moving pieces

in a politically charged environment, we can only hope that the situation unfolds peacefully.

china and hong kong game theory in a one country, two...

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