Hong Kong Leader to Step Down With China Now Firmly in Control

(Bloomberg) -- Hong Kong Chief Executive Carrie Lam said she wouldn't seek a second term, ending a tumultuous tenure that saw China cement control over the once-freewheeling financial hub.

Lam announced her plans at a news briefing Monday, capping a five-year term that was defined by twin crackdowns on the democratic opposition and Covid-19. Beijing took unprecedented steps to intervene in the affairs of the former British colony during her time in office, imposing policies that raised questions about Hong Kong's future as “Asia's world city” and contributed to the largest population drop in at least six decades. 

“As I've always said, my family takes precedence over everything and they all think it's time for me to return to family,” Lam said, explaining her decision. “This is what I have told the central people's government and they have expressed understanding.”

Hong Kong's benchmark Hang Seng Index gained 2.1% Monday, closing at the highest level in more than a month. Shares had rallied after Chinese regulators removed a key hurdle to allow the U.S. full access to audits. 

The U.S. sanctioned Lam for her role in helping China quash pro-democracy protests in 2019 that saw hundreds of thousands take to the streets. She later drew scorn from international businesses over one of the world's strictest hotel quarantine policies. 

That made Lam, who once promised to “unite our society,” the least popular Hong Kong chief executive since the U.K. handed the city back in 1997, according to Hong Kong Public Opinion Research Institute. Her successor will take office July 1, the halfway mark in Beijing's 50-year pledge to preserve the city's liberal financial and political systems. No chief executive has so far managed to complete two full terms.

“We have also witnessed the biggest falls in confidence in the ‘one country, two systems' policy during her terms of office,” said Kenneth Chan, associate professor specializing in Hong Kong politics at Hong Kong Baptist University, referring to the city's hybrid political setup. “She has dealt fatal blows to the core values of the city -- the rule of law, civil liberties, political rights, democracy and global outlooks -- due to her total reliance on Beijing.”

Would-be contenders for Lam's job have two weeks to step forward to compete in the May 8 vote of some 1,500 mostly Beijing loyalists. Lam on Monday declined to comment on reports that her No. 2 official, John Lee, was preparing to run, saying she hadn't received the resignation notice that government officials must file to seek higher office. 

Lee, a former top police official and security minister, helped oversee the clampdown on the city's opposition. 

“It is a real concern that Hong Kong could become a police state,” said Alfred Wu, associate professor specializing in Hong Kong politics at the National University of Singapore's Lee Kuan Yew School of Public Policy, saying that Lee would be the “ideal candidate” for that task. “Beijing wants Hong Kong to politically and structurally better align itself with the realities of how China operates: controlling its people through big data, and mass monitoring,” he added.

Lam had for a time appeared to have weathered the chaos of 2019, with Xi Jinping telling her in a televised address that year that his government “fully recognized the courage and responsibility” she demonstrated. Still, Xi's government twice overrode Hong Kong's legislative system to hand sweeping constitutional changes under her watch. 

That included a national security law that's been used to jail scores of opposition leaders and shutter several pro-democracy news outlets. China also overhauled the city's Legislative Council to ensure only “patriots” who “respect” the Communist Party can serve. 

When Covid-19 emerged, Lam's adherence to the mainland's Covid Zero strategy brought the city even closer to Beijing, as she prioritized opening the mainland border over international links. Eventually, the more contagious omicron variant broke through Hong Kong's defenses, resulting the developed world's highest death rate per capita. 

By February, Xi was calling on Lam's government to take “all necessary measures” to get the virus under control, an unusually direct intervention that cast new doubt on her political future. Lam subsequently invoked emergency powers to postpone the election for her job that had been planned for March 27. 

Lam said Monday that she'd informed Beijing more than a year ago of her plan to not seek a second term. As recently as November, however, she had been billed in the South China Morning Post newspaper as a “comeback queen” in an article based on a interview with her. She had unveiled an ambitious long-term project to alleviate the city's chronic housing shortage a month earlier. 

Last week, China's top leadership held a series of high-level meetings to decide her fate, which resulted in her traveling Friday to the mainland city of Shenzhen, the Post reported. Lam declined Monday to discuss details of her communication with the central government. 

Despite everything, Lam said she would leave Hong Kong stronger than she had inherited it. Notably, she cited the national security legislation and electoral overhaul, two measures that were imposed by Beijing after years of frustration with the city's political gridlock.

“Compared to this term of government, the next government will be seeing a more stable political environment,” Lam said.

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