Financial Cold War Afterword: Hong Kong, Inequality, and What Comes Next
Book: Financial Cold War: A View of Sino-US Relations from the Financial Markets
Author: James A. Fok
ISBN: 9781119862765
The policy chapters are over. Fok steps back and gets personal. This afterword is where the book stops sounding like a market infrastructure manual and starts sounding like a worried father in Hong Kong.
He started writing in 2020, locked down during Covid. But the ideas had been building for years.
The Lion Rock Spirit Faded
When Fok moved back to Hong Kong in 2008, the city was richer than he remembered. More restaurants. More opportunity in finance. Racial discrimination against local Chinese had largely faded.
But something else had shifted.
The old “Lion Rock spirit” was gone. That postwar belief that hard work could lift you up, named after a popular TV series about ordinary Hong Kong families climbing the ladder. By 2008, cynicism had replaced hope. Resentment toward the wealthy was rising.
Fok had seen a version of this in London as an investment banker in the early 2000s. Londoners squeezed by rising living costs were angry at bankers and hedge fund managers. Hong Kong felt sharper. The city was on track to become one of the most unequal developed economies on Earth.
Mainland nouveaux riches and their flashy spending became a flashpoint. Calls for universal suffrage grew. So did antipathy toward the mainland among people who felt left behind.
Politics, Housing, and a Rigged Feeling
Hong Kong’s post-1997 system concentrated power with business elites. The government kept a laissez-faire model from the 1960s even as the world changed. Asian Financial Crisis. SARS. The GFC. All of it hit a small open economy hard.
As finance grew as a share of GDP, raising taxes to redistribute wealth risked pushing business to Singapore. Fok compares it to medieval Venice: vested interests captured government while core problems like housing affordability and unequal education went unsolved.
Post-GFC monetary easing pushed property prices even higher. Frustration boiled over. Some protesters waved colonial flags, which Fok finds ironic since no colonial governor was ever elected. The real fight was livelihoods and fairness, not flags.
And democracies were struggling too. The GFC had lit populist fires everywhere.
Three Lessons From Fatherhood
Fok’s twin sons were born in 2015. Fatherhood sharpened his thinking. He lands on three points:
- Your security depends on caring about others’ security.
- Stability needs fair opportunity, balanced incentives, and dignity.
- Markets are useful tools, but governments must allocate resources across groups and generations.
Inequality maintained by violence tends to end badly. History is brutal on that count. Even in modern times, wide wealth gaps correlate with crime and instability.
Relative fairness matters more than absolute income. Young people in the West today are often poorer than their parents at the same age, crushed by student debt and housing costs. That kills the life many expected.
Automation will hit white-collar jobs next. Universal basic income gets discussed. Covid relief was a real-world test. But one study found non-working men spent more time on screens, not on self-improvement. Remove work incentives and you may stall progress.
Democracy vs One-Party Rule? Wrong Question
Fok refuses to pick a winner between US democracy and China’s one-party system. Churchill’s line about democracy being the worst system except for all the others gets a nod. The UK has not had violent regime change since the 1640s. China has seen four violent overturns of government in the same span.
Democracy can produce short-term populism. China’s system allows longer planning but still produces bad short-term decisions. Pension reform is hard everywhere. Officials chase career wins.
The clash-of-civilizations framing is useless. Both systems have merits. Both corrupt. Buffett invests in businesses an idiot could run. No political system works that way. Leadership matters.
July 2021: Tutoring Bans and Market Panic
On July 24, 2021, China banned for-profit school tutoring. The sector had ballooned around the gaokao exam race. Coming after tech crackdowns, markets freaked out. $16 billion vanished from top education stocks in a day. Hong Kong’s China enterprise index fell 4.9%.
Western media read it as China abandoning capitalism. George Soros attacked US fund managers still investing there. Chinese regulators scrambled to calm foreign firms.
Fok thinks the policy logic is defensible. Big tech monopolies are a global problem. For-profit tutoring worsened inequality and birth rates. “Common prosperity” is not supposed to mean eliminating markets or private enterprise.
But execution matters. Sudden moves without transparency scare capital. China will need foreign markets as its population ages. Wealthy parents will just hire private tutors anyway.
Evergrande and the Property Trap
September 2021 brought Evergrande fears. China’s second-largest developer carried over $300 billion in debt. Media called it China’s Lehman moment.
Fok is skeptical of that label. Evergrande is roughly 2% of Chinese GDP, tied to 128 banks, 1.6 million homebuyers waiting on unfinished apartments, and millions of workers. Contagion risk is real. So is the likelihood Beijing prevents a disorderly collapse.
The deeper issue is the growth model. Chinese households hold 78% of wealth in real estate versus 35% in the US. Top cities have price-to-income ratios above 40x. Real estate and construction were nearly 30% of GDP in 2016. Deflating that bubble without pain looks impossible. Japan’s 1980s property bubble looms as a warning.
America’s Inflation Trap
US policymakers face a different mess. Post-GFC easy money already widened inequality. Covid stimulus hit supply shortages, not just demand. More money chasing fewer goods means inflation. Keynes called inflation a wealth transfer. Middle-class savers get hurt.
Tightening policy would crush asset prices. Fiscal support would be needed to cushion the blow. Biden’s Build Back Better plan aimed at infrastructure, energy, education, and families. Tax hikes might not raise enough. Congress was fighting over the debt ceiling anyway.
A Phone Call and a Submarine Deal
Biden and Xi spoke in September 2021 to keep competition from becoming conflict. The US dropped the Meng Wanzhou case. China released the two Michaels. Progress, maybe.
Then AUKUS happened. Nuclear submarines for Australia to counter China in the Indo-Pacific. The PLA kept probing Taiwan’s air defenses.
Afghanistan withdrawal ended a 20-year war that added debt without adding security. Taliban control was a prestige blow rivaling Vietnam. Fok wants both countries to think hard before the next “just cause” military adventure.
My Take
This afterword is the emotional receipt for everything before it. The financial plumbing chapters explain mechanisms. This one explains why Fok cares.
Hong Kong sits in the middle of every tension he describes. Inequality is not a side story. It is the fuse.
He ends optimistic anyway. Deep reforms are needed on both sides. Casting each other as enemies to motivate those reforms would be a catastrophic mistake. Cooperation beats confrontation.
I buy the diagnosis more than the optimism. But after 350 pages of dollar history and clearing houses, it is good to hear a human voice at the end.
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