Authoritarian Co-optation in the Age of Globalisation: Evidence from Hong Kong

Abstract The existing literature on authoritarian survival, implicitly or explicitly, assumes that political challenges faced by authoritarian regimes are all domestic. I argue that globalisation exposes authoritarian regimes to new sources of threat. In particular, capital mobility forces authoritarian regimes to deal with not only those who dare to voice out dissatisfaction, but also those who exit. While repression may be the best strategy to silence the vocal, co-optation would be a more effective tool to retain the runaway. It is, however, often impossible to co-opt all the capital owners. As such, authoritarian regimes have to be selective when choosing co-optation targets. I argue that authoritarian regimes would co-opt renowned firms because these firms yield the greatest demonstration effect. Hong Kong provides an interesting case to illustrate my arguments. Beijing strategically co-opted the stakeholders of renowned firms in Hong Kong in order to solve the city's pervasive confidence crisis prior to 1997. I test my arguments with data on firms listed on the Hong Kong Stock Exchange. I find that firms owned by well-known and prestigious elite families were more likely to build political connections with Beijing. To test the causal linkage more rigorously, I use both the genetic matching and instrumental variable approaches. The empirical results provide strong support to my arguments.