0. China and Hong Kong Game Theory in a One Country, Two Systems Policy
Morgan’s Money Grabbers
Miran Ahmad | Somit Guha | Kurt Sheline | Hiu Yu

1. Fast Facts Hong Kong (HK) China HK % of China Ethnic Groups
94% Chinese
Population
7.2 million
GDP (nominal)
$303 billion
Per Capita: $41,000
Economic Activity
Services: 59.7%
Trade: 26.4%
Industry/Other: 13.9%
Stock Exchange
Hang Seng: 6th
China
Ethnic Groups
99.9% Chinese
Population
1,400 million
GDP (nominal)
$9,500 billion
Per Capita: $7,000
Economic Activity
Services: 46.1%
Industry: 43.9%
Agriculture: 10.0%
Stock Exchange
Shanghai: 7th
Shenzhen: 11th
HK % of China
0.5%
3.2%
78.5%
Spoken agenda
Highlight size of HK compared to China and the history of democracy

2. “One Country, Two Systems”
Chapter 1, Article 5 - Hong Kong’s constitutional document following reunification with China in 1997:
“China’s socialist system and policies shall not be practised in the Hong Kong Special Administrative Region (SAR), and the previous capitalist system and way of life shall remain unchanged for 50 years”
Following reunification Hong Kong is responsible for its own domestic affairs including:
Maintaining its own currency and responsible for independent monetary and financial policies
Implemented through the Basic Law of Hong Kong. A high degree of autonomy with executive, legislative and independent judicial power
Formulate own policies on education, culture, sports and social welfare
This was how HK is supposed to be run once it was returned to China
China will hold control over Hong Kong’s Foreign Affairs and provide the country with defense services

3. Civil Disobedience History
Deputy CE Anson Chan, resigns under pressure from Beijing.
China cedes HK to Britain following First Opium War
1992 – Britain announces proposals for democratic reform in HK. China is outraged.
2007 – July 1 protests. 58,000. Beijing says it will allow HK to elect own leader in 2017.
2011 – July 1 protests. 218,000 protest.
2013 – July 1 protests. 430,000 protest.
China leases HK to Britain for 99 years.
Hong Kong is handed back to the Chinese.
2002 – Article 23 Pro-democracy protests. 500,000 protest.
2011 – Pro-democracy protests in China across 13 cities.
Britain and China sign "one country, two systems" formula.
First post-handover elections held.
China rules that its approval must be sought for any changes to Hong Kong's election laws. 200,000 protest.
2009 – Tiananmen Square 20th anniversary protests.
Chinese government rules out a fully democratic election for Hong Kong leader in ,000 protest.
1989 – Tiananmen Square protests in 400 Chinese cities. 7 months of martial law.
Under British rule for 99 years, handed back to China in 97. There have been a number of protests really beginning in 92 about how HK would be transitioned back to China.
Tung Chee-hwa, a Shanghai-born former shipping tycoon with no political experience, is hand-picked by Beijing to rule the territory following the takeover.

4. Competitor Analysis (Isolated)
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
Universal Suffrage
Scale
Tech savvy
HK Protesters
Short-Term
PRC want increased influence in HK, Status quo
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, 3rd party groups, censorship, technology
Chinese Gov.
Assume the situation is in a bubble.
What does the Chinese Government think the HK protesters assume and want
What does the HK protesters assume China want and can do

5. Initial Ordinal Payoffs
(2) HK: Protests to gain universal suffrage
(3) PRC: Crackdown on HK will affect economy and reputation of HK
(1) HK: Spreads message to gain universal suffrage
(2) PRC: Crackdown on HK will affect economy and reputation, but assume it will end soon
PRC
Fight
Not Fight
Fight the law
2,3
1,2
3,4
4,1
Protesters
(3) HK: Do not want status quo, but this helps to spread their message
(4) PRC: Crackdown on HK if there are no protests will have a major effect on the business and reputation of HK Government
(4) HK: Status quo is unacceptable
(1) PRC: Happy with the status quo

6. Refining the Game Hong Kong Protesters Chinese Government 1 1 2 2 3
Overconfidence Bias
Loss Aversion 1 1
Already have certain freedoms and they are averse to having them taken away
The Chinese Central Government did not expect the protests to continue very long
Commitment
National Security 2 2
The protestors have already committed to continue the protests
Continued social and traditional media censorship
Hindsight Bias 3
Expect HK protesters to behave like both mainland and HK protesters have in the past
LOCAL
GLOBAL

7. Competitor Analysis (Global)
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
Universal Suffrage
Scale
Tech savvy
HK Protesters
Short-Term
Increased influence, Status quo
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)
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, 3rd party groups, censorship, technology
Chinese Gov.
What does the Chinese Government think the HK protesters assume and want
What does the HK protesters assume China want and can do

8. Refined Ordinal Payoffs
(2) HK: Protests to gain universal suffrage
(2) PRC: National security risk of allowing protests to continue outweigh reputation
(1) HK: Fighting w/o response spreads message
(3) PRC: Reputation + risk of spreading makes not fighting harder to justify
PRC
Fight
Not Fight
Fight the law
2,2
1,3
3,4
4,1
Protesters
(3) HK: Doesn’t want status quo, wants universal suffrage
(4) PRC: Crackdown on HK if there are no protests will affect business and reputation of HK
(4) HK: Status quo is unacceptable
(1) PRC: Happy with the status quo

9. Game Theory - Recap (Original) Fight Not Fight Fight the law 2,3 1,2
Dominance
Fight
Not Fight
Fight the law
2,3
1,2
3,4
4,1
Hong Kong protestors have a dominant strategy in fighting proposed legislation regardless of whether we view the situation as and isolated game (Original) or as a global game (Refined).
Same Game?
Both competitors understand they are playing an “I Go You Go Game” but have different payoffs because…
(Refined)
Fight
Not Fight
Fight the law
2,2
1,3
3,4
4,1
Playing a one-shot, isolated game
Dominant Strategy
Playing a repeated game, with a global focus
They are both playing a Hawk/Dove game, but the assumed payoffs are not the same. This makes it an interesting

10. Changing the Game Hong Kong Protesters Chinese Government 1 1 $$$ 2 2
Raising the Stakes
Chinese Government
Avoiding Detectability 1 1
Using non-state actors to punish HK protesters without official sanction
Financially: Sustained disruption of Hong Kong’s economic activity
Socially: Continued use of social and traditional media to portray struggle
$$$
Appearing Irrational 2
Use or threatening use of excessive force or enforcing massive martial law
Demonstrating the ‘Value of Commitment’ 2
Partnerships with corporations that would leave HK if it became more like China
HK protesters committing to further strikes in advance
Limiting Protesters Potential Moves 3
Censorship, hampering communication

11. Fight On? Fight Not Fight Fight the law 2,2 1,3 3,4 4,1 Nice Fight
Fight
Not Fight
Fight the law
2,2
1,3
3,4
4,1
Nice
Fight
Betrayal
Cooperation
Forgiveness
Fight / Fight is unsustainable in the long-term
Solution? Explore new ways to cooperate, coordinate or compromise.
For Example: Allow Hong Kong citizens to pick and elect their own candidates but establish PRC Senior Advisor to HK Chief Executive

12. Summary Game Theory Behavioral Analysis Competitor Analysis Data
Evaluation from an isolated to a global game, likely equilibria and options how participants can change the game
Behavioral
Analysis
Overview of potential biases effecting behaviors and how they may impact the game
Competitor Analysis
Detailed competitor analysis and how parties view one another’s capabilities and strategies in the short and long run
Data
Summarized the Hong Kong landscape and its past and current relationship with China