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Violence is escalating in Hong Kong. Here are three possible outcomes

Key Points
  • Protests continue to roil Hong Kong as demonstrators clash with police and call for full democracy and autonomy in the city.
  • According to one think tank expert, the most likely outcome of the demonstrations will be for authorities to wait out the protests, arrest rally leaders and "slowly bring the city back to order."
  • It's also possible, although less likely, that Beijing could send in its military — or that it could acquiesce to some protester demands.
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Beijing is set to deliver a formal response to the ongoing Hong Kong protests at 3 p.m. local time on Monday.

Demonstrations started eight weeks ago in the city against a legislative push to allow people in Hong Kong to be extradited to Mainland China, but they've snowballed into a movement for full democracy and autonomy from Beijing.

Over the weekend, protesters again took to the streets, clashing with authorities. A march on Saturday against an assault the previous weekend by suspected triad gang members ended in violent turmoil as riot police waded in to disperse crowds. On Sunday, riot police fired rounds of tear gas and rubber bullets as demonstrators marched toward the Chinese government's office in the city.

As tensions escalate, China watchers are waiting to see how Beijing will respond. According to Ben Bland, director of the Southeast Asia Project at Sydney-based think tank the Lowy institute, there are three possible scenarios how the demonstrations could pan out from here.

Three directions Hong Kong could head from here:

  1. Authorities wait out protesters
  2. Beijing intervenes directly, imposes martial law
  3. Authorities make meaningful concessions

The most likely outcome, said Bland, is that Beijing and Hong Kong will try to wait out the protests, arrest rally leaders after the momentum slows down and "slowly bring the city back to order."

It's unlikely, but possible, that Mainland authorities would directly intervene, Bland said, explaining that Beijing could exercise martial law but that would be the end of the "one country, two systems" principle. That concept was promised to Hong Kong when the former British colony was reunited with the mainland, and guarantees that the city maintains a separate economic and legal system.

If Beijing were to send the People's Liberation Army out into Hong Kong's streets to "stabilize the situation" (which it suggested last week it could do) that would have "a big negative impact" on markets, according to Jackson Wong, asset manager director at Amber Hill Capital. Such a move would "break a lot of beliefs that Hong Kong is autonomous," he explained, adding that "investors would probably flee initially."

Wong echoed Bland's assessment, saying "the situation in Hong Kong is not good. But it's not to an extent that we need the PLA in Hong Kong."

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On the other end of possibilities, Chinese authorities could give "real concessions" and allow Hong Kongers full democracy — the right to an unrestricted vote for their own parliament and leader — which is what many protesters demand, Bland said.

A day after protesters stormed the legislative building, demonstration leaders released a statement making five demands: a full withdrawal of the proposed extradition bill; a retraction of the characterization of the movement as a "riot," a retraction of the charges against anti-extradition protesters, the establishment of an independent committee to investigate the Hong Kong Police Force's use of force, and the implementation of universal suffrage for the city's chief executive officer role and its legislature by 2020.

Some experts have pointed out that there has not been a singular protest leader with whom authorities could negotiate, but Bland said that isn't the issue. At the end of the day, he explained, the Mainland Chinese government has not shown interest in negotiating a resolution.

"There is no sign yet from Beijing or the Hong Kong government that they are willing to make any meaningful concessions beyond the suspension of the extradition bill which started this," said Bland.

Sean King, senior vice president of public policy and business development strategy firm Park Strategies offered similar analysis to Bland.

Citing the mass killing of pro-democracy student protesters at Tiananmen Square 30 years ago, King said, "Beijing will have no moral qualms about" bringing in the military to intervene. But such an act "would totally lose the Hong Kong populace once and for all," said King.

He said he expects the protests to continue on for weeks or even months before any settlement might be reached. As for why Hong Kong Chief Executive Officer Carrie Lam has yet to step down, King said if she resigns then it would symbolize Beijing admitting defeat.

"That would be giving into the masses," said King. He added that, if mainland authorities give Hong Kongers what they demand, which is full fledged democracy, then it's conceivable that citizens of Beijing, Shanghai and other mainland cities will ask for the same.

Signals from Beijing

The ongoing protests have drawn hundreds of thousands of supporters within the city and abroad. What started off as a peaceful demonstration hit a turning point after a small group of extreme protesters stormed the Hong Kong Legislative Building.

Beijing is increasingly signaling displeasure about the situation in Hong Kong. Last week, protests vandalized the National Emblem at the Chinese Liaison Office in Hong Kong and Beijing responded with the charge that the acts were a "blatant challenge to the central government" that won't be tolerated.

"The problem has really been the pressure on Hong Kong's freedoms and autonomy," said Bland. He added that there's been "relentless and concerted pressure over the last five or 10 years, and that's really driven the backlash because people feel it's not just their rights that are under pressure but their identity, their very way of life."

Bland added, the anger in Hong Kongers toward Lam, stems from the feeling that the Hong Kong government isn't on the people's side. Under the current system, the city's leader is elected from a pre-approved list.

Beijing, meanwhile, has pointed fingers at hostile outside forces and blamed U.S. and European politicians for interfering in China's "internal affairs. " The country more recently accused the CIA of involvement in the unrest, according to a China Daily, Beijing's English-language state newspaper.

In another article, the newspaper called the demonstrations "illegal assemblies," and a "clear demonstration of the protesters' total defiance of the law." It suggested that the political uproar in Hong Kong is similar to what has been "instigated in the Middle East and North Africa — local anti-government elements colluding with external forces to topple governments utilizing modern communication technology to spread rumors, distrust and fear."

Bland, for his part, said such claims "aren't very convincing but the Chinese government has been sticking with this line." Still, he added, Beijing isn't giving "any strong indications that they want direct intervention."

He added that the lack of explicit intervention from the mainland "is partly because it suits Beijing to have the Hong Kong government and the Hong Kong police on the front line absorbing all these problems. It keeps it local rather than explicitly making it a national crisis."

– Reuters and CNBC's Weizhen Tan and Vivian Kam contributed to this report.