Hong Kong comes into Chinese economic fold

In his second article, Harvey Stockwin discusses how Hong Kong became part of China, both economically and politically, long before the July 1 handover.

HONG KONG (JP): During the 1980s, Hong Kong, having previously prospered by being almost wholly separate from China, quickly became part of China economically. The pace of this economic adjustment has quickened during the 1990s.

Now the process is already well-nigh complete, although separateness is still in place in several key areas, as promised in the Joint Declaration. To give some important examples, Hong Kong remains a separate customs area, retains control over its own completely convertible currency which is pegged to the U.S. dollar, as well as of its foreign exchange reserves, and maintains its own immigration policy.

But the old days have disappeared when trade and investment flows between Hong Kong and the mainland were marginal. Today, in one direction, China has become the largest single national investor in Hong Kong, far outdistancing the U.S., Japan or Britain.

In the reverse direction, Hong Kong is nominally the largest single investor in China, but this is a tricky statistic. What it really means is that Taiwanese, overseas Chinese and foreign investment are frequently sourced from Hong Kong. It does not necessarily mean that Hong Kong residents are the largest single investors in China. The important point is that Hong Kong, as a successful international financial center, is crucial to China's future ability to go on attracting the significant segment of global capital flows.

Today Hong Kong is less of a significant manufacturing center in its own right. Much, probably most, of Hong Kong manufacturing has moved north into China, lured by lower wages and, potentially, higher profits. Often Hong Kong "manufacturing" consists of a little value-added at the end of a process mainly located in China, prior to the final export of the item with a "made in Hong Kong" label attached. Hong Kong has invested in a large number of hotels in China, and it has supplied the personnel experienced in maintaining international standards. The proliferation of Hong Kong-China economic ties is illustrated as the transport planners anticipate more trans-border road and rail links to carry the an ever-increasing load.

China's economic reforms have provided the drive and motivation for Hong Kong's economic re-integration into China. Chinese national pride, within Hong Kong as well as China, gave an additional thrust. The promised 1997 return of Hong Kong was another spur. Had the deadline for the end of British sovereignty not existed, Hong Kong-China economic ties would probably have developed at a slower pace, especially in view of the fact that many joint ventures between Hong Kong and China have not been as profitable as anticipated. The perennial Hong Kong preference for immediate profit has been tempered by the perceived post-1997 need to invest in the land of the new overlord.

Against this background, it is easier to predict the post-1997 future. If China, in any way, reverts to Maoist political folly, Hong Kong will be ruined. However the prospects for any such reversion are generally considered to be remote.

If China's relative degree of openness is replaced by more narrowly nationalist economic policies, Hong Kong could be severely damaged. If China's economic policies become a political football, or, much more likely, a tool of Beijing's diplomacy, Hong Kong's growth prospects will be curtailed.

Put another way, the price for sustaining Hong Kong as an economic asset for China is a degree of economic rationality and political sensitivity which China has often failed to achieve in the past. Taiwan's President Lee Teng-hui warns Taiwanese not to put too many investment eggs in the China basket. He has obviously calculated that Taiwan should try to avoid repeating the mistake Hong Kong has already made, since, today, it is over- dependent on the ebb and flow of China's often unpredictable politics.

As it happens, the potentially damaging impact of Chinese politics upon Hong Kong's interests has already been illustrated. This was mainly because, in a truly substantive sense, Hong Kong became part of China politically in April, May and June 1989, when the demonstrations on the streets of China (not just in Beijing) also aroused dormant nationalist sentiments within Hong Kong. For a brief and shining moment, prior to June 4, 1989, it was possible to visualize a less undemocratic Hong Kong being married to a less undemocratic China in 1997.

As the political reversion took place in that period, Hong Kong's aroused sentiments were matched by action. Before June 4, Hong Kong people had been sending financial aid to the students in Beijing, and providing food, clothing, and better tents for their Tiananmen live-in. After June 4, the massacre in and around Beijing had the desired effect of intimidation everywhere in China -- except in Hong Kong, where the protest marches were massive and memorable.

This was a disastrous reversion to China. Inadvertently Hong Kong played upon, and helped accentuate, the aroused paranoia of the politburo of the Chinese Communist Party. The CCP had come close to losing control of China, and Hong Kong had played a role in that process. Hong Kong's aroused patriotic sentiments were not appreciated. Rather, in a China wherein long political memories, and an inability to forgive or forget, are not the exception but tend to be the rule, the re-entry was, at best, viewed with deep suspicion. The consequences have been manifest ever since.

Confidence

First, the former happy condition of benign British and Chinese neglect, which worked to Hong Kong's advantage, finally ended once and for all. The British were faced with the political problem of sustaining confidence amidst the lengthening shadow of Chinese tyranny. The Chinese Communists faced the problem, for them, of sustaining the belief that nothing had gone wrong, and that the demonstrations across China were merely the work of "a very small number of trouble-makers". Chinese communist officials had all along seen reversion primarily in terms of gaining control over Hong Kong but, after 1989, earlier flexibility on this score disappeared.

So the British sought to build a badly needed new airport as a confidence booster. The Chinese did their best to delay it, denying that Hong Kong's confidence needed boosting. The British offered some real British passports to Hong Kong Chinese who were born British in order to try and increase morale. The Chinese announced in advance that those passports would not be recognized, a position to which they still adhere.

The British sought to buttress autonomy by widening the vote. China has refused to recognize the result of that voting. In 1995, the British brought about the first fully elected Legislative Council in Hong Kong's history. In 1996, the Chinese effectively appointed a Provisional Legislative Council, made much in the pattern of the rubber-stamp body which the British themselves had formerly used. Seeking to shore up confidence, the British belatedly introduced a Hong Kong Bill of Rights. Seeking control, China has given notice of how the Bill of Rights and other related legislation will be amended or abrogated.

And so it has gone -- a thoroughly miserable tale of political suspicion triumphing over good sense. This is not to argue that other motives were not at work. The British wanted a quiet, trouble-free exit. The Chinese just could not bring themselves to believe that the British would hand over an economy equal to one- fifth of China's without first looting its resources. But the British interest in sustaining confidence, and the Chinese interest in rigidly seeking control appears in hindsight to have been the fundamental contradiction which neither London nor Beijing were able to overcome.

Put another way, had a figure of the stature of Zhou Enlai existed in Beijing, in the post-1989 circumstances, he might have quietly passed the word to the British, implicitly acknowledging their confidence problem in Hong Kong and that any moves to ameliorate that condition would be understood by China. No such figure, and so such appreciation of the realities of Hong Kong, has been available in Beijing amid the post-1989 paranoia.

Secondly, in an effort to compensate for that disastrous re- entry in 1989, Hong Kong has become politically part of China in another way. The trend was manifest from 1984 onwards, but now it is far more pronounced. Increasingly, many members of the Hong Kong elite seek to placate Beijing by being more Chinese than the mainland Chinese. "China Whateverism" (whatever China says or does is right) has changed from a minority trend to a majority manifestation.

In many ways, whateverism results in Hong Kong personalities worrying primarily about placating China, often at the expense at the proper expression of Hong Kong's separate interests. It even results in the adoption of positions which China seeks to avoid. In the 1996 Chinese nationalist arousal and agitation over the Japanese-held Senkaku Islands, which China claims as the Diaoyutai, Hong Kong "patriots" were emphatically more Chinese than China itself. Beijing wanted to speed up yen-loan negotiations with Japan.

As SAR Chief Executive designate, C.H. Tung "campaigned" for that post in late 1996 by attacking Hong Kong's Democratic Party for being "anti-China". As it happens, Chinese spokesmen have usually been careful never to go quite that far. But Tung is anxious to please China -- and China chose him as the preferred candidate for that reason. However, it must be noted that Tung at least talks to the Democrats, something which Beijing still refuses to do.

Overall, against the ostensible Beijing promise of "a high degree of autonomy" for Hong Kong, there must be set the fact that there are far too few autonomous individuals in Hong Kong's elite capable of redeeming that pledge. Without such autonomy being constantly exercised, the future for Hong Kong, as a separate international city and financial center, must be bleak.

A truly reformist China, tolerant of dissent, might pose few problems for Hong Kong. But that is not the China which currently exists. Chinese politics is mired in its traditional tragic state wherein no one is allowed to speak what nearly everyone knows. Beijing's quashing of all dissent within China could one day trigger a political explosion of unimaginable dimensions. If so, Hong Kong will be inevitably caught up in that explosion, since it will no longer have the capability of being aloof from it.

At midnight on June 30, 1997, the last fragment of British- provided insulation for Hong Kong, separating it from the ups and downs of China's uncertain politics, will be finally removed. It will be the fateful end to an era.