A PROSPEROUS DECADE THAT MIGHT HAVE GONE ASTRAY

By Robert Keatley, Editor, July 2007

As Hong Kong neared the end of its first decade under Chinese sovereignty, both official and unofficial spokesmen were busy congratulating themselves for confounding the many dire predications so common—especially from abroad—when British rule ended back in 1997. Despite financial shocks and political disputes, the territory has retained most of its basic civic and economic freedoms and has good reasons for expecting a continued long run of prosperity and social stability.

Yet some fundamental issues remain unresolved and there are no sure bets about the coming 10 years. On the political front, it remains unclear when, if ever, Hong Kong will enjoy the full “high degree of autonomy”, including universal suffrage in local elections, that Beijing has promised. Some of China’s best Hong Kong friends now warn that such voting rights won’t arrive for another two decades or more, certainly not in 2012 as once hoped, because local residents aren’t yet “patriotic” enough. For example, Ma Lik, Chairman of the pro-Beijing Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), warned delays are needed because some Hong Kong residents still insist some kind of “massacre” took place in or near Tienanmen in 1989 even though China officially denies it. (According to public opinion polls, many Hong Kong citizens distrust of China increased as a result of these comments.)

And as the July 1 date drew near, some surprising historical revelations from a retired Beijing official suggested that Hong Kong’s fate could have taken an entirely different, and perhaps chaotic, course if some of China’s party leaders had had their way years ago.

Chief Executive Donald Tsang Yam-kuen, begining his second term (and first full five-year one), has promised to settle this voting issue before he leaves office; an official Green Paper on the subject will be issued for public discussion later this year. But as the July 1 ceremonies celebrating the handover drew near, featuring a visit by President Hu Jintao and 460 official events, Beijing officials made clear that Hong Kong will get precisely those voting rights that China chooses to give, and no more. “Hong Kong’s administrative autonomy is not intrinsic....it is granted by the central government,” Wu Bangguo, Chairman of the National People’s Congress, reminded a visiting Hong Kong delegation that included Mr. Tsang.

The Green Paper is supposed to spell out three options for faster progress toward universal suffrage, and may include a variation on a Tsang proposal for a limited expansion of voting rights that was blocked as inadequate in the Legislative Council (Legco) late last year by pro-democracy parties. The most optimistic option, many feel, could call for electing the next chief executive in 2012 by universal suffrage (but with a vetting system to exclude candidates unacceptable to China) and some changes by 2017 for Legco elections (but probably without a free vote for all seats). Others expect the timeline to extend further into the future.

Meantime, the economy continued to expand steadily, with special gains in the financial sector. Hundreds of mainland companies have decided to sell their shares to investors worldwide, and have chosen the Hong Kong Stock Exchange as their main vehicle. This has given its banks, financial advisors, accountants, lawyers and others in the services field a vast amount of new business—filling the towering office blocks in Central and the trendy night spots of Lan Kwai Fong. By some measures, Hong Kong’s financial sector trails in size only those of New York and London; in fact, in terms of the value of initial public offerings (IPOs), Hong Kong last year ranked second worldwide.

However, some economic problems persist—though most experts consider them manageable. Having lost its manufacturing base in recent decades as factories migrated to China (with many still Hong Kong-owned), the city is now losing some importance, at least relatively, in shipping and transport. Cargo-handling centers in nearby Chinese cities, for example, offer lower rates and sometimes faster turnarounds than do Hong Kong’s crowded terminals, and this is no longer considered a growth industry. Likewise, Shanghai seems increasingly determined to replace Hong Kong as China’s main business and financial center though the lack of a fully convertible currency, an unpredictable legal system and mainland corruption remain serious handicaps.

Some Hong Kong executives say they’re not worried. The key, they say, is to accelerate the trend into services. In shipping, for example, they want Hong Kong to dominate such things as the scheduling, insurance and financing of freight, while letting the actual cargo containers go where they will. Others see continued gains in tourism, an industry that depends more and more on relatively affluent shoppers from the mainland. And across the business community, there’s consensus that Hong Kong will keep important advantages as long as it keeps its free currency, legal system and opposition to corruption.

But there is also agreement that more must be done about the environment and the quality of life if Hong Kong is to remain the “world city” that it professes to be. Air pollution grows worse despite intermittent government efforts to reduce it. Half or more of it drifts south from China and control programs in neighboring Guangdong Province so far have failed. The province’s own June report said, for example, that the sulfur dioxide level just across the border in Shenzhen rose 42% last year, and was up 11% across the province. As elsewhere in China, the drive for economic growth continues to outweigh worries about pollution’s costs. In Hong Kong, however, it is increasingly common to hear of expatriate professionals leaving, or refusing to take Hong Kong assignments, because of pollution and other quality of life issues. In the long run, this could put at risk its drive to become an even more important global financial center.

Mr. Tsang has promised to get tougher on environmental issues in his second term, but just what he can do remains unclear. The two largest polluters are the city’s influential power-generating companies but so far they have been able to deflect stronger control measures; the government may offer them financial incentives to do more. New restrictions on motor vehicles may also be needed, though that also would be politically difficult. Experts now recognize that part of the problem stems from the city’s high-rise building spree; tall buildings create deep, narrow canyons that trap unhealthy pollutants at street level. This realization puts in jeopardy some real estate developers’ plans for new high-rise buildings in the Mid-levels section.

Also of concern was a widening income gap within Hong Kong. According to government figures, the number of households with incomes below HK$4,000 per month (a bit over US$500) increased by 80,000 over the past decade—to 9.2% of all households. An official study headed by the finance secretary concluded that government aid programs for those in poverty should be strengthened.

In an interview with the Financial Times, Mr. Tsang talked about his hopes for the next five years. He conceded that more needs to be done about the environment and vowed, despite the pollution flow from Guangdong, that “the air quality will be a lot better by the time I leave office in 2012 than [it is] now.” He also recognized the need to respond to another popular demand, that Hong Kong do more to preserve its heritage rather than destroy so many old buildings and pave over historical sites. And he promised to settle universal suffrage issue rather “hand this problem to my successor.”

One other goal, however, aroused some protest. He said Hong Kong should strive for a 10 million population (up from the present seven million) to gain the bulk needed to compete with New York and London as a global financial center. However longterm this goal may be, many citizens weren’t enthusiastic about the prospect of ever more high-rise construction and crowding even if that, as Mr. Tsang put it, allows the city to “distance ourselves from the likes of Singapore or Shanghai or everybody else....”

The Chief Executive has prepared for his second term by naming a new cabinet leavened with six fresh faces, with many holdovers changing  porfolios. However, 10 of the 15 members have mostly civil service backgrounds as the government continued to find the recruitment of outsiders difficult. For example, one prominent businessmen again turned down a cabinet post, according to local press reports, while Beijing vetoed a job offer to a leading social critic on political grounds. The key appointment was the elevation of Finance Secretary Henry Tang Ying-yen to the job of Chief Secretary, the number two government post. John Tsang Chun-wah will leave his job as head of Mr. Tsang’s office to fill the finance post.

One of the more interesting appointments was that of Tsang Tak-sing as home affairs secretary. He is a former left-wing journalist who in recent years has worked in the Central Policy Unit, the government think-tank. But back in 1967 he earned greater notice for his role in Cultural Revolution-style protests against British rule, when he was jailed. His selection is said to be a gesture toward leftist groups in Hong Kong who contend they’ve been left out of the governing process.

Gone from government, however, was a former favorite, Fanny Law Chiu-fun, who resigned after only seven months as head of the Independent Commission Against Corruption. This followed criticism by a board of inquiry into her actions while in her previous post as Secretary for Education and Manpower. The finding (which was unrelated to her ICAC duties) concerned failed efforts to fold an independent teachers training college into the Chinese University of Hong Kong; Ms. Law was deemed to have interfered with academic freedom. The man generally believed to have been more responsible for the effort, her successor as education secretary and a former president of Chinese University, Arthur Li Kwok-cheung, was treated less critically by the panel.

Of special interest during the year’s second quarter were published reflections by Lu Ping, 80, who retired 10 years ago as director of the Chinese State Council’s Hong Kong and Macau Affairs Office. These suggested that Hong Kong’s history could have taken quite different turns during the decades preceding the final Sino-British agreement, ones that almost certainly would not have led to the generally stable and prosperous decade now being celebrated.

Considered a key and particularly hardline negotiator of handover terms—he once called the last British governor, Chris Patten, “a sinner for a thousand years”—Mr. Lu now says Beijing then paid too much attention to the concerns of Hong Kong’s tycoons and not enough to the wishes of “the middle classes and grass roots”—an attitude many people believe hasn’t really changed. He said China even offered to provide the tycoons “political insurance” of any amount through a Swiss-based company to ensure that big business didn’t leave town after the handover; the goal presumably was to guarantee economic stability.     
 
He also said China twice considered taking Hong Kong by force during more turbulent times. Once was in 1967, when Cultural Revolution-type gangs took to the streets to protest British colonial rule. Mr. Lu said the commanding general in neighboring Guangdong drew up plans to send tanks and troops across the border but was halted by Premier Zhou Enlai. (Commanders of the small UK forces in Hong Kong at that time had their own plans to resist with air strikes inside China, though British foreign office officials based there considered it madness.)

The other possibility of invasion was discussed in 1982 when Prime Minister Margaret Thatcher met in Beijing with the late Deng Xiaoping. According to Mr. Lu, Mr. Deng warned that “requisition by force” might be ordered if serious unrest broke out inside Hong Kong once the 1997 handover date was announced. And Mr. Lu also said some Chinese officials, after the Tienanmen crackdown in 1989, favored delaying the handover past 1997 and renewing the British lease. Mr. Lu said he took this suggestion to then-Communust Party leader Jiang Zemin, who told him: “It is nothing. Stand firm. Don’t let it happen.”

None of these startling possibilities came to pass, and Hong Kong enjoyed a mostly successful decade despite major turbulence soon after the handover. What happens next is hard to predict but events won’t be static. As a recent study by the Center for Strategic and International Studies, a Washington think tank, noted: “A dynamic Hong Kong today suggests much change lies ahead in the next 10 years as its evolution continues.”