Trading Hong Kong, Fantasies and Realities

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Hong Kong is a land and people who share a close history with China. This tie was severed by a British takeover in the 1800s. Since the beginning of civilized time, Hong Kong has been unremarkably poor. The nation has suffered from three disadvantages throughout its history and control under numerous dynasties: lacking any abundance of natural resources, population overcrowding, and geographical isolation from the rest of the world (Wignall). Despite all of these shortcomings, Hong Kong was able to rise from being one of the poorest countries in the world to one of its richest, while under the rule of the Crown. Many uncertainties came about with the Joint Resolution whereby the UK would hand over control of Hong Kong to China. Speculations ran amok as to what would happen to Hong Kong socially and economically. The roles between China and Hong Kong had yet to be fine-tuned. Exciting facets of this nation-developing experiment continue to play out to this day. As Prince Charles noted some time ago, “Hong Kong has created one of the most successful societies on Earth.” And the following data support Charles’ remarks.

During the Handover negotiation phase, the Chinese promised to usher in Hong Kong with China as a “one country, two systems” form of governance. This implied that Hong Kong would remain a sovereign economic entity and retain its successful free trade policies. Many observers across the globe and especially from the UK parliamentary had their doubts as to the level of freedom that would remain once China took control. In an interview with the BBC, on the ten year anniversary of the British Handover Lady Margaret Thatcher reminisced, “’ One country, two systems was developed some years earlier as an approach to the issue of Taiwan. ‘It doesn't look any more appropriate in that context now than it did then. Nor did it at first seem to me the way ahead for Hong Kong’” (Goslett). Part of the agreement stated that the Chinese would preserve the capitalist economic system for a minimum of fifty years, meaning the terms of renegotiation could not be considered until 2047.

In social terms, the handover went over smoothly without as much as one public demonstration or riot erupting. As Martin recalls, “even before 1997, an undercurrent of nostalgia swept around Hong Kong. While there were very few public expressions of disapproval of Hong Kong’s return to China, there were many private disclosures of sadness at seeing the departure of the photo of the Queen in government buildings and other attributes of Hong Kong’s British heritage.” A major source of concern that has yet to subside is the fear of losing the freedom of the press. China has a flagrant history of censorship and outright crushing of dissident speakers. 

Despite the revitalization of the news arena and the guarantee of press freedom in Article 27 of the Basic Law, Hong Kong’s constitution, many were concerned before 1997 that Chinese government influence would restrict the press. Lee and Chu predicted that the Hong Kong media would move to Type III, that is, relatively repressive and would after 1997 ‘legitimate the new master without feeling great discomfort’, a trend that had started well before the handover. (Clarke) 

A minority on the other side of the issue disagreed. They felt that the Hong Kong experiment was a way for the Chinese to demonstrate their acceptance of Western ideology. Clarke remarks on the works of Ching and Shiu-Hing, 

some commentators emphasized the grounds for optimism. Lo Shiu-Hing argued that Beijing had an instrumental view of Hong Kong as a means to attract Taiwan back into the fold, and therefore would be likely not to stray from the Basic Law. While Frank Ching suggested that the Chinese government would respect Hong Kong’s freedoms because the territory was an important showcase in its desire to achieve Western standards. (Clarke)

Even though Hong Kongers have legislation to protect their freedom of the press, Clarke notes that the single, gravest danger to losing this right is by individuals censoring themselves. As for the rest of society, many believed that Hong Kong would lose its identity and get swallowed up by the customs of the mainland. 

Hong Kong faced its first economic stability test almost immediately after the handover. The Asian Market Crash of 1997 took a large bite out of the financial stock gains and real estate valuations of most of the Asian markets. Surprisingly, Hong Kong and China fared better than their neighbors due to both of them having economies tied to the US dollar

One of the largely unexpected effects of the Handover has been a rapid increase in economic interaction between the economies of Hong Kong and the Chinese mainland. Prior to 1997, Hong Kong was generally viewed as the hub of a regional economic network, reaching from across Southeast Asia up into the Chinese mainland. However, due in part to the effects of the Asian Financial Crisis, Hong Kong’s manufacturing and trading companies have reduced their investment flows and activities in Southeast Asia. Meanwhile, the comparatively fast growth of the Chinese economy — and its booming consumer market — has proven to be a more attractive alternative location for business expansion. As a result, the economic relationship between the Chinese mainland and Hong Kong has grown faster and deeper than expected prior to the handover. (Martin)

The passing of CEPA, the Closer Economic Partnership Agreement, has made it a no-brainer for Hong Kong to export its goods to China. Under CEPA law Hong Kong pays no import tariffs to China on almost 2,000 different types of goods and receives preferential trade contracts. 

The legal distinction between a product of Hong Kong and a product of China may become increasingly difficult to make as the flow of goods and services across the border grows, especially if the product in question makes multiple trips into and out of Hong Kong and the Chinese mainland. In short, there is a possibility — of unknowable likelihood at this time — that global market forces will push the economies of Hong Kong and the Chinese mainland to become fully integrated, which has implications for whether Hong Kong’s economy is judged ‘highly autonomous’ from the Chinese mainland. (Martin)

Hong Kong has made tremendous gains as a country and society. Overcoming a lack of natural resources and transforming from a poor, rural economy into the poster child of a modern technologically driven superpower has been no easy task. 

While traces of its past can still be found in the fishing villages scattered in its outlying islands, Hong Kong has emerged from a post-war manufacturing base to a major financial and services centre featuring state-of-the-art infrastructure and highly efficient business services. Its stock market capitalisation is only second to Japan in Asia. The stock market of Hong Kong provides a wide variety of products ranging from ordinary shares to options, warrants, unit trusts and debt securities. Hong Kong has over 250 banks from around 30 countries. It is the world's ninth largest international banking centre. All renowned international banks have their presence there. Hong Kong enjoys a robust and stable financial regime, exemplifying the vitality and dynamism of an open and free economy that has the prowess of prospering in an ever-changing global political economy. In particular, the Hong Kong dollar, which is 100% backed by US dollars, has demonstrated remarkable stability since the introduction of the linked exchange rate system in the early 1980s, (“Hong Kong as a Special Administrative Region” )

It will be interesting to see the policy reforms China may consider in the near future. Numerous outsiders and investors would like to see the free trade status quo left untouched, and rightfully so. After a steady recovery from the 1997 Asian Market collapse, Hong Kong was hit with a second blow, Severe Acute Respiratory Syndrome in 2003. This incident was far more devastating than the market crash on a two-fold level. First, international tourism dipped even lower, as it was already hurt from the September 11 terrorist attacks the United States faced in 2001. The second blow came from a lack of citizen confidence to go out and live a normal life. In other words, Hong Kongers went out to eat, shopping, and travel far fewer times than they had prior to the outbreak of SARS. The Hong Kong economy crippled slowly forward until it was dealt another hard hit from the 2008 global financial collapse. “Despite initial economic turbulence, which has since subsided, Hong Kong as it was a decade ago remains largely intact. Anson Chan, the former Chief Secretary, said, ‘The political transition went well. Hong Kong wasn't swallowed up by mainland China; the People's Liberation Army wasn't all over the place - it still is conspicuous by its absence’ (Goslett).

Remarkably China has not adversely affected Hong Kong’s civil liberties. In fact, the Communist government has not done much of anything to stir up controversy, until very recently. The policies of early 2000 were very beneficial to maintaining Hong Kong’s unique spirit. 

On July 28, 2003, the Chinese government announced a new travel policy for mainland residents visiting Hong Kong. Under the old policy, mainland residents could only travel to Hong Kong on a business visa or as part of a group tour. Under the new policy, dubbed the Individual Visit Scheme (IVS), individual mainland tourists could obtain a seven-day visa to Hong Kong, subject to the approval of China’s Public Security Bureau. The IVS proved to be very popular; about 600,000 mainland residents applied for a visa over the next four months, and more than 450,000 were granted visas. Between 2001 and 2006, the annual number of mainland visitors — including business travelers and tourists — to Hong Kong jumped from 4.4 million to 13.6 million people, accounting for over half of Hong Kong’s visitors in 2006. (Martin) 

This additional exposure from the mainland did begin to put strains on the cultural fabric of Hong Kong. Demonstrations have cropped up to protect old buildings and city areas that portray the traditional architecture and style of Hong Kong. Areas that have considered modernizing or updating are doing so to become more appealing to the growing number of mainland travelers. Luckily the Chinese government has done little to overrule the protective spirit of these citizens. 

So how exactly do the people of Hong Kong describe themselves, considering the ever increasing influence of China? An example of the redefinition of Hong Kong’s relationship with China is how Hong Kong residents identify themselves. In a survey conducted just after the Handover, 35% of the respondents referred to themselves as ‘Hong Kong citizens’ (Heunggongyan), 25% said they were ‘Chinese Hong Kong citizens’ (Chunggwok gei Heunggongyan), 20% called themselves ‘Hong Kong Chinese citizens’ (Heunggong gei Chunggwokyan), and a bit more than 18% used the term ‘Chinese citizens’ (Chunggwokyan). In a December 2006 survey, 22% used the term ‘Hong Kong citizens,’ 32% preferred ‘Chinese Hong Kong citizens,’ 20% said ‘Hong Kong Chinese citizens,’24% answered with ‘Chinese citizens’ — revealing a slight shift towards greater association among Hong Kong residents with their Chinese identity. (Martin) 

Everything is not completely benevolent and amorous, as alluded to earlier. New political leaders in China are testing the social dexterity of many native Hong Kongers. Although China and Hong Kong essentially operate under one roof, their roles together are quite distinct in certain aspects. For instance, Because China and Hong Kong are separate customs territories; trade between the two effectively is treated as trade across an international border. Bilateral shipments of goods and materials must clear either Hong Kong or Chinese Customs, and people crossing the border must pass through either Hong Kong or Chinese immigration even though the Chinese mainland and Hong Kong are parts of the same country. In addition, under Chinese law, Hong Kong companies wishing to invest in the Chinese mainland are considered foreign companies, just like U.S. companies seeking entry into China. (Martin)

Hong Kong is able to flex some muscle in international political scenes. The Basic Law is an embodiment of the doctrines of ‘One Country, Two Systems’ and ‘Hong Kong People ruling Hong Kong’. A clear example of these doctrines are [sic] that Hong Kong exists as a separate signatory to international organisations, including the World Trade Organisation. It also has its own currency, an elected Legislature, and maintains the common law system which is different from the civil law system in Mainland China. It also has its own power of final adjudication, which is vested in the Court of Final Appeal. (“Hong Kong as a Special Administrative Region”) 

Not all of the power is derived from China and evoked upon Hong Kong. Sometimes the roles are reversed. The laws [on the mainland] are inconsistent and inconsistently applied,’ said Dickson Leung, a senior partner in Lehman Brown, an accounting firm. Hong Kong also could play a role in political reforms on the mainland. According to the timetable spelled out when this former British colony reverted to Chinese rule in 1997, democratic reforms, including local government elections, are scheduled to begin in 2017. Chinese officials describe the relationship between Hong Kong and the mainland as ‘one country, two systems.’ Most people expect that distinction to remain for some time, as Beijing's leaders pursue a form of capitalism in which the state, not the free market, allocates resources and capital. (Schoen)

 A folly on the side of China was its lack of sufficient help in protecting Hong Kong’s middle class. This is partially expected because, until very recently, China has had little role in any form of middle-class at home. There are also indications that the Chinese government is concerned about the status of Hong Kong’s middle class. During a May 2007 interview with Hong Kong Cable TV, Lu Ping, former director of the State Council’s Hong Kong and Macau Affairs Office, stated that prior to the Handover, the Chinese government’s ‘biggest concern was that big business, particularly the ones overseas, might pull out.’ In retrospect, Lu believes, ‘Although we had paid attention to people in the middle class and the grassroots level, who make up the majority, after all, it wasn’t enough. More could have been done for them’. (Martin)

The largest shakeup and divisive social tension to rear its ugly head occurred this year, in 2012. In the minds of many Hong Kong residents, the handover to Chinese rule happened not in 1997, but last Sunday. That’s when Communist Party General Secretary Hu Jintao swore in Leung Chun-Ying as the third chief executive of the special administrative region. The entire ceremony was conducted in Mandarin Chinese, including Mr. Leung’s inaugural speech – symbolism not lost on the Cantonese-speaking population. Mr. Hu even staged a Beijing-style military parade. Mr. Leung was selected in March by a committee of 1200 of the territory’s elite, but average Hong Kongers mistrust this mystery man dubbed ‘the wolf’ by the media. His history of serving on Beijing-appointed bodies from a relatively young age as well as his orthodox pro-China views leave no doubt that he is one of the Party’s most trusted allies. Hong Kong’s autonomy is supposed to be guaranteed under Deng Xiaoping's formula of ‘one country, two systems,’ but Mr. Leung consistently emphasizes ‘one country.’ He plans to create a Culture Bureau that will promote a love of the motherland, and a ‘patriotic education’ curriculum in the state-funded schools (“China’s New Man in Hong Kong”). 

Large protests and demonstrations have erupted in response to this overstepping of civil liberties. In July of 2012, these protestors took to the streets to rebel against this “indoctrinating education” format that would primarily affect the middle and working-class student, and become a mandatory part of the curriculum by 2015 (“Hong Kong”). It is too soon to tell what the outcome will be. In response to the negative grip China holds on Hong Kong, polls are showing an increase in discontent among the citizenry. 

A recent poll by the University of Hong Kong’s Public Opinion Program found that 37 percent of Hong Kong residents mistrusted the central government in Beijing, the highest figure since 1997. The local news media have said that reports of human rights abuses on the mainland, like the extrajudicial detention of Chen Guangcheng, the rights advocate who has since been allowed to leave for the United States, have fed Hong Kong residents’ concerns about China. (“Hong Kong”) 

Social unrest is not limited to citizen versus the government. This controversy has spilled over into native citizens versus recent immigrants. The perceived influx of mainland Chinese at both the top and bottom of the income distribution is causing some tensions within the Hong Kong Chinese population… Some people in Hong Kong view the ‘newcomers’ with suspicion. This suspicious attitude towards mainland immigrants was reinforced by the Tung administration when it released rather dire predictions of the effects of the arrival of mainland children and their families during the ‘right of abode’ controversy. It is not uncommon to hear claims in Hong Kong that mainland immigrants are responsible for a rise in crime, the decline in the quality of education, and a general loss of good manners in Hong Kong since the Handover. (Martin) 

Maintaining a strong and unique Hong Kong identity is the primary driver for this attitude. Expression of personal opinions and demanding a government to respect their social requests is paramount. Self-identification is not a trivial matter for today’s Hong Kong citizen. To some pro-Beijing politicians, criticism of the Chinese government is viewed as being unpatriotic and disloyal. However, for pro-democracy politicians, the criticism may be considered an expression of patriotism if the goal is to make Hong Kong and/or China a better place. For typical Hong Kong citizens, the issue becomes one of resolving the tension between one’s loyalty to Hong Kong and to China. (Martin) 

Two questions remain. Does China have to cave in to these demands? Who has the upper hand on the power, China or Hong Kong? Depending on who is asked the responses vary. A majority will say that Hong Kong is reliant upon China. And a small, yet growing faction says that China is becoming reliant upon Hong Kong. 

The growing economic ties between the Chinese mainland and Hong Kong also raise questions about the long-term status of the HKSAR as a ‘highly autonomous’ economic entity. In many ways, the Chinese mainland is currently more important for Hong Kong’s economy than Hong Kong is important for China’s economy. At present, various institutions and structures — such as the Hong Kong dollar, the separate Customs and Immigration Departments, and compliance with the Joint Declaration and the Basic Law — permit the Hong Kong government to maintain a degree of economic separation from the Chinese mainland. As a result, it is possible to refer to the current economic dynamic between Hong Kong and the Chinese mainland as a synergetic relationship. (Martin) 

To back these statements up, Martin provides several statistics, “In 1997, 35% of Hong Kong’s foreign trade was with China, but by 2006, 46% of its total trade was with China. By contrast, Hong Kong’s trade with the United States increased by less than $4 billion over the last 10 years, and trade with the United States declined from 15% to 9% of Hong Kong’s total trade.” Further evidence is supported by the increased acceptance of Chinese currency, the renminbi, for the purchase of stock and a wealth of other business transactions. China does show a small but important need in regard to specific skill sets in Hong Kong.

The hope is that mainland businesses see Hong Kong as a stepping stone to the rest of the financial world. ‘They come to Hong Kong first because it is a place where they can they can learn all the rules and regulations,’ said K.C. Kwok, a University of Hong Kong economist. ‘If they go straight to New York, they’re in the middle of nowhere. They don’t know the people, they don’t the language, they don’t know the customs, they don’t know the regulators … a lot of problems.’ Hong Kong’s finance industry is also hoping to help Western businesses solve problems when they try to get established or expand operations on the mainland. Competing in an economy dominated by state-owned enterprises calls for a skill-set many foreigners lack. (Schoen) 

Hong Kong has taken additional steps to reassure its autonomy against growing influence from the mainland, combining the social and cultural changes with the post-Handover economic dynamics, the issue of Hong Kong’s long term ability to remain separate and distinct from the Chinese mainland resurfaces. At present, the Hong Kong government is emphasizing Hong Kong’s identity as ‘Asia’s World City,’ as well as the entryway into the emerging Chinese mainland market which includes dealings with large companies such as Coca-Cola. The focus is on projecting Hong Kong as being an international and cosmopolitan city and the natural bridge into China. What cannot be determined at this time is if and for how long Hong Kong can remain both part of and separate from China. (Martin)

Overall the transition of power from British to Chinese hands has gone relatively smoothly. Hong Kong has enjoyed economic stability even in the face of two economic recessions, deadly avian viruses, and the ripple effect of terrorist attacks happening abroad. The people of Hong Kong have retained their cultural independence. However, with Chinese officials taking further liberties with Hong Kong’s educational system it remains to be seen if this intrusion will escalate into more social and economic upheaval. For the time being Hong Kongers should remain alert and vigil as to any further surreptitious acts upon their homeland.

Work Cited

“China’s New Man in Hong Kong.” The Wall Street Journal, 2012, Web. Accessed 25 Nov. 2012.

Clarke, Judith. “Hong Kong's news media five years after the handover: Prospects for press freedom.” Asia Pacific Media Educator, vol. 1, no.12, 2002. Accessed 26 Nov. 2012. 

Goslett, Miles. “My regrets over Hong Kong by Lady Thatcher.” The Telegraph, 2007, Accessed 25 Nov. 2012.

“Hong Kong.” The New York Times, 2012, Accessed 25 Nov. 2012.

“Hong Kong as a Special Administrative Region of the People's Republic of China.” Hong Kong Economic and Trade Office, London, 2012, Accessed 26 Nov. 2012. 

Martin, Michael. “Hong Kong: Ten Years After the Handover.” CRS Report for Congress, 2007, Accessed 24 Nov. 2012.

Schoen, John. “Hong Kong Thrives as a Gateway to China Trade.” MSNBC, 2010, Accessed 25 Nov. 2012.

Wignall, Christian. “The Champion of Hong Kong's Freedom,” 2005, Accessed 25 Nov. 2012.