Hong Kong: Convergence or divergence?

H O N G KONG: C O N V E R G E N C E O R D I V E R G E N C E ?

James Cotton

It is now clear that the People's Republic of China has the determination and the leverage to shape the future character of Hong Kong. Any political reforms or administrative innovations must conform to the basic law, now being drafted. The system envisaged under the basic law will be designed to prevent the emergence of any locally based political or social interests not under the control of Beijing; at the same time it will seek to encourage entrepreneurs and businessmen to remain in the territory to practice their crafts after 1997. Beijing's commitment to such a system must not be seen, however, as irrevocable. The present reforming policies may well generate challenges which will require their modification; retrocession may also bring clashes of interest between the political and economic welfare of the territory and that of China. The impact on the East Asian region of retrocession will be both economic and political. Other centres will benefit from capital flight and the governments of both China and Taiwan will face challenges to their present priorities.

The aim of this article is to present a prognosis for the character of Hong Kong after 1997, and for the future place of the territory in the region. At the present time, Hong Kong, as one of the newly industrialized nations of East Asia, plays an economic role out of all proportion to its population and geographical size. This article will endeavour to determine whether this role will continue, or whether the identity of the teiritory is to be subsumed within that of China. Concerning the speculative, any hypoth- esis can be entertained. Although any reading of the future is hazardous, this article will seek to avoid mere speculation by attempting to extrapolate from existing political and economic trends. Such extrapolation will require in the first place a reading of the interests and motivations of the parties concerned, and the likely ways in which these parties will interact. Having considered the likely character of Hong Kong after 1997, some remarks will be offered on the possible relationship of the territory with its competitors and traders in the region.

POLITICAL TRANSITION

Those events with the greatest impact on Honf, Kong's future relate to the efforts made by the Hong Kong and British governments, the govern-

James Cotton is deputy director of the East Asia Centre, University of Newcastle upon Tyne. He is also presently a visiting fellow, National University of Singapore, author of Owen Lattimore and Asia forthcoming.

4 JOURNAL OF NORTHEASTASIAN STUDIES / WINTER 1987

ment of the People's Republic of China, and the various groups and interests within Hong Kong, to smooth and to influence the path to retrocession.

Following the publication of the joint declaration on the future of the territory, the Hong Kong government released in November 1984 a White Paper outlining its immediate plans for constitutional and administrative evolution. The objectives of this document, as of the consultative paper which preceeded it, were to permit the progressive development of a more representative and accountable government the authority of which "is firmly rooted in Hong Kong. "~

A variety of intentions undoubtedly lay behind these proposals, which dealt largely with the introduction of an elected element into the Legis- lative Council. A transition from a colonial form of government was clearly called for, as the future of Hong Kong now lay within China. At the same time, an enhanced local content to the political system, as well as perhaps building Hong Kong self-confidence, would be open to the interpretation that it was introduced as a positive and constructive response to those demands for political reform which have been articulated in recent times particularly by some members of the professional classes. It would also create interests and precedents which could serve to protect the population in some measure from the possibility of unpopular policies being imposed by Beijing. Britain, while as far as protecting the interests of Hong Kong people, sought an orderly transition which would not disturb the course of Sino-Britain relations nor undermine British financial and trading interests in the territory. Unlike the policy of successive Thatcher governments towards the Falklands, the wishes of the local inhabitants could not be "paramount"

British-superintended political reform, though it served wider British interests, was within the scope and spirit of the joint declaration. In the run up to retrocession it was not disputed that Britain continued to be responsi- ble for Hong Kong affairs, and the elaboration by China of the implica- tions of the document made it clear that the future chief executive of a Hong Kong Special Administrative Region (SAR) enjoying "a high degree of autonomy" would be a local person and the legislature would be "constituted by elections "2 The indirect election in 1985 of twenty-four of the fifty-six-member Legislative Council, as well as the second round of elections to the District Boards, and the elections for the (urban and regional) Municipal Councils in 1986 all served, however, to stimulate further the growth of pressure groups seeking to influence (for reasons of apprehension or material self-interest) the future shape of the political system. The activities of these groups became futher focussed as a result of a number of controversies in public policy, the most notable of which concerned the

COTTON 5

projected construction near Hong Kong of the Daya Bay nuclear power generation plant.

Reaction of the People's Republic of China to these developments has offered some clues to Beijing's long-term intentions. Prompted by the introduction of an elected element into the Legislative Council, and the promise of a further review of political reform in 1987, Beijing sought to slow the pace of reform and to impose its own preconceived constitutional blueprint on the territory. Thus some critical (though sometimes conflict- ing) opinions were voiced by Chinese spokesmen on the British handling of the transition. A statement by Hong Kong Xinhua Director Xu Jiatun in November 1985 not only accused Britain of "a tendency to deviate from the joint declaration," but also announced that it was yet to be decided how much if at all the new system of government for the SAR would incorpo- rate electoral mechanisms. 3 Though Ji Pengfei, director of Beijing's Hong Kong and Macao Affairs office (and a member of the state council), sought to put a positive gloss on the Sino-British handling of Hong Kong's evolution on a visit to Hong Kong the following month, it is clear that Chinese pressure had the effect of ensuring that any future political reforms would be discussed at the regular sessions of the Sino-British joint liaison group?

The Chinese government further made its intentions known by floating possible constitutions for the SAR in favorably disposed organs of the local media, and by constituting drafting and advisory bodies ostensibly respon- sible for developing the basic law for the SAR. The former, if a blueprint in The Mirror of Hong Kong of December 1985 can be taken as a guide, envisages a party-elected Legislative Council advising a local chief executive with very considerable powers, with a special role for an executive advisory council amongst the membership of which capitalist interests would possess a significant voice?

Beijing's handling of the basic law drafting committee (BLDC) set up in June 1985, and the basic law consultative committee (BLCC) as much as the personages chosen to membership thereof gave a clear indication of what interests in the territory were to be considered important, and what relationship would exist in the future between the SAR and the central government. Of the twenty-three local members of the fifty-nine person BLDC chosen by Beijing, apart from individuals identified as sympathetic with China's viewpoint, the largest identifiable group are industrial and financial magnates. From statements by some of the individuals concerned, and from the proceedings of the plenary meetings of the BLDC held in Beijing, though there have been some disagreements and a few surprising criticisms of Beijing, most of the local membership have prefer- red to maintain the present administrative climate rather than risk the

6 JOURNAL OF NORTHEASTASIAN STUDIES / WINTER 1987

disruption to the present quiescent consensus which a more substantial role for popular elections would bring. 6

For those who perhaps expected a more sophisticated strategy from Beij- ing, the inexorable appearance of the "law of the diminishing united front" has come as a shock. This tactic, perfected during the years of the party in Yanan, is the tendency in communist systems for the proportion of the regime's organized followers to increase in those bodies further up the political hierarchy, the imperatives of which exclude the incorporation of any other organized interests. Thus the lead in the creation of the basic law has been taken throughout by the only organized group in the BLDC, the officials from the various Beijing bureaucracies. 7 The nature of Beijing's tactics in the selection and organization of the BLCC underlines this point.

Initially chosen by Beijing were 180 individuals to serve on the BLCC, the function of which was to collect and reflect Hong Kong opinion on the future character of the SAR. To prevent their activities from taking on an independent character, they were then subject to a farcical "election" pro- cedure which put in charge of the body office bearers of the standing committee most of whom were BLDC members. As well as having organi- zational strength on their side, the Chinese authorities are also able to appeal to the patriotism of those with whom they are working should an appeal to their financial interests prove insufficient or irrelevant. If Hong Kong is to become a part of China again, how could any Chinese oppose the wishes of the beneficent motherland? Lest this point be insufficiently clear, the brief of the BLCC was defined as consultation so as to achieve a basic law "in accordance with the will of the entire Chinese people" who also include, of course, "the Hong Kong compatriots."

The message from Beijing is therefore clear. No institutions or bodies with an independent political foundation should come into existence in the territory, and any political reforms introduced by the present administration should follow the pace set by the BLDC and the Chinese government. The extent to which this message has been understood by the Hong Kong government is shown by the caution of the 1987 Green Paper on developments in representative government. Though the government was already committed to such a review, which entailed also a further sampling of Hong Kong opinion,the document proceeds with a thoroughly cautious outline of further incremental changes that might be introduced in 1988, the most significant of which are concerned with the possible introduction of a further elected element into the Legislative Council s The executive council is mentioned only once and incidentally in the document which acknowledges the relevance of the forthcoming basic law (the first com- plete draft of which is due to be published by 1990) for future political reforms. 9 Although Britain is undoubtedly attempting to exercise some behind-the-scenes influence on the preparation of the SAR basic law, the

COTTON 7

extent of this influence cannot be great. Some commentators have linked recent policy innovations, notably the public order (amendment) bill, to a British intention of bringing the practices of Hong Kong more into line with those that prevail in China. t~

Developments in 1987 appear to confirm this trend. Annex 1 of the joint declaration, which provides an elaboration of the document from the point of view of Beijing, clearly states that the legislature of the Hong Kong SAR "shall be constituted by elections?' Now it could be pointed out that even despite some experimentation with new electoral procedures following the introduction of the 1979 electoral law, l~ this statement could well be interpreted in a different way in Beijing as compared with London. The same annex, however, seems to admit the conceptual distinction that exists between "elections" and "consultations," the latter of course being the more usual means used in the Chinese political system to provide political repre- sentatives.

Whatever the precise original intention behind these terms, spokesmen in China and their apparent sympathizers in Hong Kong have taken the argument that the adoption of political reforms incorporating any significant measure of local electoral participation would run counter to the wishes of China. Thus Deng Xiaoping's expression in April 1987 of his distrust of universal suffrage t2 was echoed the following month by none other than Sir Sze-yuen Chung (senior member of the executive council) who spoke out against the introduction of direct (as opposed to indirect) elections for the legislature in 1988,13 despite this option being one of several offered in the Green Paper for the inhabitants of Hong Kong to comment on by way of submissions to the government survey office. From a statement made in June by Foreign Minister and State Councilor Wu Xueqian, it is clear that he has expressed his concern to British officials at the highest level over the introduction of direct elections in Hong Kong? 4 The precise stand of the Chinese government has been obscured, perhaps deliberately, by a number of statements originating from different parts of the Beijing bureaucracy. ~5 However, Li Hou, deputy director of the Hong Kong and Macao affairs office of the state council, in an interview which was intended to offer a modification of some of his earlier remarks, let it be known that if such elections were "held recklessly in 1988, the new political structure may not converge with the basic law." He also asserted that

Hongkong's future political structure should be defined and specified by the basic law, and . . . Hongkong's political structure should not have any major change made to it before the basic law is officially adopted.Z6

As a sign, perhaps, of China's increasing assertiveness in the territory, the CCP has become more active in the recruitment there of members, and has

8 JOURNAL OF NORTHEAST ASIAN STUDIES / WINTER 1987

launched a major "united front" effort in order to win influence among the ordinary inhabitants. 17

The handling by the Hong Kong government of the survey of public opinion initiated as a result of the 1987 Green Paper may be interpreted as demonstrating Britain's acceptance that henceforth political initiative in the territory has passed to China. Thus in assessing personal submissions to the government on the question of political reforms, those who had signed petitions in favor of the introduction of direct elections to the legislative council were ignored (on the grounds that their efforts were con- certed and therefore not personal) even though they represented the majority response. The results of two singularly complex opinion polls were similarly construed, though a series of other polls had revealed a large body (possibly a majority) of opinion in the territory in favor of such reforms.~S Despite evidence therefore of the growth of a more participatory political culture in Hong Kong, neither the British administration nor the authorities in Beijing have shown any inclination to accommodate this t r e n d , t9

THE LIMITS TO POLITICAL CONVERGENCE

The formula that has been used by Beijing commentators regarding the evolution of Hong Kong administration is "convergence." Like most meta- phors, this term is amenable to more than one interpretation. On the one hand, it might be taken to imply mutual development of the present gov- ernmental structure and the basic law towards a set of shared goals. At the other extreme, it could mean the movement of Hong Kong towards the system of government practiced in China. Discussion of the applicability of the present (or future) Chinese constitution to Hong Kong after 1997 has yet to clarify this point precisely, but the rejection of another metaphor originally employed by Mrs. Thatcher--the "three legs"--seems to indi- cate that on important issues the Chinese authorities cannot envisage or admit that the interests of Hong Kong could diverge from those of China. Thus, according to the view that now prevails Hong Kong opinion cannot be the third leg of the Sino-British stool.

These developments have led some percipient local commentators to attempt to characterize the future shape of politics in the territory. Al- though individuals and organized groups are likely to play a limited political role, it is most improbable that any broadly based party or parties will emerge to contest the fundamentals of the present bureaucratic and financial ethos of the territory. Thus there will be little obstruction to the introduction in the basic law of a strong executive, largely independent of the legislature, charged with the task of selecting and superintending those at the top of the administrative hierarchies. 2~ An optimistic reading of this

COTTON 9

scenario would allow the continuing presence in the SAR of a meritocratic bureaucracy securing compliance from the population by maintaining effi- ciency and prosperity while being sufficiently flexible to draw in individuals of talent with a point of view of value to offer to their deliberations.

The movement towards such an administrative and political system has already begun, according to several observers, now that the present government is perceived at least by some in the territory as a "lame duck," the authority of which is progressively being supplanted by Beijing. If the former consensus was preserved by a cooptation on the part of the British of many local elites, whose status was both confirmed and enhanced by such cooptation, now that the authority of Beijing is encroaching into the territory, British patronage will decline in esteem. As a consequence, fewer elites will seek a role in British-superintended institutions, preferring in- stead to align themselves with the new emerging order. 21

In anticipation of such a development, the British policy makers might have played the Hong Kong "public opinion card" at the outset of negotia- tions with Beijing, hoping to create therby new political institutions with a sufficiently mobilized mass base to counter the pressures of Beijing and to replace the defection of the elites (the latter made likely by the "familial" ethic ofHong Kong culture). It is now too late to do so, and the Hong Kong government has the awkward task accordingly of delivering a Hong Kong- based and thus more representative political system which does not con- tain significant elements averse to direction by Beijing.

How far would a China-sponsored bureaucratic SAR protect the rights and liberties to which Hong Kong people have become accustomed? It is the opinion of Joseph Y.S. Cheng that the ultimate protection for such freedom and the rule of law as Hong Kong has enjoyed up to the present has been that "the colonial government . . . has ultimately had to be accountable to a democratic government willing to defend" them. 22 What impact will the demise of this accountability have? In practical terms these freedoms and rights will continue to exist only so long as the government in Beijing, or its local agents, considers them necessary for the stability and prosperity of Hong Kong, and that stability and prosperity is taken as the principal objective of China's policy. To what extent is this stability and prosperity reliant thereon? Business confidence rests, in part, on the maintenance of sound contractual and monetary arrangements, freedom for entrepreneurs to invest, and a supply of labor unfettered by excessive political and bureaucratic interference. These, however, are only a small part of the freedoms and rights to which Cheng refers. As a matter of policy these could be guaranteed while withdrawing or amending other rights and freedoms, though Communist lack of familiarity with these concepts would be likely to lead to some clumsiness in the execution.

Less clear is the likely outcome of an undermining or derogation of


rights and freedoms for the citizens of Hong Kong, particularly for those with the skills and background the contribution of whom is crucial if the territory is to remain a major financial and manufacturing center. Given that the mobility of the population will not be so great after 1997 as it is presently, the anticipation by these individuals of the future erosion of their rights will have an important bearing on the continuing stability and prosperity of the territory. Here the evidence is not entirely clear, but there are some indications of a talent drain and of individuals arranging through citizenship or residency changes to make a future departure possible. 23 A further point that often goes unnoticed in this discussion relates to the role of these people if they decide to stay or cannot go. Their hard work and dedication is a response to the mix of material and other goods available to them in Hong Kong. Even if Hong Kong after 1997 does not go the way of Shanghai after 1949, these individuals may be without the incentives to give of their best, though capital and entrepeneurs may still be available to employ them.

An issue yet to be resolved, but without which any discussion of the rights and liberties of Hong Kong is virtually meaningless, concerns the future constitutional status of the Hong Kong SAR. It has been pointed out that though the fundamental laws of China allow for the creation of such regional authorities, the promised maintenance of the capitalist environment in the territory would seem to contravene those provisions of the constitution (most notably articles 1, 5 and 6) which describe the country as Socialist and prescribe collective ownership of the means of production. While it is true that Chinese constitutions have been frequently changed in the past, this era, it is now claimed, is at an end. For this reason as much for reasons of prestige, Biejing is unlikely to consider a constitutional amendment though any alternative raises a host of legal and political difficulties. Similar problems are bound to arise on the questions of constitutional review and of the maintenance of the existing legal system? 4

Perhaps the best indication of the extent to which "democracy" and "the rule of law" will prevail in the SAR after 1997 may be derived from a juxtaposition of two recent discussions of the meaning of these terms and the prospects for China adopting them. According to an exposition of Deng Xiaoping's recent thinking on reform which appeared in Liaowang, democracy is a long way from being achieved in China. Deng is quoted as saying that:

To guarantee the people's democracy, it is necessary to strengthen the legal system. Democracy must be institutionalized and unified into laws so that these systems and laws will not change because of changes in leaders or in their views and attentions. 25

On this view China is not in possession of even a regular legal system the

CO TTON 11

lack of which has the consequence that institutional barriers have yet to be erected to obstruct a reappearance of the extremism of the past. Whether this deficiency will be made up by 1997, Deng does not say. But even if democracy and the rule of law were properly instituted, this would result, according to Deng, in a further strengthening of the domination of the Communist party, rather than its weakening or relaxation. In other words, the limits of reform are defined by the position of the party: no reform could be envisaged that would threaten that position. Therefore democracy and the rule of law are not to be considered as desirable in themselves or as arrangements the functioning of which would produce necessarily desirable policies, they are only to be considered as desirable or useful to the extent that they further party predominance. Such sentiments have elicited from the outspoken Fang Lizhi the perceptive observation that the ends of party policy should be principles rather than self-perpetuation. And if the principles of Marxism are taken as the most appropriate (after all, they comprise part of Deng's "Four Cardinal Principles") then these imply, amongst other things, the introduction of the direct electoral system:

Are we going to follow Marxism? The general election system is a part of Marx- ism. This was a principle pursued by the Paris Commune. I have talked about this with my students. Now what we are practising is grassroots rather than general election. We are approaching a goal step by step. But anyway we should approach direct elections, shouldn't we? This is a principle of Marxism. Are you going to uphold it? If so, then you should take action to do it. The crux of the problem is that things that should be upheld are not upheld. 26

For the expression of such sentiments, of course, Fang was expelled from the party. That Deng's view rather than Fang's prevails can be seen in Beijing's tactics towards Hong Kong. Even the institutional arrangements set down in the joint declaration are to be considered inviolable only as long as they do not produce trends or interests which challenge party hegemony.

The provisional nature of the commitment of the present regime in China to reform has been underlined by Chalmers Johnson who has argued that it ought not to be forgotten that political reform and economic modernization are the contemporary aims of the Chinese Communist party principally in order to restore the legitimacy the party has lost as a result of a generation of uncertainty. 27 The major changes of "line" that have occurred on average every four or five years have produced a crisis of legitimacy which the Party has only gone a little way to overcoming. 2s At the present time the strategy of the four modernizations would undoubtedly be served by appropriating to China a Hong Kong still able to provide those financial, entrepot, and industrial functions that now serve so well the ends of that strategy. The recrudescence of the campaign against "bour-

12 JOURNAL OF N O R T H E A S T ASIAN STUDIES / WINTER 1987

geois liberalization" is a reminder, however, that these ends are not to be achieved at any price; it is also a possible indication of what kinds of problems the party will need te face in the years immediately preceding and following 1997.

The view of greater prosperity as the product of that long-despised cap- italism has already led some bold spirits to the conclusion that the Com- munist party is superfluous (if not obstructive) to the pursuit of modernization. For the moment the Party is holding firm to the "Four Cardinal Principles" as an expression of its determination to monopolize all positions of power. However, as no good reason can possibly be ad- vanced for accepting these principles, the reiteration of such slogans can be only a temporary strategy. The party must at some point address the struc- tural roots of the skepticism and dissent which seems an ineluctable consequence of the open door policy. It is not beyond the bounds of possibility that political and economic reforms may be halted or redirected if any fundamental challenge to Party rule emerges. If such a change were to occur in the political climate, Hong Kong's economic role would be less welcome, and such autonomous features as its political and social systems retained might actually be regarded as subversive of the party's principal goals.

MAINTAINING HONG KONG'S BUSINESS ENVIRONMENT

So far we have considered the legal and business climate after 1997 as far as it is likely to affect individuals. What can be said regarding the effect of retrocession on Hong Kong's position as a financial, trading and transport center? Fundamental to this position are the two policies of free trade and free exchange, and the existence of a legal and social policy environment conducive to sound and predictable business practices.

On the question of trade, apart from the motivations of individuals, there are many near imponderables to take into account. Hong Kong's future position regarding many of the agreements the territory has entered into as a quasi-nation, including the generalised system of preference, the multifiber arrangement, and most favoured nation status, has yet to be definitively determined (though it is now a member of the General Agree- ment on Tariffs and Trade and looks likely to join the International Labour Organization). A less overbearing stance on the part of China towards the territory in the run up to 1997 would give Hong Kong room to renegotiate or adjust these agreements since claims to future autonomy would have some credibility. As Yuan-li Wu has pointed out, such renegotiations will depend in part on the perception of Hong Kong by foreign governments who, if they chose, could exert some influence on Beijing to offer guaran- tees for autonomy in exchange for maintaining Hong Kong's position. 29

COTTON 13

This is particularly true of the United States given the fact that over half of overseas investments in the territory are held by American investors. In brief, the existing trading regime is vulnerable to pressures from many quarters.

A lot has been written on the economic value of Hong Kong to China, some interpretations of this relationship suggesting that China's trade surplus with the territory has provided a good deal of the convertible currency necessary for the modernization effort. 3o Whatever the precise figures, the maintenance of something approaching the present situation would be of financial benefit to Beijing. This, however, would depend on the continued existence of a freely convertible and appropriately supported Hong Kong currency, and on the existing terms of trade between China and Hong Kong remaining after 1997. Although Hong Kong is to retain taxation and budgeting independence after retrocession, the temptation to impose dis- guised taxation (through the manipulation of transport charges for imports from China, for example) will be strong, particularly if this is seen to be in the interests of China as opposed to Hong Kong. Regarding the independence of Hong Kong's currency, though this is similarly provided for in the joint declaration, 3~ the extent to which the Beijing authorities understand the preconditions for the maintenance of such a currency remains to be seen.

On an important but often neglected topic, Yuan-li Wu had argued that an essential requirement of a free exchange system is confidentiality of banking records. 32 In this connection it should be pointed out that, since the introduction of the policy of the four modernizations, considerable publicity has been given in China to cases of corruption involving party and government cadres. As 1997 approaches, the opportunities for such corruption open to personnel moving into Hong Kong from the People's Republic of China will be unprecedented. This is not to suggest that corruption is a problem unique to China, but rather that there is likely to be a dovetailing of Hong Kong and Chinese practices in this regard . 33 NOW the strength of Beijing's future resolve to control this corruption cannot be predicted, particularly in the light of the recent dismissal of Liu Binyan, the most prominent exposer of these practices, from the Communist party. But whatever control is placed on corruption will require a close monitoring of the real identity of those holding currency deposits in the territory. Already Beijing has moved to limit the possession of foreign currency accounts by Chinese nationals to prevent the possibility of currency manipulations and capital flight. But such monitoring would undermine one of the present foundations of the system of free exchange. In other words, it is again not at all clear that Beijing's policy makers will prefer to follow Hong Kong's interests rather than those of China.

An area where national policy is bound to enter relates to Hong Kong's


role as an intermediary between China and trading partners with whom political relations are formally hostile or nonexistent. Taiwan and South Korea are the most important political systems in this category, with Tai- wan ranking as Hong Kong's fourth largest trading partner. A combination of political and economic motives is undoubtedly behind the present modification of Taipei's attitude towards its connections with the mainland. The considerable volume of its trade surplus with Hong Kong, and the fact that much of this trade is acutally surrogate trade between the two Chinese states, is less important than the fact that the Kuomintang government is seeking to counter Beijing's claims that the "one country two systems" formula, originally coined in connection with the retrocession of Hong Kong, should in future be applicable to the reabsorption of Taiwan. What- ever the motivations for these innovations, failing a major political break- through they will inevitably cause problems of adjustment for Hong Kong.

On the question of the maintenance of Hong Kong's legal and policy framework, the argument for Beijing's future role is less pessimistic. While it has been asserted above that Beijing's commitment in Hong Kong to the rule of law, insofar as it pertains to individual and political rights and freedoms, is unlikely to be overwhelming, it need not follow that a similar view will be taken of the law relating to business. Indeed, if one examines the other East Asian newly industrialized countries and ignores the (varying) economic role of their governments, it is apparent that all have main- tained a legal framework singularly conducive to at least some forms of entrepreneurial activity while restraining (again to varying degrees) the political and social liberties of their ordinary inhabitants. These precedents notwithstanding, such capital flight as has occurred from Hong Kong (the precise dimensions of which are hard to determine) shows that some entrepreneurs at least are wary. They are not convinced that a future Com- munist-dominated administration will have the requisite ability and understanding to guarantee the conditions necessary for an environment favorable to business despite support from China for the local stock market during the October 1987 crisis.

Perhaps the most important question will not be in the area of law, but of social policy. Whether the future administration of the Hong Kong SAR will be able to maintain the government role in housing, education, and transport may well be of crucial importance. Such a government might be considered less likely than its colonial predecessor, for example, to under- write the activities of the Mass Transit Railway Corporation or maintain the momentum of the social welfare provisions introduced during the Mac- Lehose administration of the 1970s.

WHAT KIND OF HONG KONG?

It is clear from this review of policy trends that Beijing intends to keep the major Hong Kong entrepreneurs and trading houses in place as the

COTTON 15

most important actors in the local economy. Beijing is also intent on pre- venting the emergence of any local political or social forces that would challenge, from an autonomous base within the territory, either the predominance of these capitalist interests or Beijing's ultimate fight to control the affairs of a national SAR. China's plans for the administrative organs of the territory, a not insignificant part of the puzzle, have yet to emerge. At the same time it is not entirely obvious that Beijing has the understanding or long-term commitment necessary to achieve these goals.

The conclusion to be drawn is that in the medium-term at least much that is now familiar in Hong Kong institutions and structures will remain after 1997, though there will be some capital flight and a significant exodus of the people with skills that make the territory an excellent place to do business. Unless the political climate in Taiwan changes markedly over the next decade (not a completely unlikely event) much of this human capital will find its way to Canada, Australia, the United States and similar countries. Financial capital will also move to these destinations, though centers in the region (in order of likely preference, Bangkok, Taipei and Singapore) will prove the biggest beneficiaries.

Aside from the purely economic effects that such developments will have on the three-way trade between China, Hong Kong and Taiwan, they will also serve as the crucial test for the formula of "one country, two systems" as it might apply to the reincorporation of Taiwan. Few individuals on Taiwan are likely to view a similar fate with equanimity, though this will be a situation from which the Kuomintang government will be able to derive little advantage. For it will underline the very inapplicability of the notion of a reunification of China which, of course, has been the chief preoccupa- tion of that government since 1949. The political as well as the economic advantages that would accrue from Taiwan independence might then be sufficient, in an evolving Taiwan political system, for that option to receive a serious hearing. 34

Although most writing in this genre is concerned with the impact of China on Hong Kong, it is also worth observing that Hong Kong will have an impact on the motherland out of all proportion to its size. Already the example and challenge of Hong Kong has been a major factor in the introduction of the special economic zone policy, and in particular Hong Kong capital and talent has been the principal motor for the growth of Shenzhen. 35 Overseeing the affairs of Hong Kong, particularly as Guangdong, Shenzhen, and the territory become even more closely inte- grated economically, will be the biggest test of the reforming economic and political policies of the post-Deng leadership. If the northern cadres suc- cumb to the temptations offered by the rakeoffs and fleshpots of the territory, not only will Beijing's aspirations for Taiwan be proven hopelessly bankrupt, but the hollowness of the new commitment to reform will be


manifest. If Beijing cannot rule Chinese people on Chinese territory according to conditions internationally acknowledged in advance, many, not only in Hong Kong, will draw the conclusion that, CCP protestations not withstanding, only when there is some source of countervailing power within the Chinese political system can any continuity be expected from the regime in Beijing.

NOTES

An earlier draft of this paper was read at the third joint conference on China of the Royal Institute of International Affairs and the National Institute for Research Advancement of Japan held at the University of Hong Kong on 29-30 October 1987. I am indebted to the organizers and participants for their comments.

1. White Paper: The Further Development of Representative Government in Hong Kong (Hong Kong: the Government Printer, 1984), p. 3.

2. A Draft Agreement between the Government of the United Kingdom and the Government of China on the Future of Hong Kong (London: HMSO, 1984), p. 14.

3. Far Eastern Economic Review [FEER], 5 Dec. 1985, pp. 12-15. 4. FEER, 12 Dec. 1985, p. 21; 2 Jan. 1986, pp. 10-1 I. 5. FEER, 26 Dec. 1985, pp. 14-15; "Structure of Hong Kong Basic Law," in The Future of

Hong Kong. Toward 1997 and Beyonded. Hungdah Chiu, Y.C. Jao and Yuan-li Wu (New York: Quorum Books, 1987), pp. 237-41.

6. FEER, 18 Dec. 1986, pp. 38-45. 7. FEER, 29 May 1986, pp. 57-68. 8. Green Paper. The 1987 Review of Developments in Representative Government (Hong Kong:

the Government Printer, 1987), pare. 107. 9. Green Paper: 1987, para. 121; pp. 99-100. For a detailed discussion see: Joseph Y.S. Cheng,

"Hong Kong: The Decline of Political Expectations and Confidence" (Hong Kong: Chinese University of Hong Kong, unpublished MS), pp. 22ff.

10. FEER, 26 Mar. 1987, pp. 10-12. 11. Andrew J. Nathan, Chinese Democracy. The Individual and the State in Twentieth Century

China (London: I.B. Tauris, 1986). pp. 193-233. 12. FEER, 30 Apr. 1987, pp. 12-13; see also earlier reports of unease in Beijing over the prospect

of direct elections: 19 Feb. 1987, p. 48; 5 Mar. 1987, p. 12. 13. FEER, 7 May 1987, p. 29. 14. Summary of World Broadcasts, Far East [ S WB, FE]/ 8600 / A 3 /1, 22 June 1987. 15. FEER, 2 July 1987, pp. 30-31. 16. SWB, FE/8603/A3/I, 25 June 1987. 17. FEER, 6 Aug. 1987, pp. 26-9. 18. FEER, 19 Nov. 1987, pp.. 26-9. 19. Charles E Emmons, "Public Opinion and Political Participation in Pre-1977 Hong Kong,"

in Hong Kong and 1997. Strategies for the Future ed. Y.C. Jaoet al. (Hong Kong: Centre of Asian Studies, University of Hong Kong, Monograph no. 63, 1985), pp. 53-72; Lau Siu-kai and Kuan Hsin-chi, "The Changing Political Culture of the Hong Kong Chinese," in Hong Kong in Transition ed. Joseph Y.S. Cheng (Hong Kong: Oxford University Press, 1986), pp. 26-51.

20. Lau Siu-kai and Kuan Hsin-chi, "Hong Kong after the Sino-British Agreement: The Limits to Change," Pacific Affairs 59 ( 1986): 214-37; Joseph Y.S. Cheng, "Hong Kong: the pressure to converge," International Affairs 63 (1987): 271-283. See also George L. Hicks, "Hong Kong on the Eve of Communist Rule," in The Future ofHong Kong, pp. 23-56.

21. Lee Ming Kwan, "Hong Kong: The Final Days of a Colonial Polity," China News Analysis, 15 May 1987, pp. 1-8.

22. Cheng, "Hong Kong: the pressure to converge," p. 283. 23. FEER, 18 June I987, pp. 22-5.

COTTON 17

24. Joseph Y.S. Cheng, "The Constitutional Relationship Between the Central Government and the Future Hong Kong Special Administrative Region Government" (Hong Kong: Chinese University of Hong Kong, unpublished MS). On the future of the legal system see Albert H.Y. Chen, "The Legal System," in Hong Kong in Transition, pp. 88-119.

25. SWB, FE/8616/BI 1/6, l0 July 1987. In his report to the 13th National Congress of the Chinese Communist Party, the new general secretary, Zhao Ziyang, makes similar comments. He observes that even when the ambitious reform program he was announcing is achieved, only the "foundation" will be laid for "socialist democracy": Beijing Review 30 (1987), no. 45 (9-15 Nov.), p. xxi.

26. SWB, FE/8629/BI 1/7-8, 25 July 1987. 27. Chalmers Hohnson, "The Mousetrapping of Hong Kong. A Game Which Nobody Wins,"

Asian Survey 24 (1984): 887-909. 28. David S.G. Goodman, M. Lockett and G. Segal, The China Challenge. Adjustment and

Reform (London, Royal Institute of International Affairs/Routledge & Kegan Paul, 1986), p. 9.

29. Yuan-li Wu, "In the Shadow of 1997: Interaction between Hong Kong and Its Economic Partners and Neighbors," in Chiu et al. (eds), The Future ofHong Kong, pp. 145-6.

30. Christopher Howe, "Growth, Public Policy and Hong Kong's Economic Relationship with China" and Lucian W. Pye, "The International Position of Hong Kong," China Quarterly 95 (Sept. 1983), pp. 512-33, pp. 456-468; Y.C. Jao, "Hong Kong's Role in Financing China's Modernization" and John C. Hsu, "Hong Kong in China's Foreign Trade: A Changing Role," in A.J. Youngson, China and Hong Kong. The Economic Nexus (Hong Kong, Oxford University Press, 1983), pp. 12-76, pp. 156-183; Y.C. Jao, "Hong Kong's Economic Prospects after the Sino-British Agreement: A Preliminary Assessment," in Chiu et al (eds), The Future of Hong Kong, pp. 57-94.

31. A Draft Agreement between the Government of the United Kingdom and the Government of China on the Future ofHong Kong, para. 3(7); Annex 1 (Elaboration of Basic Policies of China Regarding Hong Kong), VII.

32. Yuan-li Wu, "In the Shadow of 1997; Interaction between Hong Kong and Its Economic Partners and Neighbors," pp. 146-8.

33. On corruption in Hong Kong see Peter Harris, Hong Kong. A Study in Bureaucratic Politics (Hong Kong, Heinemann Asia, 1978), 140-61; H.J. Lethbridge, Hard Graft in Hong Kong (Hong Kong, Oxford University Press, 1985).

34. For a review of this issue from the point of view of Taipei see An-chia Wu, "Can the Hong Kong Settlement Serve as a Model for Taiwan?," in The Future ofHong Kong, pp. 155-77.

35. Y.C. Jao and C.K. Leung. China's Special Economic Zones. Policies, Problems and Prospects (Hong Kong: Oxford University Press, 1986).

Documents

Hong Kong: Convergence or divergence?