The future is a foreign country

Hong Kong has little time for history. That is perhaps just as well. Historic buildings get in the way of developers' profits. History books remind the Chinese that this city semi-state was born out of China's humiliation by western imperialism.

But a sense of history must be the starting point for any soothsaying about 1997 and beyond. Will this date signal the end of something remarkable? Or a new beginning for what will be one of the world's greatest cities for centuries to come? Will this date, etched in the consciousness of Hong Kong as surely as 1066 is a part of the English psyche, prove a non-event? Will it see an almost seamless transition from 150 years of British rule to the 50 years of continuity and autonomy promised by the 1984 Sino-British Joint Declaration on Hong Kong?

Hong Kong's future will belong to China, but important to the evolution of the next 50 years will be the extent of the survival of British-derived institutions. Will Hong Kong be like India, where law, parliament, even railway timetables are not so different from 1947? Or will it be like Aden? It matters not because these institutions are intrinsically admirable, but because they are part of what Hong Kong is and wants to remain.



For those looking for historic parallels as a guide to the future, there is a range to choose from. There is Shanghai, now making a high-rise comeback as China's financial capital, but still far from its 1930s zenith as a glamorous, progressive international city. There is Tangier, with its hashish and homosexuals; but it has faded so far now that most people have forgotten that it ever was an international city. Closer to home, there is British-created Chinese-operated Singapore. It survived joining and being thrown out of Malaysia to remain southeast Asia's most prosperous place-and one now acting as a tribune for "neo-Confucian" values, while making its living as a home from home for western companies.

Of these choices, it is worth looking at Singapore more closely. Its experience goes to the root of what may well be Hong Kong's biggest problem: autonomy. Whatever one's view of Lee Kuan Yew, Singapore's ex-prime minister, there is no doubt that after Singapore's 1965 expulsion from Malaysia, he single-mindedly pursued what he saw as the country's best interests. Lee was prepared to ride roughshod over neighbourly sensitivities, whether in pursuit of specific objectives, or just to underline the fact that small, prickly, Chinese Singapore would not be bullied by large Malay, Muslim neighbours.

Hong Kong, however, is unlike Singapore in two respects. At the political level, it cannot be independent. Nor can it ever be suspected of aspiring to such status. Moreover, being wholly ethnic Chinese, it has no intrinsic sense of being different from China other than because of recent history. While Beijing may seem remote and hostile, neighbouring Guangdong isn't. At times, mainland appeals to Hong Kong "patriotism" sound like the last refuge of the communist scoundrels in Beijing. But there is a sense in which the Hong Kong Chinese feel that they ought to be closer to their mainland brethren, even though they are wary of them.

Patten's reforms

Unable, then, to be too assertive, Hong Kong will be at the mercy of how much autonomy Beijing is willing to concede. In theory, under both the Sino-British Joint Declaration and the Basic Law-China's constitution for the future government of the Special Administrative Region (SAR)-Hong Kong will enjoy a "high degree of autonomy." Only defence and foreign affairs are reserved for central government. Hong Kong will remain a separate territory for purposes of international trade (see box, p. 86).

In practice, however, Beijing is showing a desire to have direct influence over a wider range of activities. Its hostility towards Governor Chris Patten's constitutional reforms was not just that they were modestly democratic, but that they increased the authority of Hong Kong's Legislative Council (Legco) at the expense of the executive, which, being appointed, will be easier to control.

It remains to be seen how far Beijing will go in emasculating Legco. In the September election, the main pro-China party (the Democratic Alliance for the Betterment of Hong Kong) campaigned hard to convince voters that if elected, it would reverse Beijing's threat to dismantle the Patten reforms. But despite the party's significant grass-roots support, it captured only two out of the 20 seats openly contested. (The pro-democracy candidates scored a landslide victory.)

Whatever happens to Legco, the post of chief executive officer-which will replace that of the governor in the new SAR government-may well go to a local Hong Kong person (David Li, chairman of the Bank of East Asia, and Yang Tei Laing, the Chief Justice, have been tipped as possible candidates). But in the end, what Beijing wants it almost always gets. Hong Kong comes under the Hong Kong and Macao Affairs Office of the State Council headed by Lu Ping. Thus, the SAR government is going to have scant room for manoeuvre by playing ministries off against each other, or the central government against the Guangdong provincial one.

Pros and cons

Direct control from Beijing could have its advantages. To begin with, after 1997, the sort of stand-offs that have plagued Sino-British relations over the past few years are unlikely. These delayed the badly needed new airport-it will now not be operational until 1998-and continue to obstruct important decisions on matters ranging from a new container terminal, to improvement of a deteriorating environment. Once the British are out of the way, Beijing will no longer see British plots behind well-intentioned Hong Kong government proposals.

Another advantage of direct Beijing oversight could be a reduction in problems of law and order. While Beijing may have problems making its writ run in parts of rural China, it is unlikely to tolerate the indignity of being seen as responsible for a decline in law and order in Hong Kong after 1997. There had been particular disquiet a couple of years ago about rampant corruption across the border spilling over into Hong Kong. There was a series of armed robberies by mainlanders, and evident complicity by local mainland officials in organised smuggling and piracy. Though these problems have not disappeared, incidents have become less frequent as Beijing has leaned on the provincial government to improve order in border areas.

The centre will also have its own reason for supporting Hong Kong's local interest in seeing that the post-1997 border between Guangdong and Hong Kong does not become too porous. But it is unlikely that Hong Kong will be able to regulate the flow of people across the border as firmly as it would wish. As it is, the number of mainlanders allowed one-way permits to enter Hong Kong has recently been doubled "in preparation for 1997." This boost to the population may be good for GDP growth, but it will have an adverse impact on wage rates.

A controlled influx of unskilled labour may not worry Hong Kong's middle class, particularly if it has to replace its 140,000 Filipina domestic helpers-perhaps the group at greatest risk from 1997-with mainlanders. But the local lawyers, accountants, engineers, surveyors and other holders of British and Commonwealth qualifications are concerned that, whatever it may say in the Basic Law, Hong Kong is going to be persuaded to accept many mainland professional technical qualifications. Once that happens, the prevalence of nepotism and guanxi (connections) in Chinese society will ensure that many manage to pass through the bamboo curtain to enjoy the delights of Hong Kong. (Offspring of the Beijing elite are already in luxury Hong Kong flats kitted out with girlfriends from the glitzier night clubs. Opportunities for lesser ranks to enter will be afforded by 1997.) Such a process would hurt the local middle class and probably encourage many to use their foreign passports and move to their new Vancouver homes. Moreover, Beijing has yet to clarify its attitude to those it regards as Chinese nationals holding foreign passports. Will they be allowed back after 1997? And, if so, will they enjoy consular protection, or will they be treated like any other Chinese?

A middle-class exodus would speed up the process of Sinofication of Hong Kong without necessarily hurting Hong Kong overall. Indeed, some now look to a 1997 influx of mainland individuals and entities-and their money-to come to the relief of a property market suffering from oversupply and unaffordable prices. That may not happen. Guangzhou and Shanghai face even bigger problems of excess glossy offices and up-market flats. But the very idea that the mainland might rescue Hong Kong from its own folly is a sign of how she is moving from being an international city on the edge of China to being China's most international city.

One reason for this has nothing to do with 1997. Hong Kong's increasingly service-based economy has become much more dependent on southern China (see Business Trends, p. 87). This has led some to argue that business in Hong Kong no longer requires the underpinning of a western-style rule of law. Already, some local entrepreneurs feel they could do at least as well without the trappings of commercial sophistication and government regulation. After all, east Asian economic success owes more to capitalist greed than to institutions. Even countries with strong collectivist instincts, such as Japan, have relied more on consensual systems than on laws to achieve order and create a framework for successful business.

Rule of Law

However, what might have worked when Hong Kong was primarily an industrial sweatshop-and does work in southern China-may not work for a richer, more service-based Hong Kong with middle-class values and expectations.

The cream of Hong Kong business is high value-added international services-banking, fund management, insurance, ship management, media, law and accountancy. Such businesses have a regional if not global perspective. They have high requirements of professionalism, and expect ease of access for foreign experts. Suggestions that the judicial system may become more politicised will certainly make them think twice about using Hong Kong as a base. For example, the jurisdiction of Hong Kong's Court of Final Appeal, to replace the Privy Council after 1997, will exclude "acts of state," a phrase susceptible to interpretation-especially in the Communist lexicon. The Basic Law will be in the hands of China's law-making body, the National People's Congress.

The thought of ill-qualified mainlanders flocking into local professions, or foreigners being excluded from practice, will make international businesses nervous about standards. Hong Kong's advantage over Singapore-free speech and a diverse press-are likely to be eroded. This is making some consider going to Bangkok, Manila, Sydney or even (if the yen deflates further) Tokyo for activities which might be viewed with suspicion by a politically hypersensitive China.

As Chinese racism-long suppressed vis-?vis westerners but blatant towards Indians, Filipinos and others-comes to the fore, there are intimations that foreigners may be less welcome than under the colonial aegis. That may not be much of a worry to the overseas Chinese, Koreans and Japanese who play an ever-growing role in the commerce of the region. But to the extent that many of the high-value service industries have western and English-language linkages, Chinese chauvinism is a threat to business.

Given these uncertainties, and Hong Kong's still inflated property prices, other cities in the region are actively bidding for Hong Kong business-and showing signs of success. Singapore is grabbing fund and ship managers; Bangkok some publishing; the Philippines, Australia, and even Taiwan are getting other bits and pieces. Ultimately, Hong Kong must keep its international business if it is to keep its singular character. In the long run, Shanghai can do just as well, if not better, as a financial market and commercial centre for China.

If only for national pride, China has every interest in ensuring that Hong Kong's transition passes off smoothly. It is eager to prove wrong those who maintain that, for all its good intentions, Beijing does not understand Hong Kong. According to this theory, China views Hong Kong as a place driven entirely by money, without comprehending the institutions which allow businesses to flourish in a reasonably civilised environment. Beijing, the argument goes, knows only the raw variety of capitalism across the border; it has no grasp of the genteel version of Hong Kong's large educated middle class.

New masters

Over the next two years, Beijing will go out of its way to reassure businesses. It has affirmed its commitment to the Hong Kong dollar's peg against the US dollar. Having achieved at least half of its objectives in its confrontation with Patten, it is now patching up relations with Britain to ensure continuity. Patten is reciprocating, retreating from some of the democratic and liberal causes he espoused, and reasserting the primacy of the executive. Barring other disasters, such as global financial meltdown, further deterioration in Sino-US relations, or a power struggle in Beijing, Hong Kong should make it through 1997 without serious trauma.

But what then? One theory has long been that China will want to reassure the Taiwanese by showing that its slogans "One Country, Two Systems" and "Hong Kong people ruling Hong Kong" mean what they say. Taiwan could then be enticed into reunification with similar promises. However, democracy and prosperity have made the Taiwanese determined to preserve their own independence. In response, Beijing has abandoned charm and resorted to missile-rattling.

Hong Kong is the fulcrum of cross-straits trade and investment. But it cannot afford to become involved in the assertive nationalism characteristic of cross-straits political relations. Nor can an international commercial hub afford to become embroiled in the related question of control of the south China Sea.

Economically, Hong Kong remains very important to China's foreign exchange earning capacity, but it has become less so as manufacturing has moved into China. The interests of a small, totally open economy are not always compatible with those of a large continental one. Even if China were a full market economy, difficulties would arise between the two. Given China's size and ability to appeal to "patriotism," Hong Kong's particular interests may be easily submerged. Take, for example, its huge foreign currency and fiscal reserves. Would China really see it as in its national interest if huge amounts were spent defending the Hong Kong currency's peg to an alien dollar?

The SAR government may in theory be free to invest its surpluses where it likes. But could a Hong Kong Financial Secretary appointed by Beijing resist a call by a cash-strapped central government to help fund the Three Gorges Dam, which the leadership has made a symbol of China's progress?

In principle, Hong Kong remains a separate economic entity. It will maintain its own representation at the World Trade Organisation even if China does not join. Hong Kong's international trade position will be undermined if it is seen simply as a Chinese catspaw. As it is, Hong Kong's efforts to crack down on intellectual piracy by mainland copiers of software, music, and other items are derisory. Hong Kong is involved in rampant mislabelling of Chinese-made garments which benefit from Hong Kong quota access to foreign markets. The Hong Kong authorities, anxious not to offend China, simply do not have the will to take strong action.

The reality is that however hard all parties try for a smooth transition, 1997 represents an historic change. Many in Hong Kong will be happy when the British finally receive their comeuppance. Equally, many mainlanders who have chafed at the way the often arrogant Hong Kongers have enjoyed the good life under colonial rule-and continue to seek the sanctuary of barbarian passports-will be looking for their own version of Hong Kong's "liberation."

With the best port and airport in China, Hong Kong will remain a prosperous entrep?, the focus of interchange between China and the overseas Chinese of east and west. Its scenery, restaurants and gambling will continue to make it a playground for elites from colder, dirtier, drearier cities of the north and centre. But being the most prosperous city in China is not quite the same as aspiring to rival Tokyo, LA or Paris in prosperity, modernity and chic. Hong Kong, one might say, is not so much ceasing to be British in 1997 as gradually ceasing to be sui generis.