Hong Kong: A House Divided

Section 1. Hong Kong

Hong Kong was a part of China that was administered by the British for more than 150 years. Initially, Hong Kong was, quite literally, a barren rock, possessing few attributes beyond a small fishing village.

The British allowed local customs and practices to remain. The British also gave a trade a free rein, regulating neither imports nor exports that passed through the colony. It was this business freedom, along with a colonial administration that did not subsidize industry on a large scale, that allowed businesses to reap benefits by offering them exclusive participation in local decision-making. Using ever-increasing wealth, the colonial government also eventually provided free public housing, transportation, and education for its citizens. These factors combined to create an atmosphere that allowed one of the most free economies to evolve.

Yet, this is only half the story. Hong Kong’s proximity to China also had everything to do with its success. China was the source of initial trade revenues for Hong Kong and, more importantly, was the source of its population. Hong Kong experienced several large influxes of Chinese immigrants from the mainland. From a population of a mere 7,000 (or 100,000 by some estimates) 154 years ago, Hong Kong’s population has grown to more than 6.7 million today. Two occasions— the outbreak of conflict between China and Japan in 1937 and the Chinese Communist Revolution in 1949—marked particularly large influxes of Chinese refugees of 100,000 or more per year, but those two periods only speak of a longer trend of ongoing immigration to Hong Kong by mainland Chinese. These influxes only fed Hong Kong’s rapidly growing industry. The mass availability of labor allowed manufacturers to keep costs low and prevented a general labor movement from taking root. In addition to a government that favored business, a massive, cheap, and compliant labor pool, Hong Kong’s location also benefited its growth. Its location not only provided the West an entrepôt to China, (and vice versa) but also marked a convenient way-station for cargo ships conducting trade for the entire region. As a result, Hong Kong not only became the busiest container port in the world but also grew into one of the largest financial and manufacturing centers in the world, capitalizing on its entrepôt role to become a middleman for the majority of the China trade.

This honeymoon of cheap labor and low taxes and duties for business allowed industry to grow and expand. As more capital was generated and spent within the colony, Hong Kong’s economy grew and became more sophisticated. By the 1970s, these new industries grew and were financed indigenously by a burgeoning middle class that not met the need for a more sophisticated labor pool but, for the first time, had disposable income to spend on investments and consumer goods. Usually, greater sophistication of an economy and its labor pool would demand that production costs would increase as a function of greater affluence. However, constant immigration from China added more workers in at the bottom levels and allowed for the continuation of low production costs while the commercial and financial sectors grew in breadth and sophistication. Therefore, by the late-70s, a large middle class had emerged. Finally, prosperity had “trickled” down from the wealthy tycoons to the masses. The emergence of this new middle class marked the origin of two significant factors that have played a hand in Hong Kong’s changeover to China. The first was the idea of desire, as limited as it might have been, for democracy and the belief in popular action. The second, perhaps more-important idea that one would associate with a middle class, was the emergence of a people who would prove to have significantly different expectations of their government than their counterparts on the mainland.

1.1 A Barren Rock?

Thanks to a heavy trade and commercial orientation Hong Kong realized its early economic growth

Historical circumstances as much as geography have affected Hong Kong’s growth as entrepôt to China. Hong Kong is located at the mouth of the Pearl River, on the South China coast, approximately 60 kilometers southeast of the traditional trade city of Guangzhou, formerly known as Canton. Hong Kong is situated on one of the world’s deepest natural harbors. Its present success has been contingent on its history and its deep association with international trade, as harbors like Hong Kong’s are a common feature of the region. In fact, if it were not for trade, Hong Kong might have turned out like the sleepy fishing village of Zhousan. C.K. Lau (1997) highlights Hong Kong’s growth and development to Western trade and prowess out by comparing the territory with Zhousan, which has a similar-sized island-peninsula geography located near Shanghai. Zhousan remains a “sleepy island” that has been dwarfed by nearby Shanghai, also a city that is a product of Western trade and encroachment into China.[1] Therefore, it has been the historical circumstances that have made Hong Kong (and Shanghai) into what it is today. At the heart of that success was the British desire to create an entrepôt to China for British-produced products. 

The region itself consists of Hong Kong Island, which is separated from the Kowloon Peninsula and the New Territories by Victoria Harbor. The outlying islands, numbering more than 200, are also considered to be a part of the territory. Hong Kong was just a small fishing village until the British seized the island in 1841 to use as a launching point for their campaign to open Qing Imperial China to increased British trade. The Qing dynasty had severely restricted trade up until this point in time. British trading houses, lead by the Jardine hong, used military force to force the Chinese into submissionin a conflict formally known as the First Opium War (1841-1842).

Noted Sinologist John King Fairbank (1969) devoted a great amount of work to explaining Qing China’s response to Western encroachment into China. Britain’s desire to correct its trade imbalance of with China is primarily identified by Fairbank as the root of the First Opium War. By the 1840s, it was determined that the export of British woolens to China was insufficient to pay for the exports of Chinese tea and silk. A balance of payments issue was threatening the profitability of British trade. Despite the 1799 Qing regulations barring opium in China, a substantial increase in opium production in India allowed Britain to monopolize and correct this trade imbalance by exporting its Indian-produced opium to China. Qing authorities were unwilling to allow this trade triangle to be enlarged in Britain’s favor and refused to grant increased market access to the British. The reasons were two-fold, as the Qing not only deemed this trade as “unnecessary” and regarded the British as ‘”barbarians,” but also were fully aware of opium’s addicting effects. Therefore, when the Qing started seizing large amounts of opium in the 1840s, the British responded with military force.

In terms of economics, though, Qing authorities needed to regulate the flow of silver to the West to prevent a currency crisis within China. Therefore, in response Qing efforts to eradicate the opium trade, the British took to arms to forcefully open and maintain the Chinese opium market. It was quick work for the British, as Chinese technology and military prowess were no match for Britain’s. Apart from economics, Fairbank states that one of the deeper conflicts of the First Opium War was one between two differing conceptions of the rule of law between China and Britain.[2] Fairbank asserts that the British consuls in China were working in the 1800s to establish the “rule of Anglo-Saxon law” by creating a regulatory legal framework, along with British legal traditions.[3] This was deemed necessary because China was administered by a corrupt “demoralized Chinese bureaucracy, through piracy, brutality, and racketeering …” While Fairbank notes the differences between the Chinese and the British, James Polachek pays close attention to Qing court politics, revealing that there were literati officials who were willing to “collaborate” with the British, while others were determined in their opposition to Britain. In the Confucian order, under which Imperial China was run, trade was looked down upon because it was money that was made off the toil of others. Bearing that point in mind, Polachek stressed that the demands for consensus in Qing policy-making only made matters worse by preventing any adequate unified response to the British from emerging.[4]

After Britain’s swift victory in the First Opium War, Hong Kong Island was ceded to the British under the Treaty of Nanking in 1842. A Second Opium War (1856-1858) (also known as the Arrow War) led to the Convention of Peking in 1860 by which the Kowloon Peninsula was also ceded to the British. The areas north of the Kowloon Peninsula to the Shenzhen River (now known as the New Territories) and 200 outlying islands were leased to Britain for 99 years under the Peking Convention of 1898, after China’s defeat in the Sino-Japanese War. The ceding of Hong Kong marked the start of the precedent of the Chinese being forced to give significant concessions to foreign imperialists. The imperial powers were to use the Opium War lesson of force in dealing with China for the next 100 years, adding “treaties” as a postscript to formally extract lands, concessions, and indemnities for themselves.

However, the British did not initially view Hong Kong as a prize. In fact, in his official assessment of Hong Kong, the British naval commander of the First Opium War, Sir Charles Elliot, noted the access Hong Kong had for the China market but added that Hong Kong was little more than a “barren rock.” Yet, despite British estimates of only 7,000 farmers on the south side of Hong Kong Island, there were actually approximately 100,000 inhabitants in the area. Entrepreneurial Britons saw opportunity. The defeat of the Qing in the Opium Wars not only meant opium-market access but also allowed the British to penetrate every aspect of the Chinese market. The British were even so bold as to install their own customs officers to “assist” the Qing in tariff assessment.

Stephan Haggard (1990) charts Hong Kong’s growth from a depot and distribution center for British opium to China 100 years ago into the sophisticated trading port that became China’s gateway to the rest of the world 20 years ago. Haggard gives a broad picture of Hong Kong’s economic development, revealing that Hong Kong’s growth in discrete stages is contingent on influxes of Mainland Chinese immigrants. Until World War I, light industry mainly related to the opium trade and to shipping developed in Hong Kong. An important factor to increasing shipping through Hong Kong was the British Imperial Preference System, which enticed traders with lower tariffs to use Hong Kong as their point of entry and exit to the Chinese market. Indeed, the trade figures clearly demonstrated Hong Kong’s rapid growth due to British efforts. In 1880, 21 percent of China’s exports and 37 percent of its imports went through Hong Kong; by 1900, the numbers had increased to 40 percent of all Chinese exports and 42 percent of total imports passing through the colony.[5]

The Republican revolution in 1911 did little to change Hong Kong’s status as entrepôt to the Chinese market. By this point in time, there were several so-called treaty ports that served as trade gateways and foreign outposts along the Chinese seaboard. Despite the proclamation of President Sun Yat-sen and his Nationalist Party (KMT) in 1911 to take back all foreign-dominated Chinese lands within China, the Nationalists had neither the time before hostilities with Japan and the Chinese communists broke out nor the resources to accomplish the task.

The Japanese invasion of the colony on Christmas Day 1941 put an immediate halt to trade and economic development Hong Kong. Through campaigns of terror during World War II, Hong Kong’s population was reduced from 1.5 million to 500,000 during the Japanese occupation. After the Allied victory over Japan, in 1945, the Nationalists under Chiang Kai-shek asked their British allies to return Hong Kong to the Chinese. The request, however, was rejected out of hand because of Britain’s wish to pursue a policy of allowing its colonial possessions in Asia the right to self-determination. Hong Kong, for the time being, was to remain under British administration for the foreseeable future.

Economically, Haggard points out, a policy of laissez-faire resumed immediately after the Allied victory.[6] Hong Kong’s right to self-determination was not realized, as politics on the mainland took a dramatic turn. The 1949 Communist Revolution in China affected in Hong Kong in several ways. While the communists stopped short of invading Hong Kong in 1949 (due to Britain’s posting of 30,000 troops at the border), the communists started a pattern of fuming over Hong Kong and of firing rhetorical threats that lasted up until the changeover.

In the wake of the “losing” China to communism, and the emergence of the cold war, Britain politicized Hong Kong’s position and promised to make it the “Berlin of Far East.” Perhaps the most important fallout from the 1949 revolution was a huge influx of hundreds of thousands of Chinese who inundated Hong Kong. Britain, in light of its Berlin metaphor, accepted these immigrants without fail. Without realizing it, however, Britain had added the final ingredient the formula that would make Hong Kong great. These immigrants not only represented a huge pool of labor, but they also brought with them huge amounts of capital. Among the hundreds of thousands who flooded the colony were wealthy tycoons from such places as Shanghai, who brought massive amounts of money with them in order to shield it from the communists. In addition to the capital brought by the mainlanders, foreign investment capital originally slated for China was diverted to Hong Kong. Haggard states that, between 1947 and 1955, 40 percent of Hong Kong’s national income was foreign in origin, even reaching 65 percent immediately after the revolution in 1950.[7]

Therefore, Hong Kong’s early industrial growth during the 1950s was almost entirely financed by foreign capital from China or slated for China. This capital financed the growth of almost every major industry in Hong Kong, including toys, electronics, and apparels. These industries not only had a huge labor pool of Chinese refugees to take advantage of but also had a colonial government that had already demonstrated that its interests were in commercial growth and not in social growth.

The significance of Hong Kong’s being “different from China” became important after the Chinese Revolution—during this time, Hong Kong began its growth as a major international trade center. However, it was not only the West that benefited from Hong Kong. After international isolation was imposed, the new communist Chinese régime came to recognize the value of Hong Kong as a black market entrepôt for products it desperately needed. Hong Kong was again filling the role of gateway to China, as it had since the Opium Wars. Then Hong Kong evolved into a hard currency source for China.

Eventually, Hong Kong’s role would become substantial, as it resumed its role as a formal and legal entrepôt to China and then added the mantle of chief financier for China’s development after Deng Xiaoping’s 1978 opening. Perhaps this was a long-term, coherent Chinese policymaking that allowed Hong Kong to realize its role as entrepôt. However, this is probably doubtful, as the PRC might have recognized that it would not be feasible to face a military force of 30,000 well-armed Britons on the Hong Kong-China border. Therefore, Hong Kong’s development as entrepôt, financial center, and world-city had everything to do with the unique interplay between China, Britain, and the people of Hong Kong.

The crown colonial government of Hong Kong pursued policies that helped industry through favorable bank arrangements allowing for the free flow of capital, for example. However, the maintenance of a laissez-faire legal and administrative framework proved to be the salient factor that put Hong Kong on a path of industrial growth. Also, low customs duties and a uniform tax code encouraged business to grow in Hong Kong.

Socially, the colonial government remained relatively passive, and when it did act, it only acted to limit workers’ rights by limiting the growth of unions in the colony. Naturally, the wide availability of workers undermined the workers’ collective-bargaining positions, but the government acted decisively to limit unions because of the perceived political associations labor unions had with mainland and Taiwanese Communists and Nationalists, respectively.[8] Moreover, despite the colonial government’s official recognition of labor unions with the Trade Unions Ordinance of 1948, the colonial government acted to prohibit cross-industry unions from forming and restricted the use of strikes as a collective bargaining tool.

Thus, efficiency was the key. By creating a laissez-faire atmosphere, the colonial government encouraged an export orientation, and with that orientation, foreign business sought the lowest production costs for the best product—in other words, maximum efficiency was had at the workers’ expense.

1.2 Hong Kong, Inc.

The 1970s and 1980s not only saw the emergence of a business lobby that came to represent a formidable constituency within Hong Kong’s colonial government but also  the emergence of a middle class due to a heavy reliance on migrant labor.

Hong Kong continued to chart economic, commercial, and industrial growth through the next 20 years of its history. The period from 1960 to 1980 saw significant changes in Hong Kong that paved the way for popular participation on the part of those people who had previously been excluded from local decision-making. This turn-around involved the interplay of a series of factors. First, the continuing pooling of capital in Hong Kong, and in its industrial sector, paved financial-sector growth. This was aided by the growth of the local securities exchanges in the late-1970s. Formal trading of stocks and securities began Hong Kong in 1891. However, the Stock Exchange of Hong Kong (SEHK), which is the main exchange in Hong Kong today, was formed in 1980 by the unification of four of these exchanges. According to the Exchange’s information during the past thirteen years, the SEHK developed from a largely domestic operation into a major international stock exchange. With a market capitalization of almost $4,945 HK billion at the end of February, 2000, the SEHK ranks as the ninth lasrgest exchange in the world after Canada, and second in Asia behind Japan. Moreover, U.N. and Hong Kong government figures have shown that savings rate have averaged 30 percent or more for the past 20 year.[9] The high rate of savings investment allowed companies to manufacture higher-quality products such as consumer electronics and apparel.

Technological advances aided the growth of electronics manufacturing, but eventually, by the 1980s, this manufacturing went to overseas to Taiwan, Japan, and Korea—at which time, the re-emergence of China on the world stage took a prominent place in Hong Kong. International trade associated with China was only spurred on by the substantial Chinese reforms that Deng Xiaoping started in 1978. Increasing population in such a confined space as Hong Kong caused living expenses to rise, which caused wages to go up as well, but ultimately yielded an improved standard of living.

Wage inflation, in turn, fueled the growth of the financial sector, whcih invested wages back into local industry, causing it to become more advanced. The advancement of technology made media more available to Hong Kong’s citizens. Therefore, armed with new wealth and technology, Hong Kong witnessed a demographic revolution of sorts by the late-1970s.

While some companies grew more sophisticated and certain segment of workers became more affluent, there was (until recently) a steady supply of migrant labor from China that underpinned and sustained Hong Kong’s base economy of manufacturing throughout this period as well. In fact, it was the rise of the commercial-finance sector, and the increased rate of savings, that allowed local companies to manufacture higher-quality goods—otherwise, the influx of immigrants would have prevented the pooling of capital from happening. Many scholars have argued, as I do now, that Hong Kong’s economic growth has been to a great extent fueled by various influxes of immigrants into the territory. However, in addition to that, the gradual shift of capital sources over the past 30 years, initially from foreign sources or from refugee Chinese to foreign and local sources, has been a key factor to Hong Kong’s prosperity. What follows is a brief examination of relationship that immigration has played in Hong Kong’s recent history and how it paved the way for the emergence of a middle class in the 1970s.

During the 1930s, rising tensions between China and Japan witnessed hundreds of thousands of refugees entering Hong Kong. Due to the chaos of the era, official immigration numbers are not available, but many have estimated that at least 100,000 refugees fled to Hong Kong in 1937, 500,000 in 1938, and 150,000 in 1939. This influx brought Hong Kong’s population to well over 1.5 million by the time of the Japanese invasion, 1941; however, by the end of hostilities, in 1945, the colony’s population had been reduced to 500,000. It was thought that at the height of tensions, more than 500,000 people were sleeping in the streets of Hong Kong.[10]  Strategically, U.S. submarines thwarted Japanese plans to use Hong Kong as a staging area for further campaigns in Southeast Asia.

Following Japan’s surrender, August 14, 1945, Britain reclaimed the territory and refused to hand it over to the Chinese Nationalists. Circumstances did not allow Britain to grant Hong Kong its independence as it had desired. Immigration went unabated from this period on. In the wake of the chaos that gripped immediate post-war China, every month saw almost 100,000 Chinese civilians take refuge in Hong Kong. By 1947, estimates put Hong Kong’s population at 1.8 million people. With the Nationalists’ loss in the Chinese Civil War, an even more overwhelming influx of immigrants came into Hong Kong, and by early 1950, Hong Kong’s population had risen by another 400,000 people to more than 2.2 million.

The following data show that Hong Kong’s overall growth rate for the past 50 years has been greatly affected by immigration. Declining birth rates have been augmented by immigration to yield an overall healthy growth rate. As a function of politics, the variation in numbers of immigrants was dependant policies by both the Chinese and the British, which explains the alternation from positive to negative growth numbers.

Table 1. Vital Rates & Total Midyear Population for the Hong Kong

Source: U.S. Bureau of the Census, International Data Base. Available at: www.census.gov/cgi-bin/ipc/idbsprd

From the data, it can be seen that three periods, the 1950s, the late-1970s and the late 1990s, saw a large influx of immigrants to Hong Kong. The fallout from the Communist Revolution, the re-opening of China in 1978, and the economic boom Hong Kong was experiencing shortly before the 1997 Asian financial crisis can be associated with the increases. While the vast majority of immigrants into Hong Kong come from China, an increasing number came from other countries, such as the Philippines and Vietnam. The decreases in 1988 came about when Hong Kong immigration authorities deported large numbers of Vietnamese “boat people.”  Rates were reduced further in the early 1980s, when the British and the Chinese worked out a deportation arrangement. Future trends indicate that without immigration—and with Hong Kong’s slowing birth rate—the population will grow at a rate below 1 percent. This suits authorities fine, as real estate availability is becoming increasingly limited as population densities soar. There are now an average of more than 5,900 people living per square kilometer.

The introduction of more workers into an economy would usually spell declining wages. However, with the expansion of the commercial and service sector in Hong Kong, wages actually went up because  there was more work to be had. Therefore, immigrant labor was capable of being absorbed into the economy, which continued to grow itself. Per capita income serves as an additional indicator showing that, as wages rose in the late-70s, so did a middle class. Significantly, vast segments of this middle class chose to invest in the stock market, fueling further growth.

Table 2. Per Capita Income Selected 5-year Intervals

Source: Far East Trade Press, TimesNet Asia. Available at www.asia1.com.sg

On average, Hong Kongers put nearly a third of their income into savings accounts. However, new prosperity also gave Hong Kongers a larger disposable income, which was spent on food and electronics, resulting in an increase in sales of television sets and radios, giving Hong Kongers more access to media and information. In fact, Hong Kong ranks as the highest newspaper circulation per capita (719 newspapers per every 1,000 people) in the world, Macau ranks second, and China does not even make the top 40 countries.[11] Hong Kong’s literacy rate also rose considerably and has remained above 90 percent since 1980.

Table 3. Indicators

Source: Statistics Division, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

The trends of the 1970s have continued. A recent examination of which jobs people have reveals a move away from manufacturing and a greater prevalence of commercial and service sector jobs.

Table 4. Recent Labor Distribution in Hong Kong (in thousands)

Source: Hong Kong Information Services

When combined with the rise of per capita income, the trend towards sophistication becomes clearer. Late in this period, labor has continued the trend of moving away from low-skill, low-wage jobs, which was set into motion during the late-1970s, and the work force become more sophisticated. Incidentally, the low-skill jobs that many Hong Kongers had during the immediate post-war period have now gone to China and to Southeast Asia.[12]

By the 1980s, Hong Kong had fallen behind other NICs in developing a large electronics-manufacturing base. As opposed to its neighbors, such as Japan and Taiwan, both of which had developed and invested a great deal in electronics during the 1960s through state-directed efforts, Hong Kong refused to subsidize the electronics industry and took a different path. It was one that redirected Hong Kong towards resuming its former role as legal entrepôt to China.[13] So when negotiations between the Chinese and British commenced in 1982, Hong Kong had already seen the emergence of an affluent and relatively sophisticated middle class with money to spend and to invest. Much to the chagrin to the communist Chinese, a foreign-dominated land under a capitalist system had managed to provide wealth and success to many of the Chinese in Hong Kong who had escaped the Communists.

However, by this point the Chinese, too, had realized the value of the capitalist system and had begun to look to Hong Kong as valuable asset for China. Hong Kong businessmen specifically pushed towards increasing ties with China by investing heavily in the newly created Shenzhen Special Economic Zone and in Southeastern Chinese provinces. In fact, Hong Kong has ranked just behind Taiwan as the chief foreign investor in China. With the increase in the China trade, even more wealth was generated, and more Hong Kongers joined the ranks of the middle class. It was thought that everyone could make a fortune with the China trade. However, this enthusiasm changed as historical circumstance once again came into play as, by 1982, political wrangling between China and Britain threatened to change Hong Kong radically.

1.3 Postscript Democracy on the Rise

Participation in local government was encouraged, but not everybody took part as businesses started to get friendly with Chinese interests, but elections in 1995 proved embarrassing to Beijing

As early as 1972, Chinese Premier Zhou Enlai had formally mentioned that the expiration of Britain’s lease over the New Territories was looming. Zhou saw the return of Hong Kong as a potential model for the return of Taiwan to Beijing. Zhou’s views were seen with suspicion and apprehension more than with optimism and reconciliation. Quite simply, no one trusted the Chinese régime. So when Sino-British negotiations began over the fate of Hong Kong—and when it was revealed that the Chinese were adamant about recovering Hong Kong—a currency crisis was sparked. The 1983 currency crisis had two significant long-term ramifications: One was the so-called peg between Hong Kong’s currency with the U.S. dollar; the other was the exposure of the lack of faith that Hong Kongers had in both the British and the Chinese.

Beijing thought it understood the mechanism behind Hong Kong when it negotiated the Joint Declaration in 1984, viewing Hong Kong with envy and with an eye for its own improvement. The Chinese government was under the impression that because business and government had such a close connection, a state-directed approaches would work. However, what Beijing did not anticipate was that Hong Kongers themselves had reached a different standard of living. Their recent success and prosperity under the British had given them a set of radically different expectations of their government. Therefore, despite a shared culture and heritage (though not language, as the Cantonese of Hong Kong is incoherent to the Mandarin of the north), 150 years of separation had produced a gap between Beijing and Hong Kong. It was one that Beijing mistakenly thought it could cross in 1984.

Events in 1989 spoke contrary to Beijing’s opinion. And by 1995, late democratic reforms that encouraged mass political participation revealed that Hong Kongers were not pliant colonials and that Beijing would have a harder time with Hong Kong than it had originally bargained for in 1984. For instance, the Hong Kong recovery in 1997 was the antithesis of what the Chinese had expected. Therefore, shortly before the changeover, Beijing faced two choices, it could learn the political game of democracy, or it could bring aboard who it thought to be the key players that initially made Hong Kong successful—the business elite. In fact, Beijing has done both.

Led by then-Chinese General Secretary Zhao Ziyang, the Chinese began talks with the British in 1982. After weeks of pleading with Chinese, the British were rebuffed at their attempts to maintain administration over Hong Kong. The reality of handing Hong Kong over to a communist régime set in and created a market panic that was felt in the currency markets and the British emigration department. In 1983, the Hong Kong dollar was under no controls against foreign currencies. Therefore, a balance of payments deficit to the United States combined with a breakdown in 1983 in Sino-British talks created a “crisis of confidence” led a mass exodus from the Hong Kong dollar by currency traders in Hong Kong.[14] In order to prevent further devaluation that could have led to crisis, the colonial government moved to fix the exchange rate between the Hong Kong dollar, American greenback ($7.8 HK = $1). While this calmed the immediate currency crisis, a larger fiscal crisis hit Hong Kong as a result of the currency panic. Because the government owned (and still does) most of the land in Hong Kong, a depressed real-estate market added to the currency crisis and yielded moderate government deficits.

This new shortfall of public funds posed a problem for the colonial government. Cutting government expenditures could have easily paid off the debt. Instead of cutting public expenditures, though, the colonial government chose instead to finance the debt and not cut any programs. Haggard attributes this to the government’s concern about the prospect of a mobilization of community-action groups that would oppose any cuts.[15]

This notion of an increased awareness of the concerns of Hong Kongers might have been because the British could have felt somewhat guilty at abandoning their prized colony, or perhaps that what freedoms they did allow under their tenure had been previously restricted. For example, newspapers were allowed to be free in their criticism of the Chinese régime, but criticism towards the colonial government was not allowed. It was not also a help when British immigration redefined citizenship and passport rights for Hong Kongers in the late-80s, which denied any future protections and travel freedom for Chinese Hong Kongers after the changeover. With this in mind, the British set about to institute a series of last-minute liberal reforms that culminated with the appointment of Governor Christopher Patten in 1992.

Patten built upon this British guilt to expand representation in the local government, much to the dismay of conservative business elements and to Beijing. Hong Kongers by this point were more receptive to greater involvement in their decision-making process. This, however, was not always the case, as the business elites still enjoyed high-level access until they left to collaborate with Beijing and until it became apparent in June 1989 to Hong Kongers that investing in democratic institutions would be their only protection against Beijing.

Turmoil had rocked the territory in 1967, as riots backed by leftist elements caught up in the fervor of the Cultural Revolution threatened stability and forced the British to call out its riot patrols. With this “Red Scare” mentality in mind, the colonial government limited labor unions and social gatherings. Socially, the government allowed press freedom and criticism (so long as it was directed away from the colonial government) but not popular participation in local decision-making. Up until recently, Hong Kongers themselves were typically characterized as a politically apathetic people who had no interest in politics but were instead preoccupied with material pursuit. The stereotype went on to say that this materialistic orientation was reinforced throughout British colonial administration because of a top-down administrative colonial structure. Scholar Benjamin Leung (1990) argued that Hong Kong did not have the necessary preconditions for the establishment of a stable democracy (at least until 1995) Rather, Leung cites a series of public surveys from the 1970s that said that public viewed the members of the colonial government only represented the interests of the business elite. Therefore his conclusion comes as no surprise: “… the relevant research findings depict a society where citizens have been politically apathetic and disorganized and oriented mainly to the pursuit of material interests for the well-being of the family. This orientation has been congruent with a political system in which there is a paucity of institutionalized channels for meaningful political participation.”[16]  The failure of various campaigns during the late-1970s and early 80s, such as the District Administration Scheme, speak to the fact that despite its best efforts, the colonial government of Hong Kong was faced with a populace that was not willing, or not able, to participate in local government. As with most stereotypes, this one did not hold up.

Hong Kongers had achieved a relatively high per capita income and enjoyed a relatively sophisticated society by the 1980s. Many social theorists argued that wide-spread democratization should have been taking place by then. Indeed, the emergence of a middle class speaks to this fact, and considering the fact that in 1981, that the richest 20 percent of the colony received more than 50 percent of all the income in Hong Kong, tensions arising from this great wealth disparity could have grown out of hand. However, many thought that this tension could be resolved would with greater democratization to ensure stability.[17]

The British colonial government of Hong Kong was composed of an appointed governor and a strong Executive Council (also made up of appointed members), an appointed (and subsequently elected) legislature known as the Legislative Council and of an independent Judiciary. Indeed of the 10 appointed members of the 16 member Executive Council, the primary group charged with decision making in Hong Kong. Indeed, the British colonial government began to encourage citizen input and to liberalize the Legislative Council slowly starting in the late-1970s and 80s.[18] By implementing the District Administration Scheme in 1980, the colonial government was expanding its attempt, although not successfully, at encouraging local committees and interest groups to take a part in decision making for the colony. The failure of involving the populace in local committee action groups is debatable. Leung cites that local traditions that encouraged action outside of government means and the reliance on personal networks undermined these government–sponsored groups. However, I argue after the late-80s and into the 1990s democracy took root when key players choose to abstain from local decision-making and willing pro-Beijing orientation. Rather, these elites wished to maintain their positions of access in the more important Executive Council after the Retrocession and shied away from participation in Britain’s liberalization agenda. Therefore the initial failure of local reforms shows that a substantial portion of power and influence resided with the Executive Council, which consisted of appointed members, who were more often than not, a collection of business elites.

Table 5. The Professional and Business Background of the non-Government Members of the Executive Council 1987

Chung Sze-yuen          Chairman, Sonca Industries

Director, Ching Light and Power

Director, Swire Properties

Director, World International (Holdings)

Lydia Dunn                   Executive Director, Swire Pacific Ltd.

Director, John Swire and Sons (HK) Ltd.

Director, Cathay Pacific Airways

Director, Hong Kong and Shanghai Bank

Lee Qui-wei                 Chairman, Hang Seng Bank

Chen Shou-lum            Director, The Hong Kong Electric Co., Ltd.

Director, Cable and Wireless (HK)

Director, Hang Seng Bank

Allen Lee Peng-fei        President, AVA International Ltd.

Director, Elec and Eltek Co., Ltd.

Director, British American Tobacco (HK) Ltd.

Director, Playmate Holdings, Ltd.

Peter C. Wong Solicitor

Non-executive director, Chow Sang Sang Holding Co., Ltd.

Non-executive director, Commercial Bank of H.K. Ltd.

Non-executive director, Asia Insurance Co., Ltd.

William Purves             Chairman, Hong Kong and Shanghai Bank

Director, British Bank of the Middle East

Director, International Commerce Bank

Director, Marine Midland Bank

Maria Tam Wai-chu      Barrister-at-law

Chiu Hin-kwong           Medical Practitioner

Daniel Tse Chi-wai       President, Hong Kong Baptist College

Source: Far Eastern Economic Review, 16  April 1987, pp. 41-3

These elites were of a conservative orientation and may have been under the impression that any change in Hong Kong would be a threat to their previous success. Therefore, their interests of preserving Hong Kong’s prosperity and preserving the status quo coincided interests with the PRC. Therefore, Beijing actively sought to lure the support business elements who were interested in maintaining economic prosperity. They did so by ensuring that any business leaders who joined would continue to enjoy power and influence and, more importantly, increased access to the China market after the Retrocession. Beijing’s efforts were successful as many business members used their new ‘civic duty,’ and participated in various Beijing-sponsored transition committees. Also, Hong Kongers formed themselves into political parties that were dubbed a “pro-Beijing united front,” that was formally headed by the Democratic Alliance for the Betterment of Hong Kong (DAB). Many Hong Kongers viewed the DAB sympathetically as the DAB had portrayed itself as a party that served the community. The political reality, however, was a little more disingenuine as membership in pro-Beijing parties often led to rewards and honors to its members that included potential membership in the National People’s Congress, the Chinese People’s Political Consultative Conference and the Chinese People’s Political Consultative Conference, as well as the Preparatory Committee for the HKSAR, Hong Kong Affairs Advisors, and District Affairs Advisors.[19] By 1997 Beijing had cultivated success on both fronts. With the DAB and other pro-Beijing parities a conservative pro-China representation was well established in Hong Kong’s political landscape. Also, Beijing’s victory was even greater than previously expected as the business elite Beijing brought aboard had the necessary institutional connections to the administrative levers in Hong Kong that would make it easier for Beijing to carry out its agenda after 1997. Referring to China’s greater penetration into Hong Kong in the late 1980s and mid-90s, Leung offers this key point:

In addition, the aversion of Hong Kong’s bourgeoisie to democratization readily turns them into China’s political allies. The coincidence of economic and political interests between the indigenous bourgeoisie and China, and hence their political partnership, will constitute the main source of political power and influence in Hong Kong in the years to come. Increasingly, China is taking over the role of the colonial bureaucracy as the political partner of the bourgeoisie. It is a partnership that will be more ominous, more indomitable than that in the past.[20]

Scholar Joseph Cheng also summarizes the trend that took place during the last days of British rule, but takes a less dower view of the situation.

Since the conclusion of the Sino-British Joint Declaration in 1984, the Chinese leaders have been according top priority to the cultivation of the business community in the territory. Their rationale is simple and straightforward. Hong Kong must remain to investors. If investors stay, the stability and prosperity of the territory will be maintained. In both the Basic Law Drafting Committee and that of the Preparatory committee for the HKSAR, business leaders dominate the membership. The business community in return has been firmly supporting the Chinese government in the Sino-British conflict. It has confidence in China’s economic reforms and its openness to the outside world.[21]

The reason why Cheng takes a more restrained view is that he frames his argument in the democratic context that emerged by the time he was writing in 1996, whereas Lueng’s monograph came shortly after the Tiananmen Incident in 1989. Therefore, it becomes important to consider how six years the situation had changed. Indeed in 1990 the predilection towards business and development that had emerged throughout the postwar period gave little hope for Hong Kongers that their vote would count for anything. Political apathy was more like political impotence, and the British governor at the time was deemed an academic by Beijing and had little political clout to exercise with the Chinese and was, therefore, harassed by Beijing. To further this humdrum feeling, Haggard has already offered that labor unions were restricted, Leung offered that Executive and Legislative Councils of Hong Kong were stacked by appointed officials that were often business leaders who had own interests in mind when considering the domestic matters of Hong Kong.[22] And Cheng has just offered that these business elites were already turning their interests to get in line with those of Beijing. The question that arises from all this is how did Hong Kong change from 1989 to 1997 to such an extent that Beijing was weary of Hong Kong in 1997. I argue that the critical flash point for the cause of democracy in Hong Kong came with the shock of the Tiananmen Incident on June 4, 1989. The story is familiar: after a month of student protests calling for increased democracy in Beijing’s Tiananmen Square, the Chinese central leadership was pushed too far. Led by Chinese premier Li Peng, central authorities rallied to the side of hard-liners in the People’s Liberation Army to put an immediate end to this embarrassment and threat to power. The PLA ordered its most loyal troops into Tiananmen Square to clear the Square of the student protesters, who had occupied the massive square for over a month from May 1989 to June 4, 1989. Clearing the square was not a peaceful affair as Chinese troops used the cover of darkness and violence to clear the tents and banners and the thousands of students who had erected them. Over the next few hours panic and fear gripped students and troops alike, and untold numbers were arrested, or killed in and around Tiananmen Square on Beijing Road. This crackdown sent shockwaves throughout the rest of China. Other protests in other cities were crushed, the fallout among the Chinese central leadership was also quite harsh as well with sympathetic leaders being detained by hard-liners. More importantly, the crackdown galvanized supposedly apathetic Hong Kongers into action. The crackdown had started in the early morning in Beijing, by afternoon in Hong Kong more than a sixth of the territory’s population—well over 1 million people—had gathered to protest and express their shock and horror at what authorities in Beijing had done.

This outcry has been chronicled by Stephen Vines, a journalist for the London-based Independent living in Hong Kong. (1998) Vines offers a direct account of the two weeks of protests that ensued in Hong Kong after the Tiananmen Crackdown. In his book Vines states that he was awoken early on the morning of June 4, 1989 by a “formidable organizational machine” of Hong Kong personalities who had organized sympathetic protests in May 1989 in support of the students in Beijing  and were now organizing—i.e. making placards and armbands, getting speakers—for the mass rallies to protest the Crackdown. Vines observed that radio and television outlets who had practiced even-handed coverage as not to offend Beijing had given up all impartiality; call-in shows were filled with listeners expressing their horror at the whole affair. Up until this point the colony had been undergoing something akin to a “China Fever” and its populace, media and business were all excited at the prospect for the return to Chinese rule which had promised to be fair and even handed. Now with the Crackdown, everything was called into question and Hong Kongers became extremely anxious of their future with China. Vines summarizes the atmosphere in Hong Kong leading up to the Tiananmen Crackdown in the following passage:

The protests appeared to peak in May, and in the weeks that followed Hong Kong was engulfed in a strange atmosphere where heady optimism mixed freely with the deepest despair. All the stale nonsense about the people only being interested in making money and being indifferent to politics was exposed as utterly facile. The deep feelings about China and the acute awareness of how China’s fate was linked with the future of Hong Kong came to the surface in an unprecedented way.[23]

Vines continues his observations about June 4, 1989 by saying that the following two-weeks of spontaneous protests were aimed initially at Xinhua building (the de facto Chinese embassy in Hong Kong), but the that the streets around the building would not accommodate the amassed protesters, and the protests moved to the aptly named horse racing track Happy Valley on the Kowloon side of Hong Kong. The protests subsided by the end of the month, but Hong Kongers confidence in China and in Britain, for that matter, had been severely shaken. Britain moved to restore in confidence in Hong Kongers by granting 50,000 families full British nationality without a residency requirement. The vast majority of Hong Kongers, however, reacted in an unexpected way and turned to political action to air their concerns against Beijing. They pushed the Basic Law Drafting Committee, the committee charged with drafting Hong Kong’s constitution under China, to include more elected seats rather than appointed ones in the post-1997 Legislative Council. Hong Kongers also demanded greater accountability of future leaders and their policies. In essence, though, Hong Kongers had realized that the only way to deal with their current plight was through political action. They had placed their faith, trust and hope in institution of democracy to protect their way of life.[24]

Moreover, Margaret Ng, an elected member of the pre-1997 Legislative Council, a prominent newspaper editor and an advocate of democracy, argues that the democratic movement in Hong Kong was a result of a middle class  who turned democractic action out of a fear of the Chinese regime. In the minds of Hong Kongers, democracy offered the only protection against China.[25] When in doubt, Hong Kongers have placed their faith in protest and their trust in the democratic process since their other options are few. However, Ng is keenly aware that this faith may be misplaced given Hong Kong’s current situation under Chinese administration.

The unspoken argument of Asian governments that reject democracy actually mirrors the franker admiration of dictatorship expressed by some early-twentieth-century reformists, whose burning wish was for strong China. They believed that in order for a country to be strong, there must first be unity. Unity, they thought, was achieved in Hitler’s Germany by means of strong and charismatic leaders who enjoyed complete control and wide popular support. They believed—as it seems many believe now—that this kind of strong government, rather than a system that permits or encourages disagreement and schism, is a prerequisite for rapid economic development.[26]

          Therefore, it was with a keen awareness that Hong Kongers had made the connection between democracy and security that the British appointed Christopher Patten as the last British Governor of Hong Kong in 1992. Patten (1998) starts his literary recollection of his tenure in Hong Kong by offering a note of regret that was widespread in Britain when he talks about how Hong Kong was retroceded to China “…though Britain governed these Chinese men and women very well in many ways, leaving behind a rich and free society, it fell below the highest standards of its colonial record…” of letting its subjects go onto self-determination or political independence.[27] Contrary to the previous governor Patten was a seasoned politician by the time he took office in Hong Kong as the former head of the Conservative Party in Great Britain and as a former Member of Parliament. Patten was not a ‘pushover’.

From the start, Patten was extremely aggressive in pushing democratic reforms and announced them unilaterally without consulting the PRC, as previous procedure had called for, shocking Beijing in the process. Patten wanted all appointed seats in the Legislative Council to be abolished and to create nine new elected seats in their place. Patten was determined to hold his ground against Chinese calls for a slower liberalization of Hong Kong’s government. These reforms were allowed, much to the irritation of the Chinese government,  due to the vague language of “elections”  contained within the Joint Declaration. Yet the language in the Joint Declaration was absolute in the fact that ‘election’ could not have been interchanged with ‘appointment. Patten pushed for a timetable that promoted the concept of legislation with total representation at a much more accelerated than what Chinese came to promulgate in the Basic Law. As a consequence of his initiatives Patten was publicly attacked by Beijing and was labeled a “sinner for a thousand years.” Locally Patten was praised by the majority of Hong Kongers for ‘standing up’ to China. Patten, though, felt a sense of history bearing upon Britain’s legacy in Hong Kong.

Hong Kong possessed all the institutions and culture of civil society, at least all those bar one. There were churches, active in the social and educational as well as in the spiritual life. There were professions, custodians of the interests and standards of their callings. There were non-governmental organizations providing many of the social services that would have been run by the state elsewhere—kindergartens for infants, hostels for the handicapped, ‘sheltered’ homes for the elderly, hospices for the dying. There were more newspapers per head of population than anywhere else in the world, proof of Hong Konger’s interest in current affairs as in gambling on the horses. So a free society lived and breathed—up to that boundary line which a governing class wrestled with the arduous choices of politics. There was freedom of a substantial sort. But there was no freedom to choose those who would be wholly responsible for even the most mundane of public services.[28]

Patten continues by arguing that past circumstances, as we have seen previously, like the various influxes of refugees, the export-orientation that pushed economic growth, and a fear of the Communist cause, combined to yield a government of patronage instead of democracy.[29] 

Patten characterizes the previous governing class as being one from privileged backgrounds that was “bound together by patronage, by honors, and by a mutual interest in the preservation of the existing way of doing things.”[30] Therefore, when Parliament decided to push for rapid democratization in Hong Kong after the signing of the Joint Declaration, this governing class defected to Beijing as Labour and Conservative MPs alike felt that there was little time to establish a “strong, viable, locally based system which [would have been able to] withstand the inevitable pressures and tremors as 1997 advanced.”[31]

The Chinese were perplexed at the inconsistency of British initiatives, as far as they were must have been concerned the Hong Kong at the time of the signing of Joint Declaration should have been the Hong Kong they were to get in 1997, given Patten’s annoyances to them, some Chinese pundits even questioned the use of the ‘election’ in the document. However, in addition to bringing aboard this ‘governing class,’ as Patten calls them, or as I have dubbed ‘business elite,’ Beijing learned how to play the election game by the time of the Retrocession.

Elections in 1995 marked the first time Hong Kongers took a significant interest in local politics. As previous figures have demonstrated by 1995 Hong Kong could boast a relatively sophisticated society. Beijing had managed to build its reputation up in Hong Kong through its affiliated political parties like the DAB. Indeed, surveys conducted at the time revealed that more and more viewed the forthcoming “one country, two systems” structure positively, in July 1995, 44 percent of Hong Kongers surveyed expressed confidence in structure, which was up from 38 percent in 1993. Yet, 55 percent of those surveyed still indicated that they still preferred independence or continued British administration. More interesting yet is the fact that 72 percent surveyed in 1995 expected corruption to increase after 1997.[32] Therefore, if my argument is to be trusted, it comes as no surprise that voter registration numbers went up significantly shortly before the Retrocession. Voters, did in fact, turn out in greater and greater numbers. The number of registered voters went from 1.9 million in 1991, to 2.57 million in 1995. The elections in 1995 drew about 920,000 voters, or about 36 percent of the electorate.[33] 

The elections revealed a couple of trends that had developed in Hong Kong at the time. Many Hong Kongers were, themselves, adopting a conciliatory attitude towards Beijing, while the DAB did not win a substantial number of seats in the Legislative Council, they still garnered nearly a third of the vote. Most of the seats went to the Democratic Party, which has established itself as being Hong Kong’s main opposition party and the staunchest Beijing critic in the territory. The Democratic Party, led by activist Martin Lee, has been hamstrung by their positions, oftentimes the party must adopt extreme positions to garner news coverage as the party only has about 200 active members. Their perceived extremism makes it difficult for them to work with senior government officials in Hong Kong and in China. In fact, until recently, the Chinese refused to hold a dialogue with Democratic Party. The DAB, however, has managed to use the extensive financial resources of Beijing and of the business lobby to create an organization capable of ‘grass-roots’ mobilization and one that has created a moderate public image.

Therefore, it can be seen that Beijing, to a limited extent, figured that it could not simply manhandle Hong Kong in 1997. It had developed the institutions and links of patronage to powerful business elements, but while they were doing so, democratic institutions in Hong Kong had time to take root, especially in the wake of Beijing’s Tiananmen Crackdown in 1989 and with Governor Patten’s appointment in 1992. Instead of being left out though, Beijing used its pro-Beijing Hong Kong concerns to successfully build up a political base that could appeal to affected Hong  Kong voters and citizens. Balancing which strategy has more influence has become a significant question that section three will examine, as Beijing has recently moved towards policy implementation via patronage, while bypassing the rule of law in the process. The late rise of democracy in Hong Kong reflected that Hong Kongers had a different set of expectations from their government than China had expected of its own citizens. These different expectations, in turn, arose because  a middle class in Hong Kong emerged in response to increasing industrial wealth. Therefore, the recent democratic experience has been positive protection for Hong Kongers and their fears of 1989, as Beijing did (and still does) have to turn to voters to legitimize its policy initiatives in Hong Kong. Beijing will probably continue to ask for Hong Kongers to legitimate its policy in Hong Kong through elections, but whether they continue to do so is in no way certain.  

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