Hong Kong: A House Divided
Introduction.
After 154 years of colonial administration, the British relinquished control of Hong Kong in July, 1997. However, instead of giving Hong Kong its independence (as Great Britain had with most of its other colonies), because of a 1984 agreement, Britain ceded Hong Kong to the People’s Republic of China in compliance with the expiration of its 99-year lease, which it had negotiated with Imperial China in 1898.Many pro-democracy and business interests have expressed concerns about whether Hong Kong will be able to maintain its economic vitality, its recent political liberalism, and its dynamic free society. In the two-and-a-half years since the Retrocession we have been able to draw some conclusions that do not allay the initial fears. Questions persist, many of which arose early during the post-colonial period — such as, how Chinese administration might affect Hong Kong’s society, people, and business. Another is whether the administrative framework proposed by the British and the Chinese in 1984 would be viable and objective one, and if it would truly preserve Hong Kong’s unique business and social climate.
Under the Joint Declaration of 1984 signed between the two countries, Hong Kong was allowed to maintain a limited amount of hybrid autonomy under a “one-country, two-systems” framework. Hong Kong would be spared from Mainland China’s brand of political and economic socialism, and its own legal and administrative institutions would be preserved. Subsequently, the Basic Law, drafted in the early 1990s by the Chinese and an influential clique of conservative Hong Kong business elites, was to legally (and formally) guarantee a “one-country, two-systems” framework. The Basic Law now serves as a regional Constitution, with provisions prescribing how Hong Kong should be run and on which issues Beijing would have the final say. Specifically, the Basic Law states that Mainland China is not to interfere in Hong Kong’s affairs except in the matters of foreign relations, defense, and Chinese domestic security. Under the Basic Law, there are further guarantees leaving Hong Kong’s economic, judicial, and social administration up to the people of Hong Kong. The notion that the people of Hong Kong would run Hong Kong was tied to these provisions when the document was first introduced to Hong Kongers in 1990.
Therefore, a recent reversal of a major immigration court case involving Hong Kong’s highest court, the Court of Final Appeal, by the nominal Chinese legislative authority, the Chinese National People’s Congress Standing Committee, has thrown the territory into a constitutional crisis. Moreover, the recent politically-motivated dismissal of the chief editor for the territory’s leading English language newspaper, the South China Morning Post, and the re-assignment of an outspoken government broadcast chief to Japan has demonstrated a larger pro-Beijing orientation on the part of Hong Kong’s current government and private sector. The fears of Hong Kong people being run by Beijing fiat has made many in and out of the territory nervous about Hong Kong’s future not only as a financial center but as a free social center as well.
In order to get a better understanding and a context to consider the issues just put forth, it behooves us to gain a better understanding of the circumstances from which Hong Kong was built and of the circumstances it faces today. This survey argues that for the vast majority of its history under British administration, Hong Kong primarily developed in accordance with British economic priorities. The outpost of Hong Kong itself was founded more than 150 years ago as a result of British initiatives of trade and economics. Forceful British efforts to re-open its opium trade with China entailed the use of Hong Kong as a launching point for military expeditions against China. Its proximity to India, China, and other British possessions in Asia enticed the British to establish Hong Kong as a distribution and transfer point for its products. Very much like British East India Company in India, Hong Kong’s growth was primarily driven by the entrepreneurship of large British trading houses such as Jardine House—the hongs. By guaranteeing increased tax revenues to Parliament in London, the trading companies were granted a pro-business colonial administration in Hong Kong, which allowed for indiscretions in the labor market, manipulated tariffs and duties to favor the hongs’ desires, and created a legal framework to allow these practices to be nurtured indefinitely.
As time went on, Hong Kong’s colonial government assumed a three-branch structure. The legislative branch (up until recently) was appointed by the executive—the governor. London and the governor appointed an independent judiciary. The governor was assisted by a group of advisers, known as the Executive Council. Even today, the Executive Council is still comprises mainly executives of the hongs—the chairmen and CEOs of powerful local companies. Under this arrangement, business is (and was) allowed free rein to pursue trade with China and to create indigenous industry and jobs for Hong Kong’s populace. Its efforts were made easier by the members’ positions within the colonial government. Also, during the majority of British administration, Hong Kong was run like an efficient corporation, and businessmen both in, and out, of the Executive Council could take advantage of the Chinese notion of guanxi—better known in the West as patronage. Patronage to the Crown Colonial Government in Hong Kong, as it was formally known, had its advantages, because the government owned all the land in Hong Kong and controlled the local real estate market by setting its own prices in land-lease auctions. The colonial government also managed financial markets by controlling taxation. To this day, despite recent financial sophistication and an increased standard of living, the local government can carry out its agenda by manipulating real estate prices and by controlling taxation.
Socially, throughout most of Hong Kong’s 154 years of history, indigenous industrial growth has been built upon the availability and prowess of Hong Kongers, who were primarily either the descendants of Chinese immigrants or recent immigrants themselves. During most of the period, these workers faced the lower wages of highly intensive jobs and the reduced access to information that is commonly associated with a developing economy under a strongly pro-growth government. Therefore, Hong Kong’s indigenous economic growth was almost entirely contingent on this immigrant labor pool. However, as companies and the government generated more capital and revenue, industry grew more and more sophisticated. With each successive generation, Hong Kong’s industry needed more and more workers, with each influx of workers being trained with more advanced work skills.
In response to the demand for workers, the colonial government practiced a very open immigration policy. Initially the push was for quantity, which was later replaced by a desire for quality workers. Only in the late 1960s did the colonial government finally close and regulate the Hong Kong-China border. Recently, the local government has argued that Hong Kong’s economy has a shortage of low-skilled jobs and has instituted tighter and more selective immigration requirements.
In terms of social policy, for the most part, the colonial government left Hong Kongers up to their own devices. It was assumed that most Hong Kongers were fixated with making money and did not worry about politics. However, this is not entirely true. With the onset of the Cold War and China’s turn to communism, most Hong Kongers came to fear their northern neighbor. Indeed, the colonial government feared mass politicization along communist and nationalist lines in Hong Kong and informally banned labor unions and limited the direct election of Legislative Council members as a result. The colonial government also feared leftist agitation and soon had its fears realized with mass rioting instigated by leftist cultural revolutionaries in the 1960s. Formally and publicly, this fear was played out in the media, with the colonial government limiting criticism of itself and promoting harsh editorial stances denouncing communist China.
It is obvious that the lack of labor unions and the limited influence of the Legislative Council (LegCo) benefited the members of the Executive Council. This collaboration between the local government and business elites did not last indefinitely and was ultimately corroded when Britain decided to institute last-minute democratic reforms and to appoint Governor Christopher Patten in 1992. The British began last-minute attempts to increase the level of popular participation in local decision-making by the late-1980s. Perhaps this was out of a sense of guilt, but regardless of the reasons, the late push was viewed with skepticism by all sides in Hong Kong. Pro-democracy advocates viewed it as too little, too late. Business elites viewed the reforms as a threat to their positions of influence and to maintaining their low-cost labor pool and also as a depredation of their hitherto successful formula in Hong Kong. More importantly, the Chinese régime in Beijing viewed the reforms as an affront to their soon-to-be sovereignty over Hong Kong.
Having undergone 20 years of major political, social, and economic reform, the China of 1997 was markedly different than the China of 1984. Arguably, the China of 1997 faced many more significant social issues than the one that negotiated Hong Kong’s reversion in 1984. The PRC has indeed come far from the backwardness of the Mao era; however, its evolution towards being a sophisticated and modern state has not yet reached the level of Hong Kong, as measured by social and economic indexes. However, for an entirely different set of reasons and circumstances, the development of the PRC over the past 20 years has, to a great extent, paralleled the early development of Hong Kong. After Mao Zedong’s death, charismatic Chinese leader Deng Xiaoping instituted reform on a large scale by breaking from 30 years of gross state mismanagement of the economy in 1978. Deng put China on a path towards a quasi-free market system, one that employs material incentive. Seeing that economic growth was immediate in the agricultural sector, Chinese planners soon targeted the industrial sector for reform; soon after, the financial sector was targeted for reform. While economic reforms have dramatically changed the Chinese political and economic landscape, social liberalization has not kept pace with the great rate of economic liberalization. Thus, when Hong Kong reverted to China, the mainland was at an earlier stage of economic and social development, and it viewed the democratic reforms instituted in Hong Kong shortly before the Retrocession as unnecessary—indeed, the reforms were even regarded by Beijing with apprehension. They were also viewed by the Hong Kong business elite with apprehension, if not contempt, as well. Therefore, with these two coinciding attitudes in mind, Beijing’s agenda for post-1997 Hong Kong was compatible with the interests of Hong Kong’s old business elite.
Contemporary events in Hong Kong examined in this survey will show that conditions have indeed reverted since the Retrocession. The era leading up to and immediately after the reversion to China has seen a collaboration of sorts between Beijing and certain segments of the old Hong Kong business elite. The mechanism that has facilitated and allowed this collaboration to go on between an eager Beijing and an willing old-guard Hong Kong elite is the very “one-country, two-systems” framework negotiated by the British. By 1984, the British had plenty of experience in relinquishing colonial possessions, but the fate of Hong Kong presented them with several unique issues. Never before had the British faced the proposition of a handing over a colony to an unabashedly authoritarian régime. Likewise, an authoritarian régime had never before been willing to allow a territory to retain its colonial master’s radically different socio-political system. Under the circumstances, the “one country, two systems” framework that was negotiated reflected the interests of the British in 1984 and was the best agreement they could reach with an uncompromising Chinese negotiation team. However, the principles that underscored the framework came to be viewed by the departing British as an anachronism in 1997. The framework is a system that cannot stop patronage to the overarching power and has no substantial means to appeal to an “objective” power. The model was first put forth by Chinese Premier Zhou Enlai in 1972 as a basis for the PRC to resume control over Hong Kong, Macau and Taiwan. If anything, Hong Kong’s experience has driven Taiwan further away from reconciliation with the mainland. By 1982, the British negotiating team realized its limited position vis-à-vis China. Britain was in a bind; its 1898 lease, which covered the New Territories only, officially expired in 1997. Hong Kong and Kowloon, it will be remembered, were ceded to the British (see next section). British efforts at securing an extension on the lease were rebuffed by the Chinese, and all parties concerned realized that splitting Hong Kong Island and Kowloon from the New Territories was impractical. The British had no choice but to accept Chinese assurances that the mainland would be as liberal in ruling as it claimed it would be; there was little else Britain could rely on than this Chinese pledge of good faith.
Therefore, history caught up with the British, and they acted quickly to soften the blow of Hong Kong’s non-democratic fate. By establishing a viable democratic movement, it was reasoned, the British provided an intangible guarantee, akin to a lender of last resort, against a potentially volatile Chinese régime. However, the more substantial guarantee against any retributions by the Chinese against Hong Kong was the emergence of a middle class that earned its wealth as a result of investing in the stock market, combined with a rising speculative property market and the increasing wages associated with commercial-sector jobs, all of which had taken root in Hong Kong by the late-1970s. It was not in the interest of the Chinese government, therefore, to squash this middle class, an action that would invariably lead to demise of China’s soon-to-be “golden goose.”
The confusion over which was more important, an affluent middle class or a democratic movement issued from authorities on high, has worked its way into scholarly and popular writing about Hong Kong. Hong Kong’s development is usually depicted either as being a result of the adherence to a statist economic policy that stressed shared directed growth or as a result of a liberal political administrative tradition that paved that way for sustained economic growth. The economic argument holds that a strong colonial government that administered a politically apathetic populace fixated with making money drove Hong Kong’s economic growth. The model argues that the colonial government enlisted the support of business tycoons (initially, the great British trading houses; subsequently, locally bred manufacturing and finance houses). This model would therefore advise China to take over Hong Kong as one business entity would another. It views Hong Kong as a business machine, with an incidental and irrelevant democratic movement.
This might also be a model for Chinese leaders to apply to their own country as they chart China’s future. In 1984, this was the Hong Kong the Chinese assumed it would take over in 1997. However, much to their surprise, events from 1984-1997in Hong Kong (and in China, for that matter) were markedly different than the Chinese leaders had anticipated. Advocates of a liberal and democratic model would portend that liberal politics played a much heavier hand in economic growth than the business-oriented approach would argue. This view argues that while the Hong Kong colonial government was restrictive for most of its history, it was still based on and reflected a liberal English tradition. This democratic approach holds China as a “culprit,” complete with a totalitarian and authoritarian régime. The implications of this model and interpretation of events for the Chinese are that they should expect to deal with an adversarial and democratically minded Hong Kong.
In fact, neither approach is wholly correct, as both approaches are hindsight models that each selectively account for what has taken place in Hong Kong. I argue that an emergence of a middle class in Hong Kong, resulting from 30 years of economic growth, allowed for democracy to take hold when business elites turned their attention to Beijing. Economic struggle and hardship for the vast majority of Hong Kongers started to turn into affluence by the late-1970s—and certainly by the mid-1980s—thanks to mass investment in the stock market. This is demonstrated by the failure of early efforts by London to allow local-action committees to participate in decision-making. The local action committees failed for two reasons: First, the constituents whom they wanted to administer were not interested and not willing to participate because of their limited access and affluence; second, business elites, at that point, were still interested in dealing with the colonial government because of the perceived benefits associated with patronage to the colonial government, thus eclipsing the voices of the masses. The problem is that while Hong Kong’s growth was, to a large extent, directed in a top-down fashion by the local captains of industry with the approval of the colonial government, it also depended on free-market principles relying on investor prowess from the bottom up. Eventually, playing to investor confidence became the check on companies in Hong Kong, and, in this fashion, power (in this case in the hands of shareholders) was dispersed among the populace. China, it seems, has taken for granted these local circumstances and has confused the association with top-down directed economic growth in Hong Kong with a willingness to accept a command social system. The business elite’s pro-Beijing orientation and participation has not helped to alleviate this confusion and is only made worse by the “one-country, two-systems” framework that allows the situation to drag on indefinitely.
It is clear that for an entirely different set of reasons, conditions in 1997-China mirrored previous conditions in Hong Kong. Policies instituted by Chinese leader Deng Xiaoping in the late-1970s moved the PRC from an absolute centrally planned economy to one in which material incentive was allowed to increase production. It was a dramatic shift from the policies of Mao Zedong, which threw China into famine, economic stagnation, and social upheaval for more than 30 years. Under Deng Xiaoping’s leadership, it was thought that China could pursue socialism with “Chinese characteristics.” Beginning in 1978, reform of the economy started in allowing material incentives to farmers. With the new wealth generated in the agricultural sector, the more difficult task of industrial reform began in the early-1980s, with financial reforms beginning in 1994.
Socialism with ‘Chinese characteristics’ has meant the move away from state control of the market sector but has not meant the loosening of state control over society. In fact, industrial reforms have proven to be extremely painful and have dislocated at least 100 million people from their livelihoods, while agricultural reforms have branded 500 million people as “surplus labor.” Clearly, there are deep and pervasive social problems in allowing the accumulation of material wealth while not allowing greater social freedoms. Material wealth not only brings greater levels of affluence and better standards of living, it also exposes the increasing gap between a nouveau riche and a growing impoverished class laid off from state sector enterprises or outgrown by more competitive farmers. With this potential social rift, which might engender a proletariat revolution, if not social unrest, the Chinese leadership now sees it as necessary to separate economic policy from administrative policy. Therefore, a government that controls dissent and forbids an opposition from rising while at the same time promoting economic liberalization has emerged. Stability has become the catch phrase for Chinese leadership today, and that stability rests on legitimacy rooted in economic success.
Therefore, the interplay taking place in Hong Kong is a strong indicator of how China will resolve its pervasive internal issues. During the past two years, it has become apparent in Hong Kong that the Chinese have an affinity for dealing with issues on person-to-person terms, following the traditional institution of guanxi. The implementation of policy in Hong Kong has been practiced by suggestion and/or implication, and, often, it is not too difficult to see where the motivation for action comes from: Beijing. Clearly, in editorial decisions, in broadcast choices, and in the legal realm, a greater sensitivity toward “offending” Beijing has become much more apparent since the changeover. The mechanism that allows this backslide to happen is the Basic Law. The most glaring example of the ultimate power of Beijing over Hong Kong (despite the guarantees in the Basic Law) is the reversal of a ruling by Hong Kong’s Court of Final Appeal.
Beijing has become taskmaster to the new local government, known as the Hong Kong Special Administrative Region (HKSAR). The HKSAR took over on July 1, 1997, after Britain’s last governor, Christopher Patten, sailed away aboard the QEII. It is quasi-independent in name, but the HKSAR is primarily stacked with Beijing-appointed officials. Since the changeover, the HKSAR has been pushing commercial reform and liberalization, which benefits business in Hong Kong. While the HKSAR pursues a policy that is favorable to business (which made Hong Kong successful in its past), its efforts have not benefited the growth of free society. While the HKSAR is theoretically given free rein to rule Hong Kong as it sees fit by the Basic Law, it is also constrained by that document in the respect that it must defer to the National People’s Congress in Beijing in certain policy areas. It is the uncertainty over which policy areas and their corresponding jurisdictions that has harmed Hong Kong’s rule of law and allowed for renewed and more overt patronage to take place.
Therefore this study, in the first section will examine the historic and economic growth of Hong Kong and the evolution of the relationship between Hong Kong’s populace, business, and its colonial government with China. Section two will explore the apparently parallel conditions that now exist in China and will attempt to trace the development of China over the past 20 years. Within this section, a deep association between political legitimacy and economic prosperity will become apparent. Policies such as China’s commitment to economic reforms, its political push to join the World Trade Organization and other economic institutions while at the same time limiting computer encryption codes, its stance vis-à-vis Taiwan, and the suppression of a popular Buddhist sect seem to speak to a self-contradictory régime—but in fact, they speak of a régime following a policy prescribed by Deng Xiaoping. The third section is an examination of how the Basic Law’s ambiguity has paved the way for a recent constitutional crisis that reveals what happens when “immutable” judicial law comes into conflict with practical economics with the Right of Abode controversy.
In this case, the National People’s Congress, at the request of the Beijing-appointed HKSAR chief executive, overruled Hong Kong’s Court of Final Appeal. The HKSAR and the business lobby feared that the Court of Final Appeal’s decision would allow a potential immigration of 1.67 million Mainland Chinese to Hong Kong. Aware of the necessity in Hong Kong of bringing about public support for the reversal of the high court’s decision, the HKSAR launched a very public campaign that eventually undermined its own judiciary but gained popular support in keeping the would-be immigrants out. The campaign played on Hong Kongers’ worst fears—somehow, these mainland immigrants would bring down Hong Kong’s affluence. It is this very contingency that most are worried about in Hong Kong. However, instead of looking to these immigrants as the cause for panic and fear, the HKSAR might turn its attention to its own practices. History suggests that the contradictions in current HKSAR policy in pursuing a selective immigration policy and in undermining its media and courts while at the same time creating greater links with China demonstrates that it is not interested in maintaining a strong Hong Kong civil society. The implications of this change in course could mean the end of Hong Kong’s famous laissez-faire business climate backed by a strong rule of law, which may mean that Hong Kong will lose a significant share of its market appeal to Shanghai or Singapore. In larger terms, though, this conservative turn may have significant harm for the most important part of Hong Kong—its people.
© MM, Kevin K. Ho