COVER

Hong Kong’s new masters

Ross Laver October 15 1984
COVER

Hong Kong’s new masters

Ross Laver October 15 1984

Hong Kong’s new masters

COVER

Ross Laver

The crowded, grimy alleys of Hong Kong’s Kwun Tong factory district are a world away from the red-carpet splendor of Peking’s Great Hall of the People. But Chiu Bo, 54, is as conscious as anyone in the outpost of capitalism that his life and his family’s future lie in the hands of China’s next-door but ideologically remote Communist rulers. And that awareness is particularly sharp in the wake of the Sept. 26 signing of a historic agreement which details the future of the British Crown colony when it reverts to Chinese control on July 1, 1997.

Like hundreds of thousands of his compatriots who now reside in the colony, Chiu fled across the border from Guangdong province in southern China to escape the early poverty and the political turbulence that has marked much of the 35-year history of the Communist regime. But Chiu fled 30 years ago. Now he is trying to convince himself, or at least hope, that Peking will respect Hong Kong’s classically laissez-faire economy when it regains control of the territory after Britain’s 99-year lease expires. “My view is that the Chinese leaders will keep their promise to make Hong Kong prosperous and stable,” said Chiu, an ice-cream hawker who lives with his wife and three children in a 250square-foot flat in Kowloon, across the broad harbor from the city’s pulsating financial core. Then he added an afterthought of doubt: “And anyway, the political situation is always unpredictable. I do not believe that radical elements like the Gang of Four would ever resurface in Peking, but how can we know for sure?”

Resignation: At almost every level of Hong Kong’s multitiered society, that sense of confidence tempered with resignation is unmistakable. After two years of paralysing uncertainty and tension, the Sept. 26 draft agreement between Britain and China has finally given the enclave’s 5.5 million inhabitants—98 per cent of whom are ethnic Chinese—a detailed glimpse of their future. And in the eyes of many in the colony it is a vision that appears reassuringly familiar. Under the terms of the 46-page joint declaration, Peking has consented to allow Hong Kong to keep its present economic and social system for 50 years after 1997, becoming

a Special Administrative Region of China with its own locally elected legislature and a high degree of autonomy except in foreign and defence affairs. The draft treaty also declares that Hong Kong’s citizens will retain their basic rights and freedoms, including those of speech, worship, political association, property ownership and travel abroad. As well, to preserve Hong Kong’s role as the trading hub of the Pacific Basin, the territory will retain its present judicial system, its status as a free port and separate customs territory, and its markets for foreign exchange, gold, securities and commodities.

Some Hong Kong residents are convinced that the colony’s British masters have “sold out.”

They predict that by 1997 Peking will have conveniently forgotten its pledges. Some of the skeptics are British expatriates, alarmed at the thought of Whitehall’s surrendering without a struggle one of the few remaining jewels of a once-glorious imperial crown. Others belong to the territory’s influential but shrinking proTaiwan lobby, many of whom gained firsthand experience of life under Communist rule when Mao Tse-tung’s troops seized control of Shanghai and other mainland cities in 1949. At first, the Maoists promised a hands-off approach to Shanghai’s capitalist entrepreneurs, they say, but widespread persecution eventually forced many of them to pack up and leave for the more secure havens of Hong Kong, nearby Portuguese Macao and the U.S.-protected offshore island of Taiwan.

But the majority of Hong Kong’s industrious citizens take a more optimistic view of the Sino-British accord. Most residents cling firmly to the theory that Chinese pragmatism and self-interest will keep the mainland from tampering with the capitalist ingredients of Hong Kong’s remarkable economic success. Said Yu Chu Lam, 47,

a prosperous merchant whose three dried-seafood stores in the city’s Western district earn a combined monthly profit of $5,830: “Of course I am confident that the lifestyle will be maintained. Why would China throw away the agreement after announcing it to the world?” Civil servant Anita Wong added that it was “excellent” that after 155 years as a colonial outpost, Hong Kong in 1997 will at last revert to the motherland. “In this respect I may be oldfashioned compared with some of my colleagues, but I am patriotic. Moreover, the present rate of economic development in China is a guarantee in itself.”

Obstacle: The British are also confident that China will honor its undertakings. Speaking at a women’s sportswear trade show in the colony last week, Hong Kong Gov. Sir Edward Youde hailed the draft agreement—which must still be ratified by the British parliament later this year—as an essential first step toward ending the uncertainties that have restrained economic growth. Said Youde: “Now that the obstacle has been removed, our industrial and commercial leaders should again feel able to look to the future with confidence.” Privately, a high-ranking government official told Maclean's that Chinese self-interest is one of the most effective assurances of Hong Kong’s future stability and prosperity.

For their part, the Chinese are clearly elated by the settlement, reached after two years of often bitter negotiations. In celebrations marking the 35th anniversary of the founding of the People’s Republic, Premier Zhao Ziyang told a group of visiting Chinese from overseas that China’s progress in recent years had demonstrated that the country could overcome any “complex situation.” Said Zhao: “We can now say with confidence that the cause of reunification and revitalization of China will be accomplished.” To many observers that

sounded like a thinly veiled reference to Taiwan, whose fiercely anti-Communist government has been a major annoyance to Peking ever since Mao’s defeat of the Nationalist forces of Chiang Kai-shek.

The Hong Kong that China will inherit in 13 years is unquestionably the purest example of free-market capitalism anywhere in the world. With few natural resources other than the sheer energy and business acumen of its residents, the territory has transformed itself from a backward colony of 600,000 people in 1945 to its current status as the world’s 17th-largest trading nation. As well, it is the world’s third-largest financial centre, behind New York and London, the third-largest gold and diamond trading centre, and its container port will soon overtake New York as second in volume to Rotterdam. Every year more than 11,000 ocean-going vessels pass through its harbor, carrying 33 million tons of cargo.

Overcrowding: The colony has one of the world’s highest population densities: 13,395 people per square mile. With real estate prices for commercial and residential property among the highest on earth, almost half of Hong Kong’s population is crammed into cliffs of identical, publicly owned high-rises that crowd both sides of Hong Kong’s busy harbor. But even the strain of overcrowding is endured, because the driving force in Hong Kong’s collective psyche is the belief that with hard work and diligence even a lowly factory worker can one day join one of the scores of millionaires whose posh villas dot the 1,807-foot-high Victoria Peak.

The spoils of Hong Kong’s success are everywhere. Far from the classic image of the colony as a vast sweatshop reliant on cheap labor, the territory has a per capita gross domestic product of $6,490, third in Asia behind Japan and Singapore. The comparable Canadian figure is $14,500. There is no minimum wage law and no unemployment insurance, but workmen’s compensation schemes are compulsory, as are nine years of public school education. The territory’s modern government-run hospitals and low-cost medical care have given Hong Kong residents an average life expectancy higher than in the United States, Britain or Canada.

Even more remarkably, the social housing, education and health benefits have been developed with a tax system that is among the most generous in the world. Hong Kong residents pay a maximum of 17 per cent of their incomes in taxes; the corporate rate is a flat 18.5 per cent. With so little money siphoned off by the government, the colony’s residents are left with enough cash to fi-

nance conspicuous consumption. Prestigious fashion and jewelry boutiques like Gucci, Cartier and Dior abound, and the territory has what is reputed to be the highest number of Rolls-Royces per mile of road in the world. The chairman of the Hong Kong Commodities Exchange, Kim Cham, estimates that the local economy will grow by six per cent this year after inflation, and unemployment is a scant four per cent. Almost everywhere, new buildings are rising and existing ones are renovated. Ac-

cording to property consultant Tony Petty, a total of four million square feet of additional office space is under construction or in the final planning stages. One such building, the new home of the British-owned Hongkong & Shanghai Banking Corp.—the colony’s unofficial central bank—will cost more than $1 billion, making it the most expensive corporate headquarters anywhere.

Opium: Still, none of the wealth has erased Peking’s bitterness and humiliation over modern Hong Kong’s origins. The Royal Navy simply seized Hong Kong island from the emperor, Taokuang, in 1841 as a secure base for British traders to sell opium to the Chinese. In 1860 an overpowered China also

handed over “in perpetuity” the tip of Kowloon Peninsula on the mainland. Finally, under the Convention of Peking in 1898, the Qing dynasty gave Britain a rent-free 99-year lease on the so-called New Territories, a 365-square-mile tract of mountainous terrain further inland that abuts China’s Guangdong province and that now accounts for 92 per cent of the colony’s territory.

From a modern strategic standpoint, it is clear that Hong Kong is virtually indefensible, as quickly captured Canadian and other Commonwealth forces learned during the Japanese push into South China during the Second World War. Currently, China has five million frontline soldiers and 12 million reserves. By contrast, Britain maintains only a 9,000-man garrison in the colony.

The problem that Britain faced was how to guide Hong Kong back into the Chinese fold while safeguarding the economic freedoms that were responsible for its impressive prosperity. But the Chinese themselves were slow to start negotiations, telling then-Gov. Sir Murray MacLehose in 1979 that Hong Kong’s capitalist investors could “set their hearts at ease.” Despite that encouraging sign, the talks got off to an unpromising start in the fall of 1982 when British Prime Minister Margaret Thatcher asserted during a visit to Peking that, in Britain’s view, the treaties that governed Hong Kong’s territory were valid in international law. Peking responded with an ideological tirade, reiterating its intention to regain sovereignty over the territory. Then, the Chinese set last month as the deadline for an acceptable agreement.

Nervous: The war of words began a near-panic in business circles. The Hang Seng stock index, Hong Kong’s barometer of investor confidence, tumbled 25 per cent in just six trading days after Thatcher’s statement, while the Hong Kong dollar slid to a record low of $9.20 to the U.S. dollar by late 1983 from $5.70 at the end of 1981. Reluctantly, the government intervened to peg the currency at $7.80 (U.S.). At the same time, the colony’s highly leveraged property market nosedived as nervous investors pulled out of deals and scrambled to put their money elsewhere, preferably outside the colony entirely. Among the departing companies: Jardine, Matheson & Co., the quintessential^ British hong, or trading house, whose Scottish founders helped to engineer the annexation of Hong Kong island. As well, property firms that had mushroomed in the speculative land boom of the late 1970s began to collapse, triggering fears of a possible banking crisis.

In fact, the situation was not quite as desperate as many investors had feared. As the talks progressed, it quickly became apparent that both sides were

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willing to make basic concessions. Indeed, China depends on Hong Kong for nearly 40 per cent of its hard currency earnings, or $6.9 billion in 1983. As well, few British politicians harbored any hopes of hanging onto the territory after 1997, and many considered Hong Kong’s colonial status to be an embarrassing anachronism. According to one senior colonial official, Britain’s initial demand that it retain sovereignty was designed to placate those who expected a warlike defence of the territory. Said one colonial official: “Quite clearly there were some [British] people who in their heart of hearts may have wanted 1997 to go away. Our task was to soften the blow, to make them focus on the realistic options that Britain faced.” Objections: As it happened, the British made most of the concessions. After a year of fruitless bargaining—during which the British delegation presented most of the proposals while the Chinese side raised most of the objections— Whitehall finally dropped its demand for a temporary British administration after 1997. The proposal had been modelled on a similar arrangement in Macao, a tiny Portuguese-run enclave 60 km west of Hong Kong across the Pearl River (page 28). Then, last summer the British gave in on the difficult issue of whether China should have the right to

station troops in Hong Kong, ostensibly for its defence. (Within an hour of that announcement the Hang Seng stock index slumped 30 points.)

For their part, the Chinese negotiators played their hand skilfully, timing public statements to unsettle Hong Kong’s jittery financial markets and exert pressure on the British. Indeed, so successful were the Chinese tactics that the final document contained nearly all of the elements of a 10-point plan for Hong Kong that Peking made public in July, 1983.

China’s only substantial concession was the publication of its assurances in the form of a detailed agreement between the two nations. The country’s leaders had initially favored a shorter, more abstract document.

The Chinese celebrated the accord in the Oct. 1 National Day festivities in Peking. In the most spectacular public outpouring in 20 years,

Chinese leader Deng Xiaoping reviewed troops by limousine and then watched from a reviewing stand overlooking Tienanmen Square as 500,000 soldiers and civil-

ians staged a two-hour march-past, complete with an unprecedented show of strategic weapons. In his heavy Sichuanese accent—which had to be subtitled on Chinese television to be understood—the 80-year-old leader hailed China’s growing prosperity and called on his one billion countrymen to exhibit renewed dedication to the “Four Modernizations”—in agriculture, industry, defence and science and technology. Said Deng: “We have given China a new face.

Today, all of our people have reason to be proud.” He added that China stood for the peaceful settlement of international disputes through negotiation, “just as we have settled the question of Hong Kong with the United Kingdom through negotiations.” Indeed, Hong Kong’s citizens derive confidence in their colony’s future from the knowledge that China itself is swiftly adopting economic reforms. Since 1978, when the Communist Party Central Committee pushed aside the radical Maoists and elevated the pragmatic Deng to its top leadership, the coun-

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try’s gross national product has jumped 50 per cent to $345 billion in 1983. At the same time, Peking has launched an allout drive to attract foreign investment and technology, setting up four so-called Special Economic Zones (SEZs), in which industries are encouraged to borrow freely from capitalist management techniques, even going so far as to pay incentive bonuses. In the largest and most successful of those zones, a 127-square-mile parcel known as Shenzhen, neighboring Hong Kong, residents enjoy the highest standard of living in the country and earn an average of $100 a month, twice the urban average in China.

Last spring Chinese policymakers announced that the experiment with socalled “red capitalism” had gone so well that they were also opening up 14 coastal cities to limited foreign investment. According to the official Xinhua News Agency, the cities will offer outside investors “preferential treatment in line with some of the policies pursued” in the four SEZs.

Concern: Despite some skepticism abroad—Japanese Prime Minister Yasuhiro Nakasone, for one, has voiced concern that foreign investments in China may be inadequately protected— Peking is clearly convinced that its policies provide a formula for economic success. Speaking to a group of American businessmen in New York last month, Chinese Foreign Minister Wu Xueqian argued that the 50-year pledge of autonomy for Hong Kong was based on simple economic logic. Declared Wu: “If the economy in China keeps growing at the present rate, by the year 2047 we expect the standard of living on the mainland to be at least as high as that enjoyed by people in Hong Kong, possibly higher.”

Not all Hong Kong residents can afford to take such a comforting view of the years ahead. But there is at least widespread agreement that capitalism and Communism can coexist. As Deng himself has said, “Who cares what color a cat is as long as it catches mice?” In addition, Peking has already invested more than $4 billion in the colony, a portfolio that includes Communist-controlled department stores, banks, apartment blocks, a massive trade centre and a brokerage house that trades on Hong Kong’s four stock markets. And more investments are planned, including a stunningly futuristic 70-storey office tower for the Bank of China designed by Chinese-born American architect I.M. Pei. When the building is completed in 1988, it will be one of the tallest skyscrapers in Asia. Said Christian Salbaing, Hong Kong-based partner in the Montreal law firm of Stikeman, Elliott and chairman of the Canadian Chamber

of Commerce in Hong Kong: “It may sound like wishful thinking, but I think that the Chinese are just as interested as anyone else in keeping this place prosperous.”

Still, even Salbaing admits that the colony is in danger of losing its prized reputation as a safe place for international investors to store their money.

“You run into a confidence problem,” he said. “If there is any suspicion at all that funds placed here [after 1997] will somehow come under the control of a socialist government that does not support offshore banking, obviously that money will not be placed here.”

Conduit: But the risks are likely outweighed by the prospect of Hong Kong becoming a conduit for increased trade between China and the West. Said Maurice Copithorne, 53, Canada’s ambassador to Peking from 1972 to 1974 and now head of the Canadian Commission in Hong Kong: “The easiest way for a company to set up an operation in China is to come to Hong Kong and wait.” Added Canadian lawyer Edward Rubin, who has spent 13 years in the colony fostering commercial links with the Chinese: “The people who are predicting that Hong Kong will no longer be a financial centre don’t know what a financial centre is. This place has excellent communications, a good location, skilled workers and a modern infrastructure. And none of those factors is threatened in any way.” “As time goes by, people are learning that there are enormous advantages to staying here,” said Gary Coull, 30, a Vancouver native who is marketing director of Database Asia Ltd., a consulting firm that recently signed a contract to organize a defence trade show in Peking in 1986. “And anyway, the nice thing about being an expatriate is that you can get out if the circumstances are dire.”

Even many of the pessimists are not quite ready to abandon Hong Kong. Explained Bernard Poulliot, a former vicepresident of the National Bank of Canada who now manages a Hong Kong investment firm owned by Indonesians, the colony has traditionally been a place where smart businessmen can recover their investments in as few as five to seven years and then reap the profits. “Don’t forget that there are still 13 years left for people to make their fortunes,” said Pouliot, 33. “A lot of people are sticking around because they say it’s the last big opportunity to make money.”

Troubled: Many of the 5.4 million ethnic Chinese are the most troubled residents, following the Sino-British accord. Kong For Shing, for one, is doubtful that Peking will abide by the agreement, especially after troops from the People’s Liberation Army—the last remaining stronghold of ultra left-wing Maoism in the Communist Party—are allowed into the territory. “But what difference does it make to a poor man like me?” Said Kong, who operates a motorized junk in Aberdeen harbor on the island’s south side. Working 12 or 13 hours a day, the 52-year-old fisherman takes home about $670 a month with which to support his wife and six children. Lai Kwok Fai, 25, who loads boxes of radios and cassette recorders at a factory in Kowloon, has also toyed with the idea of trying to get out. “However,” he said, “I have no money.”

Money can often mean the difference between being forced to remain in Hong Kong and being allowed to emigrate. Some cash-poor countries in the region have offered themselves as safe havens to Hong Kong Chinese who are wealthy enough to pay the price. The Philippines has designed a special visa that provides citizenship after 10 years and a mini-

mum investment of $200,000 in a depressed area of the country. Singaporean citizenship can be obtained after a five-year wait and a $460,000 investment in an approved industry. Canada also is hoping to reap the benefits of a flight of capital from the colony (page 30).

But Hong Kong’s Chinese are clearly not welcome in Britain. In 1981, shortly before talks on the colony’s future began, the British parliament amended its Nationality Act, removing resident rights for citizens of “dependent territories” such as Hong Kong. Said a senior colonial government official: “Clearly, it would be politically impossible for Britain to absorb three million people from Hong Kong when we already have four million unemployed. If in the year 2020 the whole system is falling apart and people are being persecuted and want to get out, I’m sure Britain would be as sympathetic as anyone else. But that is like asking a woman who is about to get married what she is going to do if her husband starts beating her up.” Overall, the number of people leaving Hong Kong for work, studies or resettlement abroad increased by only five per cent last year, to 22,000. In 1978, by contrast, the figure was 29,000.

Cliché: For the majority who remain in Hong Kong, the challenge is to forge an independent political system strong enough to endure beyond 1997. It is a cliché that the colony’s Chinese population has traditionally shunned government service in favor of making money in business; in reality, until the early 1970s the Chinese were largely shut out of the British-dominated civil service and representative councils. Now, the British are scrambling to introduce a degree of representative politics, which had previously been forbidden. In a policy proposal issued last July the government recommended indirect elections for 24 of the 50 seats on the appointed legislative council. Direct elections were ruled out on the grounds that “we should run the risk of a swift introduction of adversarial politics, and an element of instability at a crucial time.”

The Chinese seem satisfied with that arrangement. In Peking last week Deng reportedly told a visiting Hong Kong delegation that to ensure stability leftists should comprise only a small minority of the territorial council. The Chinese leader also insisted that the Hong Kong deal would outlive the “old men” who run China. Argued Deng: “Who could change our policies when they are supported by the Chinese people?” For now, most of Hong Kong’s millions have little choice but to believe what he says.

Jimmy Leung

Wendy Lin