HONG KONG: A CASE OF SELF-DELUSION
By
Henry C K Liu
By
Henry C K Liu
Part 1: From colonialism to confusion
Part 2: Missing the boat to renewal
Part 1: From colonialism to
confusion
By Henry C K Liu
The current severe acute respiratory syndrome (SARS) crisis highlights an obvious fact: that Hong Kong is an inseparable part of China, regardless of the artificial separation in the "one country, two systems" (OCTS) arrangement.
On July 1, 1997, China regained sovereignty over Hong Kong after one and a half centuries of shameful colonial occupation. What should have been the beginning of an era of renewed national pride and prosperity for the residents of Hong Kong, more than 90 percent of whom are Chinese, degenerated instead into half a decade of confused identity crisis and shocking economic contraction with no end in sight. The departing British had 15 years to set Hong Kong up as a time bomb for China, by disguising colonialism, the most evil of political institutions, into a haven of bogus democracy and sham freedom, and by presenting a colonial command bubble economy as a faked model of free-market fundamentalism.
Love is blind and infatuation disguises faults as virtues. As Rudyard Kipling fell in love with the pageantry of colonialism and saw racial exploitation as the "White Man's Burden", Milton Friedman, Nobel economist, fell in love with colonial Hong Kong, seduced by the wine-and-dine hospitality of its colonial masters and elite compradores. Friedman mistook Hong Kong's colonial economic system as a free market, despite Hong Kong's highly orchestrated colonial command economy.
For 156 years, Britain deftly manipulated the economy of Hong Kong, as a jewel in the British imperial crown, to opportunistically respond to changing global geopolitical forces for Britain's benefit. Even during the best of times, the average local Chinese small and medium businesses had to operate under the dictates of British colonial policy and at the mercy of monopolistic British trading firms and banks, not to mention that the average worker never had it good at all. British monopolies needed an unregulated supply network of ruthless predatory competition to keep costs low, by disguising the institutional slavery they lorded over as a free market. It was a system of survival not of the fittest, but of the fittest slaves, the ultimate of a divide-and-rule stratagem.
Friedman even apologized for Hong Kong's discretionary currency board despite his trademark monetarist advocacy for free-floating exchange rates set by foreign-exchange market forces. The linked-exchange-rate mechanism for the Hong Kong dollar was introduced by the British in 1983 as a political expediency in response to the 1982 Sino-British Joint Declaration on the return of Hong Kong to China by 1997. It was not based in the slightest on alleged monetary insights that have since been conjured up to justify the political decision. Popularly known as the peg, the linked-exchange-rate mechanism was the central factor behind Hong Kong's bubble economy in the early 1990s and has locked Hong Kong in a steadily downward spiral since the Asian financial crises that began in 1997.
From 1935-67, Hong Kong operated a classic colonial currency board pegged to the pound sterling, as part of the sterling hegemony of the British Empire, in which private British banks, not the government, issued the currency, a practice that continues today. Instability in the value of the pound in the late 1960s pushed Hong Kong to switch to a gold-backed US dollar peg. In 1946, the Bretton Woods regime came into existence, thereby forbidding the importation of gold for private purposes in signatory nations. Britain was a signatory but Portugal was not. Thus a Macau-to-Hong Kong gold-smuggling operation flourished until 1974, two years after the United States took the dollar off gold, in effect abolishing the Bretton Woods system of fixed exchange rates, when Hong Kong abolished a law that requires a special license to import gold. The tiny Portuguese colony of Macau became one of the world's biggest importers and re-exporters of gold during this period.
After the United States in 1971 suspended the Bretton Woods system of fixed exchange rates tied to a dollar pegged to gold at US$35 an ounce, the US dollar too came under periodic attack, resulting in the dollar sinking in free float. Hong Kong then decided also to let its currency float, which worked reasonably well until the commencement of Sino-British negotiations on the return of Hong Kong to China, which unleashed wild speculation against the Hong Kong dollar, a precarious colonial currency whose days were numbered. By the end of October 1983, Hong Kong pegged its currency to the US dollar at a rate of 7.8:1, in effect devaluing the Hong Kong dollar by 50 percent from its previous normal market fix of around 5:1.
To the chagrin of Hong Kong's colonial administration, Friedman publicly suggested that after 1997, "the only choice is for the Hong Kong dollar to be absorbed by the yuan and for Hong Kong's foreign reserves and foreign assets to be taken over by China". It was a rational suggestion, and if the Hong Kong Special Administrative Region (SAR) government had followed it, Hong Kong would be prospering at 9 percent growth now, along with the rest of the Chinese economy, instead of negative growth from deflation caused by a freely convertible overvalued currency.
The bogus democracy promoted by the last British governor, Chris Patten, and the free-market myth created by Friedman's fantasy have fueled Hong Kong's eager self-delusion. The so-called rule of law, so frequently touted these post-colonial days in Hong Kong, merely meant that no local Chinese business ever won a case against any British trading firm in 150 years of colonial justice. Hong Kong's low-tax myth is merely a cover-up for the exorbitant land tax disguised by the government's century-old, unseemly role as chief land speculator. Throughout its history, Hong Kong's economy has always been driven by geopolitical conditions rather than by free-market fundamentalism, much less by democracy or the rule of law.
What most analysts miss is that Hong Kong's future is dependent not on China's adherence on its OCTS policy of non-interference in Hong Kong's internal autonomy, or on the continuation of a fantasized free-market system, or rule by colonial law disguised as rule of law. Rather, it depends on whether Hong Kong can again recognize changes in the global geopolitical landscape since the end of the Cold War to reorient a new useful role in it.
The OCTS policy erroneously accepted Hong Kong's colonial regime as democratic and free-market, instead of the colonial governance and command economy that it actually was. The Basic Law, Hong Kong's mini-constitution drawn on the OCTS principle, contains defining clauses on the political and economic systems of Hong Kong that are mere fantasies of Anglo-US propaganda. The Basic Law in essence condones a continuation of Western neo-imperialism under Chinese sovereignty for another 50 years. As such, these constitutional clauses constrain the government of the SAR from any attempt to face reality and provide solutions to real problems it is facing. The artificial constitutional segregation of Hong Kong from China is now creating difficulties in Hong Kong's effort to be integrated with the booming economy of the Pearl River Delta. China has no need for Hong Kong compradorism in this era of direct contact. Neither do China's trading partners in the West.
Moreover, world trade has changed under a decade of US-imposed globalization, and is changing again with its impending collapse and restructure. Hong Kong, as an international trading center on Chinese soil, must change with the new geopolitical landscape to survive. There are increasingly undeniable indications that British propaganda to disguise colonial rule as neo-liberalism has trapped Hong Kong under Chinese sovereignty into a state of policy paralysis and rendered it impotent in disengaging itself from a downward spiral of dysfunctional obsolescence. Hong Kong will prosper only if China replaces Britain in Hong Kong and sets policies for a command economy to serve the geopolitical interest of China, as the British had done for one and a half centuries.
At the early part of the 19th century, Hong Kong was little more than a backwater cove in southern China, with no indication it would one day be turned into a world trade center by geopolitics. All through the 19th century, China had no interest in overseas trade. Thus a natural deep harbor on its coast on the South China Sea was of little significance to the Chinese economy. In the early 1800s, Hong Kong was home mostly to indigenous farmers and fishermen, pirates and smugglers. At that time, China's reluctant contact with an increasingly intrusive West took place up the Pearl River, at Canton, more correctly known as Guangzhou, some 145 kilometers north of Hong Kong. It was in Canton that traders from Britain, France, the United States and elsewhere in the West lived and worked in a small segregated enclave strictly regulated by Chinese officials. British ocean-going ships found Hong Kong's deep harbor useful for unloading and loading cargo to be barged up the Pearl River to Canton. Trade developed only slowly and in China's favor, because the Chinese economy had more to offer the Western economies than it needed in return.
The British soon found a remedy for this trade imbalance, which was draining silver steadily from the Bank of England. They illegally imported opium grown mostly in British India to China, where opium sale and use had been banned since 1729 under the reign of Emperor Yung-zheng (1723-35), and its importation and cultivation were made illegal under Emperor Jia-qing (1796-1820). It was in Canton that the illegal opium trade flourished, with great profit for the British. By 1840, the British were importing 40,000 chests of opium to China annually, selling at a price of $2,075 (Stg160) per chest that cost the British $25. US traders, such as the Delano family, as in Franklin Delano Roosevelt, also made great fortunes shipping Turkish opium to China and returning with Chinese tea and porcelain to Boston in Yankee Clippers. Much of the wealth in Boston came from this narcotic trade and provided capital for the westward expansion of the United States. This illicit massive transfer of wealth from China, one of the world's richest and largest economies at the time, played a key role in financing the economic development of Europe and North America in the 1800s.
Opium addiction in China grew to epidemic proportions within a short time, ravaging all levels of Chinese society. Qing Dynasty authorities appointed a special commissioner in Canton in 1840, with orders to stamp out the insidious opium trade. A week after his appointment, special commissioner Lin Zexu ordered his troops to surround the international enclave in Canton, and demanded that the British drug dealers turn over all of their opium contraband. After a six-week standoff, the British drug dealers surrendered more than 20,000 chests of the narcotic, which Lin burned in public.
These British opium traders, led by the East India Co and Jardine Matheson & Co, a leading British firm still operating in Hong Kong today, provoked a belligerent response from the British military with the First Opium War of 1840-42. The Opium War was depicted in British-issued textbooks used in colonial Hong Kong schools as a war to protect private property rights. On January 26, 1841, a British naval party landed on the northwestern shore of undefended Hong Kong, raised the Union Jack, and occupied the island as a navy base to make war farther north. China's outdated navy and army were no match for British naval cannons. The First Opium War ended with the Treaty of Nanking in August 1842, the first of many "unequal treaties" Western imperialist powers imposed on the decaying Qing dynasty over the next half-century. That treaty forced China to acknowledge, among other humiliating terms, British extraterritorial privileges in five Chinese trading ports. It also ceded the island of Hong Kong to the British.
Less than two decades later, the Second Opium War (1856-60) ended with another British victory and the Convention of Peking, through which London claimed perpetual control of Stonecutters Island and the Kowloon Peninsula on the Chinese mainland across from Hong Kong Island. By the century's end, other European powers and Japan had demanded and received countless concessions from a Qing Dynasty in its final stage of collapse. With the security of Hong Kong as a pretext, the British demanded a 99-year lease on what came to be known as the New Territories - land farther into China, beyond the Kowloon Peninsula. That lease began on July 1, 1898, and expired on July 1, 1997.
To understand this history properly, one needs only imagine that the United States had lost its "war on drugs" and had to cede New York City and a good part of New Jersey to Colombia, whose government had come under the influence of drug lords. The new government of the Republic of China, upon its establishment after the 1911 revolution that overthrew the decrepit Qing Dynasty, immediately declared null and void all unequal treaties imposed on China during this period of national shame. The People's Republic, established on October 1, 1949, holds the same position.
Settlement in the new British colony of Hong Kong grew slowly at first; the population rose from 32,983 in 1851 to 878,947 in 1931. Recurring social unrest in reaction to British racial oppression gave rise to Chinese xenophobia that acquired nationalistic overtones in Hong Kong. Historically, Chinese society had been a multi-ethnic melting pot until the arrival of European imperialism. Such nationalistic agitation lay hidden behind a veneer of stability and prosperity propped up by the ruling British with the help of a subservient local elite who were rewarded with leftover monopolistic royal charters considered not lucrative enough by the British trading firms themselves. Hong Kong began to prosper economically because it served the geopolitical interests of its colonial master, without any hindrance from ideological delusion about free market and democracy.
The 1911 revolution led by Sun Yatsen against the Qing Dynasty was hatched in Chinese communities overseas. Hong Kong was one of its operating bases due to the fact that British authorities were not proficient enough in the Chinese language to detect and suppress Chinese revolutionary activities under their noses. However, any anti-imperialist expression of disrespect to the British crown or hostility toward British authority was swiftly and firmly suppressed with imprisonment and/or deportation. Even after World War II, it was a criminal offense to remain seated or not to stand at attention when "God Save the King/Queen" was performed prior to sporting events and at the end of movies.
During the early decades of the 20th century, Hong Kong served as a refuge for those fleeing social disorder on the mainland during the Taiping Uprising that broke out in 1851 and during the Northern Expedition against warlords after the founding of the Republic in 1912. The outbreak of three large labor disputes, namely the first general strike in support of the Manchurian Railway workers' strike (1920), the Seamen Strike (1922) and Guangdong-Hong Kong General Strike (1925-26) reflected widespread revolutionary/nationalistic attitudes and the close linkage between Hong Kong residents and their mainland compatriots. These strikes were all brutally suppressed by the British to keep the Hong Kong economy humming, with the approval of the elite compradore class.
In 1927, the Kuomintang (Nationalists) escalated their campaign against the Communists. Mao Zedong established a rural guerrilla base in 1928. The Japanese occupied Manchuria in 1932 and the Chinese Communist government declared war on Japan, but the Sino-Japanese war did not formally break out until 1937 after the Xi'an incident, which brought about a united front against Japanese aggression. As Japanese forces advanced into China, hundreds of thousands of displaced Chinese sought refuge in British Hong Kong, bringing the colony's population at the outbreak of World War II to about 1.6 million. At the height of the influx, 500,000 homeless people were sleeping in the streets as a result of British indifference for the welfare of the colonial subjects.
Life was harsh and undignified for all of colonial Hong Kong's Chinese residents, not just the new refugees. The densely populated slums where the Chinese lived were regularly ravaged by disease, fires and typhoons and by criminal elements condoned by the British colonial administration as necessary for doing the dirty work for British opium smuggling. Primitive conditions mixed with unregulated foreign traffic made the colony without public hygiene vulnerable to recurring epidemics of new diseases.
Hong Kong society was segregated between privileged, wealthy British masters and the Chinese they employed and ruled through local compradores. Hong Kong Chinese were not allowed out after dark by a policy of race curfew. They were barred from European residential districts and parks except as servants. Most Westerners in Hong Kong treated the Chinese as "a degraded race" - in the words of a missionary. "You cannot be two minutes in a Hong Kong street," wrote another observer of the time, "without seeing Europeans striking coolies with their canes or umbrellas." An example of these racial tensions surfaced in 1857, when a Chinese baker was accused of attempting to poison his Western clients by lacing their bread with arsenic. The incident caused no fatalities, and the baker was later acquitted for lack of evidence, but not for lack of motive.
Hong Kong's fortunes rose in the 1850s and '60s as refugees flooded the colony, fleeing from the social chaos in China associated with the economic dislocation from the resultant drain of silver from widespread opium addiction and periodic foreign invasion and ruinous war reparations. The new arrivals helped the colony evolve from a drug-trading outpost into a permanent settlement, providing a productive base to serve British economic imperialism.
Western apologists stress British contribution to the development of a market economy in Hong Kong through its laissez-faire policy. What Britain actually did was to transfer wealth accumulated from imperialistic exploitation of China to Britain through an offshore island on the China coast ruled by British colonialism. Thus the argument that British colonialism built a prosperous world city on a barren rock by virtue of a superior economic system was as ridiculous as Kipling's "White Man's Burden" bringing civilization to India.
Professor Hui Po-Keung of Lingnan University, Professor Tak-Wing Ngo of Leiden University and others have written on Hong Kong's colonial compradore politics and monopolistic middle-man capitalism and the propagandistic dissemination of mythical free-market ideology in Hong Kong, despite total British control of the colonial command economy. These research findings refute the myth that Hong Kong's economic success was a result of a laissez-faire policy, or the outcome of free-enterprise response to free markets. Evidence showed that British colonial policies dictated Hong Kong's commercial and trade development to support British interests, while discouraging any local industrialization before World War II, and also blocking opportunities for industrial upgrading in the 1960s that would have enabled Hong Kong to compete independently in world markets.
The British colonial government in Hong Kong handled conflicts between China and Japan during the 1930s strictly on evolving British global geopolitical interests. British actions obstructed China's fight to preserve territorial integrity against Japanese occupation of Manchuria for fear of antagonizing a rising Japan and on the principle that foreign occupation of semi-colonial China was the international norm. The then British-owned South China Morning Post did not depict Japan in the early 1930s as the aggressor in China, lest such a depiction reflect on British occupation of Hong Kong itself as aggression.
After the Japanese seizure of Manchuria in 1939, British policy had been to appease Japanese aggression as a natural effect of geopolitical Darwinism. From the July 7 Lugouqiao incident of 1937 that formally launched the Sino-Japanese War to the fall of Hong Kong to Japanese forces on Christmas Day in 1941, British policy on China, known in the British Colonial Office as "Passage of Hong Kong", was divided into two phases. The first phase, before the fall of Guangzhou to Japan in October 1938, allowed Hong Kong to supply China on a profit basis. The League of Nations had advised its members, of which Britain was one, not to interfere with China's defensive war against Japan. The second phase, after Japanese occupation of Guangzhou, closed Hong Kong off from legally providing any supply for China.
Britain's neutrality in the Sino-Japanese war enabled British Hong Kong to trade with both China and Japan at the same time, supplying war materiel to both warring parties. This compensated for the drop in trade in Hong Kong resulting from the rapidly deteriorating war economy in China. The security of the British Empire, of which Hong Kong was a crown jewel, was conditioned on non-antagonistic British-Japanese relations. British interests in China would face unwanted threats and British status in the Far East would face further decline if German global expansion in alliance with Japan's Greater East Asia Co-Prosperity Sphere were to strengthen. Demonstrations and protests from Hong Kong Chinese against British and other Hong Kong companies trading with Japan were suppressed and calls for a boycott of Japanese goods were disallowed by the colonial government in the name of free trade and law and order.
Britain's policy of neutrality, together with Japan's blockade of the Chinese coast, made Hong Kong's Victoria Harbor and the Kowloon-Canton Railway critically important. Hong Kong became a vital route for transporting goods, commodities and munitions by sea from overseas and by train via Guangzhou to Wuhan, where Chinese forces were staging a desperate defensive battle. After Japanese destruction of the Chinese section of the Kowloon-Canton Railway in October 1937, the British agreed to Chinese proposal of building a Kowloon-Guangzhou highway as a replacement route in early 1938, as a commercial consideration. It was also a policy consistent with British geopolitical interest in preventing total Japanese military success in China, so as to avoid the possibility of Japanese pressure turning against British interests once Japanese control of China was total. The plan to import nine British-made airplanes to China from Hong Kong in November 1937 was allowed by the British Colonial Office despite strong protests by Robert Craigie, the British ambassador to Japan.
The geopolitically induced trade helped relieve the Hong Kong economy from some of the global effects of the Great Depression of the 1930s. Combining patriotism with financial benefits, Hong Kong Chinese took a leading role in supporting Chinese war efforts against the Japanese through the utilization of the Kowloon-Canton Railway and Victoria Harbor and later the Kowloon-Guangzhou highway. The British announced that keeping Hong Kong open to the mainland was crucial to China's future, while the US secretary of state applauded the "Passage of Hong Kong" as enhancing China's ability to resist Japanese invasion. Both Britain and the United States hoped that China could tie down Japanese expansionism enough to spare Hong Kong and US interests in the Pacific, particularly the Philippines, from Japanese aggression.
Hong Kong's closeness to the approaching war zone, Japan's growing threat to Hong Kong, and Britain's apprehension on a two-front war in Europe and Asia caused Britain to discontinue a tilt toward China after Japanese occupation of Guangzhou in October 1938. The Japanese, having taken Guangzhou, were more determined to cut off supplies to China from Hong Kong. When the Nazi-Soviet non-aggression pact was signed in August 1939, Britain tried to persuade Japan to withdraw from the Axis cause by offering de facto recognition of Japanese occupation of China. British appeasement of Japanese aggression in China continued until the attack on Pearl Harbor, Hawaii, on December 7, 1941.
The Chinese government's proposal to establish an aircraft-reassembly factory in the New Territories in August 1937, as well as a Hong Kong company's proposal to build two military steamers for Guangzhou in January 1938, were refused by the British under the second phase of the Passage of Hong Kong. Immediately after the fall of Guangzhou, British governor Alexander Northcote stopped all transshipment of munitions and weapons from Hong Kong to the mainland. In December 1939, the British government prohibited the reassembly of four US-made passenger planes in Hong Kong. The planes had been purchased by the Chinese government. In June 1940, in a desperate last-ditch effort to appease Japan, the British formally closed the Passage of Hong Kong and terminated British tolerance for the supply of munitions, weapons, fuel, and gasoline to China. Hong Kong banks were forbidden to handle aid funds destined for China from overseas Chinese communities. Nevertheless, massive smuggling of military materiel to China and underground financial transactions continued to benefit the Hong Kong economy.
When Japan began bombing Shanghai in November 1937, it unleashed a massive influx of refugees into Hong Kong, the greatest in its history since the Taiping Uprising in the 1850s. The population grew by 50 percent, while slum housing expanded by 8 percent only. The 650,000 refugees created problems of crisis proportion on already overburdened, substandard housing conditions while the British pampered themselves in their luxurious villas on the Peak lamenting over cocktails on the uncouth manners of the lesser breed.
During the Japanese occupation of Guangzhou, armed resistance was mounted by the Dongjiang (East River) guerrillas, originally formed by patriot Zeng Sheng in Guangdong province in 1939, comprising peasants, students and seamen. Among its members was the revolutionary sculptor Zhang Songhe, later a member of the 5th, 6th and 7th People's Political Consultative Conference, who became the chief editor of the Pictorial of the Guangdong and Guangxi column of guerrilla forces. His masterpieces include the sculpture of Anti-Japanese Guerrilla Warfare on the Monument to the People's Heroes in Tiananmen Square, sculptures in Shijiazhuang Martyrs' Mausoleum, the design of the Monument to Martyrs in Shenzhen and sculptures on the Dongjiang Monument to Martyrs.
When the British surrendered Hong Kong to Japan in December 1941, the Dongjiang guerrilla force had more than 6,000 fighters. In the wake of the British retreat, the guerrillas picked up abandoned weapons and established bases in the Japanese-occupied New Territories and Kowloon. Applying guerrilla warfare, they targeted traitors and collaborators, protected patriotic traders in Kowloon and Guangzhou, attacked the occupation police station at Tai Po, and set off bombs at Japanese-controlled Kai Tak Airport. In addition, the guerrillas rescued British prisoners of war, notably Sir Douglas Clague, Professor Gordon King, and David Bosanquet. One of the guerrilla force's significant contribution to the Allied cause was their rescue of 20 American pilots who parachuted into Kowloon when their planes ran out of fuel after the Dolittle raid on Tokyo.
Founded in January 1942, the Guangdong Renmin Kangri (People's Anti-Japanese) Guerrillas were established to reinforce other anti-Japanese forces in the Dongjiang (East River) and Zhujiang (Pearl River) deltas. The third and fifth branches under Cai Guoliang, which were sent to Hong Kong and Kowloon, became known as Gangjiu Dadui (Hong Kong-Kowloon Battalion). Led by Wong Kwun-fong and Lau Hak-tsai, the guerrilla force attacked traitors and enemy forces, while growing farm produce and protecting civilian lives in Hong Kong. In addition, the guerrilla force extended its influence in April 1942 over Lantau Island, enhancing communication with Macau and Guangzhou.
The spread of guerrilla activities into cosmopolitan Hong Kong Island assisted Chinese intelligence on Japanese strategies and operations. Furthermore, the force played an important role in saving British and other foreign figures of the Allied cause, and 89 of them - 20 British, 54 Indians, eight Americans, three Danes, two Norwegians, one Russian and one Filipino - were saved from enemy hands. However, because of Japanese control of Guangzhou and British appeasement policy, and the subsequent British surrender on Christmas Day 1941, Hong Kong was officially closed to Mainland Free China contact until the end of World War II.
On December 8, 1941, one day after Pearl Harbor, just hours after Tokyo ordered attacks on the Philippines and the Malay Peninsula, Japanese troops swept across the border from occupied China into Hong Kong's New Territories. Japanese forces quickly destroyed the colony's weak defenses, manned by fresh British troops recently redeployed from Singapore and still unfamiliar with Hong Kong geography. British commanding officers did not take seriously the idea that an "Asiatic" army could ever defeat the British Army that had been invincible for more than a century in Asia. The only effective resistance was from the small Hong Kong Volunteer Force of local Chinese youths. By Christmas Day, the British had surrendered, which brought nearly four years of brutal Japanese occupation.
The pending defeat of Japan in 1945 raised a new question of who should rule Hong Kong after the war. At the beginning of World War II, US president Franklin D Roosevelt had argued that the British should return Hong Kong to the China after the war. But at the Yalta summit in 1943, Roosevelt gave in to British prime minister Winston Churchill's insistence that Britain did not fight the war merely to give away the empire.
The British moved quickly to regain control of Hong Kong after hostilities ceased. Tokyo had ordered the Japanese forces in Hong Kong to surrender to the British. The Nationalist Chinese government held back its troops at the Hong Kong border. Franklin Gimson, Hong Kong's colonial secretary, left his prison camp as soon as he received word of the Japanese surrender, and declared himself the colony's acting governor. Gimson set up a provisional government, which welcomed a British naval fleet into Hong Kong harbor several days later. British Rear Admiral Sir Cecil Harcourt then formally accepted the Japanese surrender of Hong Kong.
Hong Kong's postwar recovery was swift. Eight months after the Japanese surrender, the colony's civilian administration was restored. Traditional colonial discriminatory taboos were relaxed in the postwar years. Chinese were no longer restricted from public beaches, parks or European residential districts, or from owning property on Victoria Peak.
World War II disrupted the socio-economic structure of colonial Hong Kong. After the Japanese surrender in August 1945, Chinese civilians returned in force to Hong Kong at the rate of almost 100,000 a month, most expecting China, as a member of the victorious Allies, to recover the Japanese-occupied colony from British imperialism, but they were sadly disappointed by events. The population, which by August 1945 had been reduced to about 600,000, rose by the end of 1947 to an estimated 1.8 million. The Chinese economy was deteriorating under the Nationalist policy of elitist capitalism, which was entirely antithetical to Chinese historical conditions. Soon afterward, as the Nationalist government began to lose support from the masses, and its army faced defeat in civil war at the hands of the People's Liberation Army, Hong Kong received a population influx unparalleled in its history. Hundreds of thousands of Chinese - mainly from Guangdong Province, Shanghai, and other commercial centers - entered the colony during 1948-49 and, by the spring of 1950, the population had swelled to an estimated 2.2 million. Since then, it has continued to rise from population inflow from China and now totals 6.5 million.
Modern Hong Kong rose from the ashes of World War II, created partly out of an urgent necessity to deal with one of the greatest refugee crises of its time. Hong Kong's economy slowed when the United States placed an economic embargo on China after the founding of the People's Republic on October 1, 1949, but the Korean War broke out in 1951 and brought new economic life to Hong Kong. It was during this period that the shipping sector of Hong Kong got its start, leasing anything that floated to the US Navy to fill the sudden rise in demand by trans-Pacific military transport.
But Hong Kong also played a critical role in supplying China unofficially. While Chinese soldiers were being killed in Korea by US-British troops, with the son of Mao Zedong among those killed, freedom of speech in Hong Kong consisted of open advocacy for the violent overthrow of the Chinese government. At the same time, any call for passive resistance to Western imperialism and British colonialism was censored and punishable with imprisonment in the colony.
Even today, the English-language press in Hong Kong remains predominantly anti-China under the guise of press freedom. When the SARS problem first broke out, the Hong Kong English-language press was full of criticism of alleged Chinese government cover-up as typical of totalitarianism, despite the fact that the main motivation had been to avoid market panic. But when Toronto adopted in essence the same approach to the SARS scare to protect its economy, the Western press was full of editorials expressing understanding.
The Korean War had a fundamental geopolitical impact on Hong Kong and its economy. The US embargo and blockade against China, plus the interference by the US 7th Fleet in the reunification of Taiwan, made Hong Kong the needed window to the outside world for an isolated China. China took advantage of a British Hong Kong as a base to run the US blockade, and for intelligence work in Taiwan and in the United States and its allies.
Although underground communist cadres came to Hong Kong in 1948 with an ultimate mission of liberating the territory, the eruption of the Korean War stabilized the geopolitical position of Hong Kong. Chinese tolerance for the continuation of British colonial rule was justified by China's geopolitical need for a window to the West. British official ignorance of Chinese political literature created a void that became the target of competition and occupation by the two ideological rivals: the Nationalists supported by US propaganda and the Communists.
During the Cold War era, global competition between the two superpowers became the backdrop of the rivalry between the Communists and the Kuomintang, making Hong Kong a key residual battleground in the ideological war in the Chinese language. British diplomatic recognition of the People's Republic and de-recognition of the Nationalist regime on Taiwan made outright ban of pro-Beijing activities untenable in British Hong Kong. On the other hand, Chinese non-recognition of British colonial rule of Hong Kong prevented Chinese diplomatic presence in the British colony. Until the return of Hong Kong to China on July 1, 1997, China was represented by the New China News Agency in Hong Kong, which served as a de facto diplomatic mission.
With its traditional entrepot role cut off by the US embargo against China in 1951, the colony was forced to develop local industries for export. Hong Kong took advantage of a continuous supply of cheap labor in the form of refugees, financed by flight capital from China, and the colonial government's traditional disinterest in regulating labor standards as long as land prices kept rising to keep government revenue flowing. But the main factor of growth of labor-intensive manufacturing was the special access to the US consumer market, kept open through a geopolitical understanding between the United States and the United Kingdom, in recognition of the strategic location of Hong Kong. This was the early kernel of globalization, with the US providing a market for goods too cheap to warrant production by high-paid US labor, and simultaneously giving US neo-liberalism an early experimental station for real-life "peaceful evolution" on the doorstep of communist China.
But unlike Japan, South Korea and Taiwan, Hong Kong did not get on a high-end manufacturing path for lack of any industrial policy. British colonial education, trade and finance policies kept Hong Kong in low-end manufacturing sweatshops for the narrow benefit of British trading monopolies and banks, which had never wanted to endow the colony with industrialization. At the same time, the Hong Kong government's long-standing land speculation that enabled a tax policy that attracted foreign investment further contributed to rapid growth of the low-end export sector. The colony began exporting in ever-increasing amounts cheap textiles, garments, low-end electronics, cameras and watches, plastic flowers, toys and many other low-priced goods made in small sweatshops, stamped "made in Hong Kong" to clear the US custom embargo on China.
But most of Hong Kong's wealth came from land speculation, with the colonial government as the chief speculator and beneficiary. This policy condemned labor in Hong Kong into perpetual under-education, low subsistence wages and sweatshop working conditions.
The influx of refugees from China continued unabated during the 1960s, providing ample cheap labor and occasional entrepreneurial human resources for the manufacturing workforce. The British colonial government left the refugees to fend for themselves, to live and struggle for survival under appalling, subhuman conditions.
In 1953, a tragic, spectacular night fire engulfed hillside shanty slums in the Shek Kip Mei squatter area on Christmas Eve, destroying tens of thousands of refugee squatter huts unreachable by firefighting equipment, leaving 53,000 homeless. The tragic event attracted the attention of the international media, and even became the backdrop of a best-selling novel about a bar girl: The World of Suzy Wong, which later was made into a Hollywood film. The British colonial government was finally spurred into reluctant action by world opinion, introducing a housing program for refugees with the construction of vast public-resettlement buildings - standard seven-story walk-up concrete structures with minimum facilities in a refugee city. With virtual dictatorial power, the colonial government managed to solve the housing problem for refugees in short order, although the result was little better than highrise concentration camps.
By the mid-1960s, escalating US involvement in the Vietnam War made Hong Kong a major supply point for the US military. Hong Kong's ports, shipping and logistics sectors grew further to serve the new geopolitical needs. The colony became a regular stop for US troops seeking "rest and recreation". It was also the West's main pre-satellite spy post into a China isolated by hostile US policy. Much of Hong Kong's prosperity during this period came from an economy that served the geopolitical aims of the United States in the Cold War. It had as much to do with free markets and democracy as cheese on the moon.
Hong Kong's "go-go" pace, while not the same as free-market dynamism, created typical problems many neutral cities such as Casablanca during World War II faced: espionage intrigues, organized crime, rampant prostitution and drug dealing, smuggling, polarization between rich and poor, ideological cynicism, political opportunism and official corruption. The colony's low-end manufacturing sector was unregulated, and the labor force had to work long hours in sweatshops under inhumane and unsafe conditions for less-than-subsistence pay with no health or retirement benefits or job security. Small entrepreneurs were forced to seek financing from predatory lenders. Child labor exploitation was routinely practiced. Human rights and civil liberties were never issues about which British colonialism cared much.
The Great Proletarian Cultural Revolution unfolded in China in 1966. While the issues raised in the Cultural Revolution on whether politics should be the determinant of the correct development path remain debatable to this day, the excesses associated with internecine political struggle of the decade-long upheaval left the nation exhausted and its economy in near-total collapse. The political cataclysm spilled over into Hong Kong. In 1967, a labor dispute at an artificial-flower sweatshop in Hong Kong quickly escalated into widespread violent street demonstrations. For several months, protesters clashed with police, overturned cars and buses, stoned hotel lobbies and shop windows, and in a general release of century-old, pent-up rage and hostility toward colonial capitalism, disrupting life and business in the colony. Several bombs were set off in a wave of terrorism. At one point, shots were fired across the border from China into Hong Kong.
British officials responded with a ruthless crackdown against the sudden release of pent-up nationalism, suspending what little civil liberty the colony had traditionally allowed, in the name of anti-communism, imprisoning thousands without trial and closing down left-wing Chinese-language newspapers. Official reports acknowledged that some 50 people were killed during the riots by excessive police force, with thousands more wounded.
To defuse a recurrence of social unrest, social and government reforms in Hong Kong followed, including the cleanup of the openly corrupt, scandal-ridden police force. At the same time, China made clear that it still considered Hong Kong a part of Chinese territory it would eventually reclaim.
It was at this point that British imperialism decided to solicit US assistance by the gradual adoption of bogus democracy and free markets as a new colonialism with a human face. The colonial government then began officially referring to Hong Kong as a territory, not a colony. British banking interests began nurturing a new breed of native compradores with special preferential bank credit. Their role was to pose as a national bourgeoisie to front for neocolonialism.
These new compradore tycoons, some speaking no English and unwashed by British upper-class education and mannerisms, dutifully bailed out British interests from the political risk of rising nationalism. They acquired British trading firms at inflated market prices with loans from British-owned Hong Kong banks, backed by profit they made in real-estate speculation, light manufacturing, shipping and retail finance and banking services for poor natives. The huge profit they squeezed from the colony were invested in British and US enterprises overseas that suffered huge losses, in a form of cross-border political transfer of wealth through the market mechanism. These new tycoons welcomed the new liberal colonialism as they benefited from token gestures of the end of racial discrimination.
The British finally allowed that rich Chinese should no longer be treated as subhuman, at least in public, setting them apart from the masses of the Yellow Herd as Honorable Whites who might even qualify for a knighthood from the queen. Compradores now could comfort themselves by claiming they were serving democracy and freedom rather than imperialism and colonialism. They posed as heroes of capitalism instead of running dogs of colonialism.
Colonialism, the administrative system of imperialism, like its slavery kin, is inherently evil. Yet the evil institution of slavery in US history did not prevent the emergence of great leaders from the South, such as George Washington and Thomas Jefferson. Similarly, the evil institution of colonialism in Hong Kong history did not prevent the emergence of a sensible administrator in the person of Murray MacLehose.
Fluent in Chinese and a student of Chinese culture and history, Crawford Murray MacLehose was first posted to Hong Kong in 1963 as a political advisor to ensure that colonial policy in Hong Kong supported evolving British policy on China. He held several other political posts in the British Empire before becoming Hong Kong's 25th British governor in 1971.
From 1971, when he assumed the post of governor, to 1982 when he left the post and returned to Britain, MacLehose, of a new breed of governors more in tune with the progressive British Foreign Office than the conservative Colonial Office, practiced an "enlightened form" of colonial administration with an eye on Cold War geopolitics. He moderated the traditional colonial attitude of aloof, discriminatory disinterest in Chinese community problems and needs. He also balanced the traditional policy of open government support for British monopolistic businesses with a new progressive social awareness. Reflecting the ideological wind from the British homeland under Labour control, MacLehose took an active role in social welfare (particularly public housing, medical care, colonial education, and protection of workers), and improved the living conditions of Hong Kong residents within the context of liberal capitalism and benign colonialism. The MacLehose administration accorded with Hong Kong's economic takeoff, laid a socio-economic foundation for the colony as a labor-intensive manufacturing center, and instilled a sense of respectable if not totally honorable identity for colonial Hong Kong residents.
MacLehose established the Independent Commission against Corruption (ICAC) to ensure rule by colonial law, even indicting mid-level British police officers and colonial officials who had run a police force and a regulatory regime known for widespread corruption. While the ICAC stopped administrative corruption in the colony, much of the regulatory regime of structural British preference remained in place and at the same time exempted US commercial interests from British protectionism. After a mass demonstration by off-duty policemen on Queensway in Central in 1976, the governor ordered an amnesty for all crimes of corruption committed before January 1, 1977, lest the entire police force had to be imprisoned. The rule of law indeed.
MacLehose initiated moves toward social welfare as effective and timely responses to mounting social and political turmoil, such as the riot against the Star Ferry fare increases in 1966 and the leftist anti-British-imperialism strikes and demonstrations in 1967. He handled deftly the student movement launched by Hong Kong University students in 1968-69, the movement to legalize the Cantonese language in 1970, and demonstrations in Queen Victoria Park in defense of Chinese sovereignty over the Diaoyutai Archipelago in 1971.
MacLehose's liberal responses and concessions protected British interests and stabilized British rule in Hong Kong by reducing the most visibly oppressive aspects of old-time colonialism. In contrast to the socio-political upheaval then raging in China, many in Hong Kong began to let the practical benefit of a peaceful life mask the political issue of national honor. The threat of communism was promoted as an anesthetic for British imperialism and colonialism with high effectiveness among the refugees, who were mostly members of the petty-bourgeois class that fled from communism in China.
The Vietnam War aborted president Lyndon Johnson's "Great Society" for the United States, but it brought economic benefits in the form of subsidized trade for Japan, South Korea, the Philippines, Singapore, Malaysia, Indonesia, Taiwan and Hong Kong. While the war created a backlash in US domestic politics against anti-communist mania, it strengthened a chain of anti-communist frontline bases in East and Southeast Asia, in which Hong Kong was a crucial link. Thus Hong Kong basked in the glory of geopolitical trade preference with the US. MacLehose became governor at the end of Hong Kong's tumultuous anti-colonial phase, but the economic fringe benefits from the Vietnam War gave Hong Kong a much needed and timely boost, which stabilized Hong Kong's economy at the beginning of MacLehose's benign rule.
After the economic takeoff in the 1970s, primary and secondary education in the colony improved by government policy and quotas for tertiary educational institutions increased. In 1969, the Chinese University of Hong Kong, a conglomeration of US missionary educational institutions expelled from China, moved to Shatin on a new campus as Hong Kong's second officially recognized public university. Notwithstanding its institutional roots as an anti-communist propaganda machine, the Chinese University provided a counter base to Hong Kong University, the bastion of British colonial elitist education. In 1970, the government agreed to convert the former Hung Hom Industrial College into Hong Kong Polytechnic.
The literacy rate and level of education of the population rose, albeit still way below world-class standards and still infested with colonial mentality of rote learning and discouragement of independent, let alone revolutionary, thinking. To this defect was added the anti-communist propaganda financed from US sources. Doctoral and postgraduate education was non-existent even for professional schools. There was no basic research in the sciences and much of the education was focused on commercial job training for clerical and mechanical maintenance work. Much of the research in the social sciences produced in this period was little more than outright hostile intelligence gathering and anti-China propaganda.
Graduates of Hong Kong universities went predominantly into careers in the docile, apolitical Civil Service. Offspring of the elite went to universities overseas and returned to join family businesses that had nothing to do with their studies. Scions of wealthy families who were promising nuclear physicists were put to work in the plastic-toy business. The professions that prospered were law, medicine, accounting and architecture. Even then, overseas professionals were routinely called in for significant assignments. This is true even today. While Hong Kong has yet to adopt a rule-based competitive policy, it has never felt the need to adopt any affirmative-action program for local talent.
In addition, in the 1970s, with the spread of television, TVB (begun in 1967) exerted a strong influence with improved public communication, particularly in the imposition of Anglo-US anti-China propaganda on an uninformed and unthinking public poisoned by a colonial education. In the early 1970s, remnants of Qing Dynasty Manchu feudal laws were officially abolished, putting an official end to one colony, two legal systems. It may be said that the MacLehose regime signaled the beginning of Hong Kong's self-delusion in the name of modernization. In reality, MacLehose repositioned Hong Kong by giving it a central anti-China role in the Cold War.
During his time in charge, MacLehose oversaw a historic period of social reform and public investment that formed the foundation for unprecedented economic growth, including the building of Hong Kong's underground transit system. Lord MacLehose was knighted in 1983, a year after his retirement. These social programs formed the foundation of Hong Kong's subsequent economic success in the command economy, not the much-touted free-enterprise myth.
In retirement, Lord MacLehose summed up his opposition as governor, to any introduction of democratic elections in Hong Kong by saying: "If the communists won, that would be the end of Hong Kong. If the nationalists won, that would bring in the communists," in an interview in Britain's Daily Telegraph. Of course even MacLehose was not delusionary enough to contemplate the possibility of the British winning. British colonialism had no use for democracy until Britain was forced to return Hong Kong to China.
MacLehose, on October 10, 1979, reported the government's housing policy of creating between 40,000 and 45,000 units annually: "The housing program continues to be of prime importance, and in the review of public-sector expenditure it was rightly given very high priority ... None of the housing, amenities, schools and landscaped surroundings would be of any value without employment. And the new towns are not intended as dormitories. So the progress of industry in the New Territories is vital." Thus public housing and an industrial policy of low-end manufacturing for a geopolitically guaranteed US market put Hong Kong on the road to prosperity.
Eighteen years later, on October 8, 1997, Tung Chee-hwa made his first address as the first chief executive of the Hong Kong SAR under Chinese sovereignty. Again, housing was a key theme. The current system, he said, had "produced erratic price patterns and left potential home buyers and developers in the lurch". He set as a goal the production of 85,000 new public and private units annually within two years.
Tung's policy speech, which laid out a five-year plan for the SAR, went far beyond MacLehose's vistas. Hong Kong's new leader unveiled plans to cut the waiting times for public rental housing from six and a half years to four years by 2003 and no more than three years by 2005. He spoke of building major infrastructure links and developing technology parks to diversify the economy into the next century. And he announced concrete initiatives to alleviate the livelihood burdens of the SAR's expanding elderly population. Tung identified improving competitiveness and education as the key challenges facing the new Hong Kong - and launched comprehensive initiatives to achieve such goals. He stressed the rapidly growing ties - notably economic, cultural and technological - between Hong Kong and China, though he was careful to omit mentioning political ties. By doing so, he was turning the attention of a new generation of Hong Kong residents to the vast opportunities that awaited them in what was officially their motherland once more. But the arm's-length attitude on political integration with China means that this vast opportunity remains elusive to the Hong Kong economy.
Most critically, Tung's vision did not include any awareness of the new geopolitical landscape. The new Hong Kong SAR, by constitution, puts fundamental obstacles in the way of its needed integration into the new Chinese economy, while its former colonial role to serve Anglo-US interests in China is becoming inoperative. Hong Kong has yet to shed its compradore mentality or its compradore policy. It continues to look at China from the outside in, representing the geopolitical and economic interests of the West, by presenting its residual colonial system as the more superior of the two systems in OCTS, instead of an obsolete system that must be restructured in time.
When faced with economic collapse from Hong Kong's failure to restructure its economy to respond to the new geopolitical landscape, the new SAR government hangs on to obsolete myths of its colonial predecessor. Hong Kong's top leaders tirelessly mouth meaningless slogans of focusing on "sound fundamentals", rule of law, free markets, small government, sound monetary regime based on its dysfunctional currency peg, in subservient tribune to US neo-liberal globalization, which has destroyed the colonial command economy. To make matters worse, it has abandoned its public housing and other social programs started three decades earlier by MacLehose, in a panic attempt to save the over-leveraged real-estate tycoons at the expense of the future of the Hong Kong economy. While the new leaders continue to pin their hope for Hong Kong on external trade, they excuse lamely their dead-end policies by lamenting that Hong Kong has no control over external factors.
Henry C K Liu is chairman of the New York-based Liu Investment Group.
By Henry C K Liu
The current severe acute respiratory syndrome (SARS) crisis highlights an obvious fact: that Hong Kong is an inseparable part of China, regardless of the artificial separation in the "one country, two systems" (OCTS) arrangement.
On July 1, 1997, China regained sovereignty over Hong Kong after one and a half centuries of shameful colonial occupation. What should have been the beginning of an era of renewed national pride and prosperity for the residents of Hong Kong, more than 90 percent of whom are Chinese, degenerated instead into half a decade of confused identity crisis and shocking economic contraction with no end in sight. The departing British had 15 years to set Hong Kong up as a time bomb for China, by disguising colonialism, the most evil of political institutions, into a haven of bogus democracy and sham freedom, and by presenting a colonial command bubble economy as a faked model of free-market fundamentalism.
Love is blind and infatuation disguises faults as virtues. As Rudyard Kipling fell in love with the pageantry of colonialism and saw racial exploitation as the "White Man's Burden", Milton Friedman, Nobel economist, fell in love with colonial Hong Kong, seduced by the wine-and-dine hospitality of its colonial masters and elite compradores. Friedman mistook Hong Kong's colonial economic system as a free market, despite Hong Kong's highly orchestrated colonial command economy.
For 156 years, Britain deftly manipulated the economy of Hong Kong, as a jewel in the British imperial crown, to opportunistically respond to changing global geopolitical forces for Britain's benefit. Even during the best of times, the average local Chinese small and medium businesses had to operate under the dictates of British colonial policy and at the mercy of monopolistic British trading firms and banks, not to mention that the average worker never had it good at all. British monopolies needed an unregulated supply network of ruthless predatory competition to keep costs low, by disguising the institutional slavery they lorded over as a free market. It was a system of survival not of the fittest, but of the fittest slaves, the ultimate of a divide-and-rule stratagem.
Friedman even apologized for Hong Kong's discretionary currency board despite his trademark monetarist advocacy for free-floating exchange rates set by foreign-exchange market forces. The linked-exchange-rate mechanism for the Hong Kong dollar was introduced by the British in 1983 as a political expediency in response to the 1982 Sino-British Joint Declaration on the return of Hong Kong to China by 1997. It was not based in the slightest on alleged monetary insights that have since been conjured up to justify the political decision. Popularly known as the peg, the linked-exchange-rate mechanism was the central factor behind Hong Kong's bubble economy in the early 1990s and has locked Hong Kong in a steadily downward spiral since the Asian financial crises that began in 1997.
From 1935-67, Hong Kong operated a classic colonial currency board pegged to the pound sterling, as part of the sterling hegemony of the British Empire, in which private British banks, not the government, issued the currency, a practice that continues today. Instability in the value of the pound in the late 1960s pushed Hong Kong to switch to a gold-backed US dollar peg. In 1946, the Bretton Woods regime came into existence, thereby forbidding the importation of gold for private purposes in signatory nations. Britain was a signatory but Portugal was not. Thus a Macau-to-Hong Kong gold-smuggling operation flourished until 1974, two years after the United States took the dollar off gold, in effect abolishing the Bretton Woods system of fixed exchange rates, when Hong Kong abolished a law that requires a special license to import gold. The tiny Portuguese colony of Macau became one of the world's biggest importers and re-exporters of gold during this period.
After the United States in 1971 suspended the Bretton Woods system of fixed exchange rates tied to a dollar pegged to gold at US$35 an ounce, the US dollar too came under periodic attack, resulting in the dollar sinking in free float. Hong Kong then decided also to let its currency float, which worked reasonably well until the commencement of Sino-British negotiations on the return of Hong Kong to China, which unleashed wild speculation against the Hong Kong dollar, a precarious colonial currency whose days were numbered. By the end of October 1983, Hong Kong pegged its currency to the US dollar at a rate of 7.8:1, in effect devaluing the Hong Kong dollar by 50 percent from its previous normal market fix of around 5:1.
To the chagrin of Hong Kong's colonial administration, Friedman publicly suggested that after 1997, "the only choice is for the Hong Kong dollar to be absorbed by the yuan and for Hong Kong's foreign reserves and foreign assets to be taken over by China". It was a rational suggestion, and if the Hong Kong Special Administrative Region (SAR) government had followed it, Hong Kong would be prospering at 9 percent growth now, along with the rest of the Chinese economy, instead of negative growth from deflation caused by a freely convertible overvalued currency.
The bogus democracy promoted by the last British governor, Chris Patten, and the free-market myth created by Friedman's fantasy have fueled Hong Kong's eager self-delusion. The so-called rule of law, so frequently touted these post-colonial days in Hong Kong, merely meant that no local Chinese business ever won a case against any British trading firm in 150 years of colonial justice. Hong Kong's low-tax myth is merely a cover-up for the exorbitant land tax disguised by the government's century-old, unseemly role as chief land speculator. Throughout its history, Hong Kong's economy has always been driven by geopolitical conditions rather than by free-market fundamentalism, much less by democracy or the rule of law.
What most analysts miss is that Hong Kong's future is dependent not on China's adherence on its OCTS policy of non-interference in Hong Kong's internal autonomy, or on the continuation of a fantasized free-market system, or rule by colonial law disguised as rule of law. Rather, it depends on whether Hong Kong can again recognize changes in the global geopolitical landscape since the end of the Cold War to reorient a new useful role in it.
The OCTS policy erroneously accepted Hong Kong's colonial regime as democratic and free-market, instead of the colonial governance and command economy that it actually was. The Basic Law, Hong Kong's mini-constitution drawn on the OCTS principle, contains defining clauses on the political and economic systems of Hong Kong that are mere fantasies of Anglo-US propaganda. The Basic Law in essence condones a continuation of Western neo-imperialism under Chinese sovereignty for another 50 years. As such, these constitutional clauses constrain the government of the SAR from any attempt to face reality and provide solutions to real problems it is facing. The artificial constitutional segregation of Hong Kong from China is now creating difficulties in Hong Kong's effort to be integrated with the booming economy of the Pearl River Delta. China has no need for Hong Kong compradorism in this era of direct contact. Neither do China's trading partners in the West.
Moreover, world trade has changed under a decade of US-imposed globalization, and is changing again with its impending collapse and restructure. Hong Kong, as an international trading center on Chinese soil, must change with the new geopolitical landscape to survive. There are increasingly undeniable indications that British propaganda to disguise colonial rule as neo-liberalism has trapped Hong Kong under Chinese sovereignty into a state of policy paralysis and rendered it impotent in disengaging itself from a downward spiral of dysfunctional obsolescence. Hong Kong will prosper only if China replaces Britain in Hong Kong and sets policies for a command economy to serve the geopolitical interest of China, as the British had done for one and a half centuries.
At the early part of the 19th century, Hong Kong was little more than a backwater cove in southern China, with no indication it would one day be turned into a world trade center by geopolitics. All through the 19th century, China had no interest in overseas trade. Thus a natural deep harbor on its coast on the South China Sea was of little significance to the Chinese economy. In the early 1800s, Hong Kong was home mostly to indigenous farmers and fishermen, pirates and smugglers. At that time, China's reluctant contact with an increasingly intrusive West took place up the Pearl River, at Canton, more correctly known as Guangzhou, some 145 kilometers north of Hong Kong. It was in Canton that traders from Britain, France, the United States and elsewhere in the West lived and worked in a small segregated enclave strictly regulated by Chinese officials. British ocean-going ships found Hong Kong's deep harbor useful for unloading and loading cargo to be barged up the Pearl River to Canton. Trade developed only slowly and in China's favor, because the Chinese economy had more to offer the Western economies than it needed in return.
The British soon found a remedy for this trade imbalance, which was draining silver steadily from the Bank of England. They illegally imported opium grown mostly in British India to China, where opium sale and use had been banned since 1729 under the reign of Emperor Yung-zheng (1723-35), and its importation and cultivation were made illegal under Emperor Jia-qing (1796-1820). It was in Canton that the illegal opium trade flourished, with great profit for the British. By 1840, the British were importing 40,000 chests of opium to China annually, selling at a price of $2,075 (Stg160) per chest that cost the British $25. US traders, such as the Delano family, as in Franklin Delano Roosevelt, also made great fortunes shipping Turkish opium to China and returning with Chinese tea and porcelain to Boston in Yankee Clippers. Much of the wealth in Boston came from this narcotic trade and provided capital for the westward expansion of the United States. This illicit massive transfer of wealth from China, one of the world's richest and largest economies at the time, played a key role in financing the economic development of Europe and North America in the 1800s.
Opium addiction in China grew to epidemic proportions within a short time, ravaging all levels of Chinese society. Qing Dynasty authorities appointed a special commissioner in Canton in 1840, with orders to stamp out the insidious opium trade. A week after his appointment, special commissioner Lin Zexu ordered his troops to surround the international enclave in Canton, and demanded that the British drug dealers turn over all of their opium contraband. After a six-week standoff, the British drug dealers surrendered more than 20,000 chests of the narcotic, which Lin burned in public.
These British opium traders, led by the East India Co and Jardine Matheson & Co, a leading British firm still operating in Hong Kong today, provoked a belligerent response from the British military with the First Opium War of 1840-42. The Opium War was depicted in British-issued textbooks used in colonial Hong Kong schools as a war to protect private property rights. On January 26, 1841, a British naval party landed on the northwestern shore of undefended Hong Kong, raised the Union Jack, and occupied the island as a navy base to make war farther north. China's outdated navy and army were no match for British naval cannons. The First Opium War ended with the Treaty of Nanking in August 1842, the first of many "unequal treaties" Western imperialist powers imposed on the decaying Qing dynasty over the next half-century. That treaty forced China to acknowledge, among other humiliating terms, British extraterritorial privileges in five Chinese trading ports. It also ceded the island of Hong Kong to the British.
Less than two decades later, the Second Opium War (1856-60) ended with another British victory and the Convention of Peking, through which London claimed perpetual control of Stonecutters Island and the Kowloon Peninsula on the Chinese mainland across from Hong Kong Island. By the century's end, other European powers and Japan had demanded and received countless concessions from a Qing Dynasty in its final stage of collapse. With the security of Hong Kong as a pretext, the British demanded a 99-year lease on what came to be known as the New Territories - land farther into China, beyond the Kowloon Peninsula. That lease began on July 1, 1898, and expired on July 1, 1997.
To understand this history properly, one needs only imagine that the United States had lost its "war on drugs" and had to cede New York City and a good part of New Jersey to Colombia, whose government had come under the influence of drug lords. The new government of the Republic of China, upon its establishment after the 1911 revolution that overthrew the decrepit Qing Dynasty, immediately declared null and void all unequal treaties imposed on China during this period of national shame. The People's Republic, established on October 1, 1949, holds the same position.
Settlement in the new British colony of Hong Kong grew slowly at first; the population rose from 32,983 in 1851 to 878,947 in 1931. Recurring social unrest in reaction to British racial oppression gave rise to Chinese xenophobia that acquired nationalistic overtones in Hong Kong. Historically, Chinese society had been a multi-ethnic melting pot until the arrival of European imperialism. Such nationalistic agitation lay hidden behind a veneer of stability and prosperity propped up by the ruling British with the help of a subservient local elite who were rewarded with leftover monopolistic royal charters considered not lucrative enough by the British trading firms themselves. Hong Kong began to prosper economically because it served the geopolitical interests of its colonial master, without any hindrance from ideological delusion about free market and democracy.
The 1911 revolution led by Sun Yatsen against the Qing Dynasty was hatched in Chinese communities overseas. Hong Kong was one of its operating bases due to the fact that British authorities were not proficient enough in the Chinese language to detect and suppress Chinese revolutionary activities under their noses. However, any anti-imperialist expression of disrespect to the British crown or hostility toward British authority was swiftly and firmly suppressed with imprisonment and/or deportation. Even after World War II, it was a criminal offense to remain seated or not to stand at attention when "God Save the King/Queen" was performed prior to sporting events and at the end of movies.
During the early decades of the 20th century, Hong Kong served as a refuge for those fleeing social disorder on the mainland during the Taiping Uprising that broke out in 1851 and during the Northern Expedition against warlords after the founding of the Republic in 1912. The outbreak of three large labor disputes, namely the first general strike in support of the Manchurian Railway workers' strike (1920), the Seamen Strike (1922) and Guangdong-Hong Kong General Strike (1925-26) reflected widespread revolutionary/nationalistic attitudes and the close linkage between Hong Kong residents and their mainland compatriots. These strikes were all brutally suppressed by the British to keep the Hong Kong economy humming, with the approval of the elite compradore class.
In 1927, the Kuomintang (Nationalists) escalated their campaign against the Communists. Mao Zedong established a rural guerrilla base in 1928. The Japanese occupied Manchuria in 1932 and the Chinese Communist government declared war on Japan, but the Sino-Japanese war did not formally break out until 1937 after the Xi'an incident, which brought about a united front against Japanese aggression. As Japanese forces advanced into China, hundreds of thousands of displaced Chinese sought refuge in British Hong Kong, bringing the colony's population at the outbreak of World War II to about 1.6 million. At the height of the influx, 500,000 homeless people were sleeping in the streets as a result of British indifference for the welfare of the colonial subjects.
Life was harsh and undignified for all of colonial Hong Kong's Chinese residents, not just the new refugees. The densely populated slums where the Chinese lived were regularly ravaged by disease, fires and typhoons and by criminal elements condoned by the British colonial administration as necessary for doing the dirty work for British opium smuggling. Primitive conditions mixed with unregulated foreign traffic made the colony without public hygiene vulnerable to recurring epidemics of new diseases.
Hong Kong society was segregated between privileged, wealthy British masters and the Chinese they employed and ruled through local compradores. Hong Kong Chinese were not allowed out after dark by a policy of race curfew. They were barred from European residential districts and parks except as servants. Most Westerners in Hong Kong treated the Chinese as "a degraded race" - in the words of a missionary. "You cannot be two minutes in a Hong Kong street," wrote another observer of the time, "without seeing Europeans striking coolies with their canes or umbrellas." An example of these racial tensions surfaced in 1857, when a Chinese baker was accused of attempting to poison his Western clients by lacing their bread with arsenic. The incident caused no fatalities, and the baker was later acquitted for lack of evidence, but not for lack of motive.
Hong Kong's fortunes rose in the 1850s and '60s as refugees flooded the colony, fleeing from the social chaos in China associated with the economic dislocation from the resultant drain of silver from widespread opium addiction and periodic foreign invasion and ruinous war reparations. The new arrivals helped the colony evolve from a drug-trading outpost into a permanent settlement, providing a productive base to serve British economic imperialism.
Western apologists stress British contribution to the development of a market economy in Hong Kong through its laissez-faire policy. What Britain actually did was to transfer wealth accumulated from imperialistic exploitation of China to Britain through an offshore island on the China coast ruled by British colonialism. Thus the argument that British colonialism built a prosperous world city on a barren rock by virtue of a superior economic system was as ridiculous as Kipling's "White Man's Burden" bringing civilization to India.
Professor Hui Po-Keung of Lingnan University, Professor Tak-Wing Ngo of Leiden University and others have written on Hong Kong's colonial compradore politics and monopolistic middle-man capitalism and the propagandistic dissemination of mythical free-market ideology in Hong Kong, despite total British control of the colonial command economy. These research findings refute the myth that Hong Kong's economic success was a result of a laissez-faire policy, or the outcome of free-enterprise response to free markets. Evidence showed that British colonial policies dictated Hong Kong's commercial and trade development to support British interests, while discouraging any local industrialization before World War II, and also blocking opportunities for industrial upgrading in the 1960s that would have enabled Hong Kong to compete independently in world markets.
The British colonial government in Hong Kong handled conflicts between China and Japan during the 1930s strictly on evolving British global geopolitical interests. British actions obstructed China's fight to preserve territorial integrity against Japanese occupation of Manchuria for fear of antagonizing a rising Japan and on the principle that foreign occupation of semi-colonial China was the international norm. The then British-owned South China Morning Post did not depict Japan in the early 1930s as the aggressor in China, lest such a depiction reflect on British occupation of Hong Kong itself as aggression.
After the Japanese seizure of Manchuria in 1939, British policy had been to appease Japanese aggression as a natural effect of geopolitical Darwinism. From the July 7 Lugouqiao incident of 1937 that formally launched the Sino-Japanese War to the fall of Hong Kong to Japanese forces on Christmas Day in 1941, British policy on China, known in the British Colonial Office as "Passage of Hong Kong", was divided into two phases. The first phase, before the fall of Guangzhou to Japan in October 1938, allowed Hong Kong to supply China on a profit basis. The League of Nations had advised its members, of which Britain was one, not to interfere with China's defensive war against Japan. The second phase, after Japanese occupation of Guangzhou, closed Hong Kong off from legally providing any supply for China.
Britain's neutrality in the Sino-Japanese war enabled British Hong Kong to trade with both China and Japan at the same time, supplying war materiel to both warring parties. This compensated for the drop in trade in Hong Kong resulting from the rapidly deteriorating war economy in China. The security of the British Empire, of which Hong Kong was a crown jewel, was conditioned on non-antagonistic British-Japanese relations. British interests in China would face unwanted threats and British status in the Far East would face further decline if German global expansion in alliance with Japan's Greater East Asia Co-Prosperity Sphere were to strengthen. Demonstrations and protests from Hong Kong Chinese against British and other Hong Kong companies trading with Japan were suppressed and calls for a boycott of Japanese goods were disallowed by the colonial government in the name of free trade and law and order.
Britain's policy of neutrality, together with Japan's blockade of the Chinese coast, made Hong Kong's Victoria Harbor and the Kowloon-Canton Railway critically important. Hong Kong became a vital route for transporting goods, commodities and munitions by sea from overseas and by train via Guangzhou to Wuhan, where Chinese forces were staging a desperate defensive battle. After Japanese destruction of the Chinese section of the Kowloon-Canton Railway in October 1937, the British agreed to Chinese proposal of building a Kowloon-Guangzhou highway as a replacement route in early 1938, as a commercial consideration. It was also a policy consistent with British geopolitical interest in preventing total Japanese military success in China, so as to avoid the possibility of Japanese pressure turning against British interests once Japanese control of China was total. The plan to import nine British-made airplanes to China from Hong Kong in November 1937 was allowed by the British Colonial Office despite strong protests by Robert Craigie, the British ambassador to Japan.
The geopolitically induced trade helped relieve the Hong Kong economy from some of the global effects of the Great Depression of the 1930s. Combining patriotism with financial benefits, Hong Kong Chinese took a leading role in supporting Chinese war efforts against the Japanese through the utilization of the Kowloon-Canton Railway and Victoria Harbor and later the Kowloon-Guangzhou highway. The British announced that keeping Hong Kong open to the mainland was crucial to China's future, while the US secretary of state applauded the "Passage of Hong Kong" as enhancing China's ability to resist Japanese invasion. Both Britain and the United States hoped that China could tie down Japanese expansionism enough to spare Hong Kong and US interests in the Pacific, particularly the Philippines, from Japanese aggression.
Hong Kong's closeness to the approaching war zone, Japan's growing threat to Hong Kong, and Britain's apprehension on a two-front war in Europe and Asia caused Britain to discontinue a tilt toward China after Japanese occupation of Guangzhou in October 1938. The Japanese, having taken Guangzhou, were more determined to cut off supplies to China from Hong Kong. When the Nazi-Soviet non-aggression pact was signed in August 1939, Britain tried to persuade Japan to withdraw from the Axis cause by offering de facto recognition of Japanese occupation of China. British appeasement of Japanese aggression in China continued until the attack on Pearl Harbor, Hawaii, on December 7, 1941.
The Chinese government's proposal to establish an aircraft-reassembly factory in the New Territories in August 1937, as well as a Hong Kong company's proposal to build two military steamers for Guangzhou in January 1938, were refused by the British under the second phase of the Passage of Hong Kong. Immediately after the fall of Guangzhou, British governor Alexander Northcote stopped all transshipment of munitions and weapons from Hong Kong to the mainland. In December 1939, the British government prohibited the reassembly of four US-made passenger planes in Hong Kong. The planes had been purchased by the Chinese government. In June 1940, in a desperate last-ditch effort to appease Japan, the British formally closed the Passage of Hong Kong and terminated British tolerance for the supply of munitions, weapons, fuel, and gasoline to China. Hong Kong banks were forbidden to handle aid funds destined for China from overseas Chinese communities. Nevertheless, massive smuggling of military materiel to China and underground financial transactions continued to benefit the Hong Kong economy.
When Japan began bombing Shanghai in November 1937, it unleashed a massive influx of refugees into Hong Kong, the greatest in its history since the Taiping Uprising in the 1850s. The population grew by 50 percent, while slum housing expanded by 8 percent only. The 650,000 refugees created problems of crisis proportion on already overburdened, substandard housing conditions while the British pampered themselves in their luxurious villas on the Peak lamenting over cocktails on the uncouth manners of the lesser breed.
During the Japanese occupation of Guangzhou, armed resistance was mounted by the Dongjiang (East River) guerrillas, originally formed by patriot Zeng Sheng in Guangdong province in 1939, comprising peasants, students and seamen. Among its members was the revolutionary sculptor Zhang Songhe, later a member of the 5th, 6th and 7th People's Political Consultative Conference, who became the chief editor of the Pictorial of the Guangdong and Guangxi column of guerrilla forces. His masterpieces include the sculpture of Anti-Japanese Guerrilla Warfare on the Monument to the People's Heroes in Tiananmen Square, sculptures in Shijiazhuang Martyrs' Mausoleum, the design of the Monument to Martyrs in Shenzhen and sculptures on the Dongjiang Monument to Martyrs.
When the British surrendered Hong Kong to Japan in December 1941, the Dongjiang guerrilla force had more than 6,000 fighters. In the wake of the British retreat, the guerrillas picked up abandoned weapons and established bases in the Japanese-occupied New Territories and Kowloon. Applying guerrilla warfare, they targeted traitors and collaborators, protected patriotic traders in Kowloon and Guangzhou, attacked the occupation police station at Tai Po, and set off bombs at Japanese-controlled Kai Tak Airport. In addition, the guerrillas rescued British prisoners of war, notably Sir Douglas Clague, Professor Gordon King, and David Bosanquet. One of the guerrilla force's significant contribution to the Allied cause was their rescue of 20 American pilots who parachuted into Kowloon when their planes ran out of fuel after the Dolittle raid on Tokyo.
Founded in January 1942, the Guangdong Renmin Kangri (People's Anti-Japanese) Guerrillas were established to reinforce other anti-Japanese forces in the Dongjiang (East River) and Zhujiang (Pearl River) deltas. The third and fifth branches under Cai Guoliang, which were sent to Hong Kong and Kowloon, became known as Gangjiu Dadui (Hong Kong-Kowloon Battalion). Led by Wong Kwun-fong and Lau Hak-tsai, the guerrilla force attacked traitors and enemy forces, while growing farm produce and protecting civilian lives in Hong Kong. In addition, the guerrilla force extended its influence in April 1942 over Lantau Island, enhancing communication with Macau and Guangzhou.
The spread of guerrilla activities into cosmopolitan Hong Kong Island assisted Chinese intelligence on Japanese strategies and operations. Furthermore, the force played an important role in saving British and other foreign figures of the Allied cause, and 89 of them - 20 British, 54 Indians, eight Americans, three Danes, two Norwegians, one Russian and one Filipino - were saved from enemy hands. However, because of Japanese control of Guangzhou and British appeasement policy, and the subsequent British surrender on Christmas Day 1941, Hong Kong was officially closed to Mainland Free China contact until the end of World War II.
On December 8, 1941, one day after Pearl Harbor, just hours after Tokyo ordered attacks on the Philippines and the Malay Peninsula, Japanese troops swept across the border from occupied China into Hong Kong's New Territories. Japanese forces quickly destroyed the colony's weak defenses, manned by fresh British troops recently redeployed from Singapore and still unfamiliar with Hong Kong geography. British commanding officers did not take seriously the idea that an "Asiatic" army could ever defeat the British Army that had been invincible for more than a century in Asia. The only effective resistance was from the small Hong Kong Volunteer Force of local Chinese youths. By Christmas Day, the British had surrendered, which brought nearly four years of brutal Japanese occupation.
The pending defeat of Japan in 1945 raised a new question of who should rule Hong Kong after the war. At the beginning of World War II, US president Franklin D Roosevelt had argued that the British should return Hong Kong to the China after the war. But at the Yalta summit in 1943, Roosevelt gave in to British prime minister Winston Churchill's insistence that Britain did not fight the war merely to give away the empire.
The British moved quickly to regain control of Hong Kong after hostilities ceased. Tokyo had ordered the Japanese forces in Hong Kong to surrender to the British. The Nationalist Chinese government held back its troops at the Hong Kong border. Franklin Gimson, Hong Kong's colonial secretary, left his prison camp as soon as he received word of the Japanese surrender, and declared himself the colony's acting governor. Gimson set up a provisional government, which welcomed a British naval fleet into Hong Kong harbor several days later. British Rear Admiral Sir Cecil Harcourt then formally accepted the Japanese surrender of Hong Kong.
Hong Kong's postwar recovery was swift. Eight months after the Japanese surrender, the colony's civilian administration was restored. Traditional colonial discriminatory taboos were relaxed in the postwar years. Chinese were no longer restricted from public beaches, parks or European residential districts, or from owning property on Victoria Peak.
World War II disrupted the socio-economic structure of colonial Hong Kong. After the Japanese surrender in August 1945, Chinese civilians returned in force to Hong Kong at the rate of almost 100,000 a month, most expecting China, as a member of the victorious Allies, to recover the Japanese-occupied colony from British imperialism, but they were sadly disappointed by events. The population, which by August 1945 had been reduced to about 600,000, rose by the end of 1947 to an estimated 1.8 million. The Chinese economy was deteriorating under the Nationalist policy of elitist capitalism, which was entirely antithetical to Chinese historical conditions. Soon afterward, as the Nationalist government began to lose support from the masses, and its army faced defeat in civil war at the hands of the People's Liberation Army, Hong Kong received a population influx unparalleled in its history. Hundreds of thousands of Chinese - mainly from Guangdong Province, Shanghai, and other commercial centers - entered the colony during 1948-49 and, by the spring of 1950, the population had swelled to an estimated 2.2 million. Since then, it has continued to rise from population inflow from China and now totals 6.5 million.
Modern Hong Kong rose from the ashes of World War II, created partly out of an urgent necessity to deal with one of the greatest refugee crises of its time. Hong Kong's economy slowed when the United States placed an economic embargo on China after the founding of the People's Republic on October 1, 1949, but the Korean War broke out in 1951 and brought new economic life to Hong Kong. It was during this period that the shipping sector of Hong Kong got its start, leasing anything that floated to the US Navy to fill the sudden rise in demand by trans-Pacific military transport.
But Hong Kong also played a critical role in supplying China unofficially. While Chinese soldiers were being killed in Korea by US-British troops, with the son of Mao Zedong among those killed, freedom of speech in Hong Kong consisted of open advocacy for the violent overthrow of the Chinese government. At the same time, any call for passive resistance to Western imperialism and British colonialism was censored and punishable with imprisonment in the colony.
Even today, the English-language press in Hong Kong remains predominantly anti-China under the guise of press freedom. When the SARS problem first broke out, the Hong Kong English-language press was full of criticism of alleged Chinese government cover-up as typical of totalitarianism, despite the fact that the main motivation had been to avoid market panic. But when Toronto adopted in essence the same approach to the SARS scare to protect its economy, the Western press was full of editorials expressing understanding.
The Korean War had a fundamental geopolitical impact on Hong Kong and its economy. The US embargo and blockade against China, plus the interference by the US 7th Fleet in the reunification of Taiwan, made Hong Kong the needed window to the outside world for an isolated China. China took advantage of a British Hong Kong as a base to run the US blockade, and for intelligence work in Taiwan and in the United States and its allies.
Although underground communist cadres came to Hong Kong in 1948 with an ultimate mission of liberating the territory, the eruption of the Korean War stabilized the geopolitical position of Hong Kong. Chinese tolerance for the continuation of British colonial rule was justified by China's geopolitical need for a window to the West. British official ignorance of Chinese political literature created a void that became the target of competition and occupation by the two ideological rivals: the Nationalists supported by US propaganda and the Communists.
During the Cold War era, global competition between the two superpowers became the backdrop of the rivalry between the Communists and the Kuomintang, making Hong Kong a key residual battleground in the ideological war in the Chinese language. British diplomatic recognition of the People's Republic and de-recognition of the Nationalist regime on Taiwan made outright ban of pro-Beijing activities untenable in British Hong Kong. On the other hand, Chinese non-recognition of British colonial rule of Hong Kong prevented Chinese diplomatic presence in the British colony. Until the return of Hong Kong to China on July 1, 1997, China was represented by the New China News Agency in Hong Kong, which served as a de facto diplomatic mission.
With its traditional entrepot role cut off by the US embargo against China in 1951, the colony was forced to develop local industries for export. Hong Kong took advantage of a continuous supply of cheap labor in the form of refugees, financed by flight capital from China, and the colonial government's traditional disinterest in regulating labor standards as long as land prices kept rising to keep government revenue flowing. But the main factor of growth of labor-intensive manufacturing was the special access to the US consumer market, kept open through a geopolitical understanding between the United States and the United Kingdom, in recognition of the strategic location of Hong Kong. This was the early kernel of globalization, with the US providing a market for goods too cheap to warrant production by high-paid US labor, and simultaneously giving US neo-liberalism an early experimental station for real-life "peaceful evolution" on the doorstep of communist China.
But unlike Japan, South Korea and Taiwan, Hong Kong did not get on a high-end manufacturing path for lack of any industrial policy. British colonial education, trade and finance policies kept Hong Kong in low-end manufacturing sweatshops for the narrow benefit of British trading monopolies and banks, which had never wanted to endow the colony with industrialization. At the same time, the Hong Kong government's long-standing land speculation that enabled a tax policy that attracted foreign investment further contributed to rapid growth of the low-end export sector. The colony began exporting in ever-increasing amounts cheap textiles, garments, low-end electronics, cameras and watches, plastic flowers, toys and many other low-priced goods made in small sweatshops, stamped "made in Hong Kong" to clear the US custom embargo on China.
But most of Hong Kong's wealth came from land speculation, with the colonial government as the chief speculator and beneficiary. This policy condemned labor in Hong Kong into perpetual under-education, low subsistence wages and sweatshop working conditions.
The influx of refugees from China continued unabated during the 1960s, providing ample cheap labor and occasional entrepreneurial human resources for the manufacturing workforce. The British colonial government left the refugees to fend for themselves, to live and struggle for survival under appalling, subhuman conditions.
In 1953, a tragic, spectacular night fire engulfed hillside shanty slums in the Shek Kip Mei squatter area on Christmas Eve, destroying tens of thousands of refugee squatter huts unreachable by firefighting equipment, leaving 53,000 homeless. The tragic event attracted the attention of the international media, and even became the backdrop of a best-selling novel about a bar girl: The World of Suzy Wong, which later was made into a Hollywood film. The British colonial government was finally spurred into reluctant action by world opinion, introducing a housing program for refugees with the construction of vast public-resettlement buildings - standard seven-story walk-up concrete structures with minimum facilities in a refugee city. With virtual dictatorial power, the colonial government managed to solve the housing problem for refugees in short order, although the result was little better than highrise concentration camps.
By the mid-1960s, escalating US involvement in the Vietnam War made Hong Kong a major supply point for the US military. Hong Kong's ports, shipping and logistics sectors grew further to serve the new geopolitical needs. The colony became a regular stop for US troops seeking "rest and recreation". It was also the West's main pre-satellite spy post into a China isolated by hostile US policy. Much of Hong Kong's prosperity during this period came from an economy that served the geopolitical aims of the United States in the Cold War. It had as much to do with free markets and democracy as cheese on the moon.
Hong Kong's "go-go" pace, while not the same as free-market dynamism, created typical problems many neutral cities such as Casablanca during World War II faced: espionage intrigues, organized crime, rampant prostitution and drug dealing, smuggling, polarization between rich and poor, ideological cynicism, political opportunism and official corruption. The colony's low-end manufacturing sector was unregulated, and the labor force had to work long hours in sweatshops under inhumane and unsafe conditions for less-than-subsistence pay with no health or retirement benefits or job security. Small entrepreneurs were forced to seek financing from predatory lenders. Child labor exploitation was routinely practiced. Human rights and civil liberties were never issues about which British colonialism cared much.
The Great Proletarian Cultural Revolution unfolded in China in 1966. While the issues raised in the Cultural Revolution on whether politics should be the determinant of the correct development path remain debatable to this day, the excesses associated with internecine political struggle of the decade-long upheaval left the nation exhausted and its economy in near-total collapse. The political cataclysm spilled over into Hong Kong. In 1967, a labor dispute at an artificial-flower sweatshop in Hong Kong quickly escalated into widespread violent street demonstrations. For several months, protesters clashed with police, overturned cars and buses, stoned hotel lobbies and shop windows, and in a general release of century-old, pent-up rage and hostility toward colonial capitalism, disrupting life and business in the colony. Several bombs were set off in a wave of terrorism. At one point, shots were fired across the border from China into Hong Kong.
British officials responded with a ruthless crackdown against the sudden release of pent-up nationalism, suspending what little civil liberty the colony had traditionally allowed, in the name of anti-communism, imprisoning thousands without trial and closing down left-wing Chinese-language newspapers. Official reports acknowledged that some 50 people were killed during the riots by excessive police force, with thousands more wounded.
To defuse a recurrence of social unrest, social and government reforms in Hong Kong followed, including the cleanup of the openly corrupt, scandal-ridden police force. At the same time, China made clear that it still considered Hong Kong a part of Chinese territory it would eventually reclaim.
It was at this point that British imperialism decided to solicit US assistance by the gradual adoption of bogus democracy and free markets as a new colonialism with a human face. The colonial government then began officially referring to Hong Kong as a territory, not a colony. British banking interests began nurturing a new breed of native compradores with special preferential bank credit. Their role was to pose as a national bourgeoisie to front for neocolonialism.
These new compradore tycoons, some speaking no English and unwashed by British upper-class education and mannerisms, dutifully bailed out British interests from the political risk of rising nationalism. They acquired British trading firms at inflated market prices with loans from British-owned Hong Kong banks, backed by profit they made in real-estate speculation, light manufacturing, shipping and retail finance and banking services for poor natives. The huge profit they squeezed from the colony were invested in British and US enterprises overseas that suffered huge losses, in a form of cross-border political transfer of wealth through the market mechanism. These new tycoons welcomed the new liberal colonialism as they benefited from token gestures of the end of racial discrimination.
The British finally allowed that rich Chinese should no longer be treated as subhuman, at least in public, setting them apart from the masses of the Yellow Herd as Honorable Whites who might even qualify for a knighthood from the queen. Compradores now could comfort themselves by claiming they were serving democracy and freedom rather than imperialism and colonialism. They posed as heroes of capitalism instead of running dogs of colonialism.
Colonialism, the administrative system of imperialism, like its slavery kin, is inherently evil. Yet the evil institution of slavery in US history did not prevent the emergence of great leaders from the South, such as George Washington and Thomas Jefferson. Similarly, the evil institution of colonialism in Hong Kong history did not prevent the emergence of a sensible administrator in the person of Murray MacLehose.
Fluent in Chinese and a student of Chinese culture and history, Crawford Murray MacLehose was first posted to Hong Kong in 1963 as a political advisor to ensure that colonial policy in Hong Kong supported evolving British policy on China. He held several other political posts in the British Empire before becoming Hong Kong's 25th British governor in 1971.
From 1971, when he assumed the post of governor, to 1982 when he left the post and returned to Britain, MacLehose, of a new breed of governors more in tune with the progressive British Foreign Office than the conservative Colonial Office, practiced an "enlightened form" of colonial administration with an eye on Cold War geopolitics. He moderated the traditional colonial attitude of aloof, discriminatory disinterest in Chinese community problems and needs. He also balanced the traditional policy of open government support for British monopolistic businesses with a new progressive social awareness. Reflecting the ideological wind from the British homeland under Labour control, MacLehose took an active role in social welfare (particularly public housing, medical care, colonial education, and protection of workers), and improved the living conditions of Hong Kong residents within the context of liberal capitalism and benign colonialism. The MacLehose administration accorded with Hong Kong's economic takeoff, laid a socio-economic foundation for the colony as a labor-intensive manufacturing center, and instilled a sense of respectable if not totally honorable identity for colonial Hong Kong residents.
MacLehose established the Independent Commission against Corruption (ICAC) to ensure rule by colonial law, even indicting mid-level British police officers and colonial officials who had run a police force and a regulatory regime known for widespread corruption. While the ICAC stopped administrative corruption in the colony, much of the regulatory regime of structural British preference remained in place and at the same time exempted US commercial interests from British protectionism. After a mass demonstration by off-duty policemen on Queensway in Central in 1976, the governor ordered an amnesty for all crimes of corruption committed before January 1, 1977, lest the entire police force had to be imprisoned. The rule of law indeed.
MacLehose initiated moves toward social welfare as effective and timely responses to mounting social and political turmoil, such as the riot against the Star Ferry fare increases in 1966 and the leftist anti-British-imperialism strikes and demonstrations in 1967. He handled deftly the student movement launched by Hong Kong University students in 1968-69, the movement to legalize the Cantonese language in 1970, and demonstrations in Queen Victoria Park in defense of Chinese sovereignty over the Diaoyutai Archipelago in 1971.
MacLehose's liberal responses and concessions protected British interests and stabilized British rule in Hong Kong by reducing the most visibly oppressive aspects of old-time colonialism. In contrast to the socio-political upheaval then raging in China, many in Hong Kong began to let the practical benefit of a peaceful life mask the political issue of national honor. The threat of communism was promoted as an anesthetic for British imperialism and colonialism with high effectiveness among the refugees, who were mostly members of the petty-bourgeois class that fled from communism in China.
The Vietnam War aborted president Lyndon Johnson's "Great Society" for the United States, but it brought economic benefits in the form of subsidized trade for Japan, South Korea, the Philippines, Singapore, Malaysia, Indonesia, Taiwan and Hong Kong. While the war created a backlash in US domestic politics against anti-communist mania, it strengthened a chain of anti-communist frontline bases in East and Southeast Asia, in which Hong Kong was a crucial link. Thus Hong Kong basked in the glory of geopolitical trade preference with the US. MacLehose became governor at the end of Hong Kong's tumultuous anti-colonial phase, but the economic fringe benefits from the Vietnam War gave Hong Kong a much needed and timely boost, which stabilized Hong Kong's economy at the beginning of MacLehose's benign rule.
After the economic takeoff in the 1970s, primary and secondary education in the colony improved by government policy and quotas for tertiary educational institutions increased. In 1969, the Chinese University of Hong Kong, a conglomeration of US missionary educational institutions expelled from China, moved to Shatin on a new campus as Hong Kong's second officially recognized public university. Notwithstanding its institutional roots as an anti-communist propaganda machine, the Chinese University provided a counter base to Hong Kong University, the bastion of British colonial elitist education. In 1970, the government agreed to convert the former Hung Hom Industrial College into Hong Kong Polytechnic.
The literacy rate and level of education of the population rose, albeit still way below world-class standards and still infested with colonial mentality of rote learning and discouragement of independent, let alone revolutionary, thinking. To this defect was added the anti-communist propaganda financed from US sources. Doctoral and postgraduate education was non-existent even for professional schools. There was no basic research in the sciences and much of the education was focused on commercial job training for clerical and mechanical maintenance work. Much of the research in the social sciences produced in this period was little more than outright hostile intelligence gathering and anti-China propaganda.
Graduates of Hong Kong universities went predominantly into careers in the docile, apolitical Civil Service. Offspring of the elite went to universities overseas and returned to join family businesses that had nothing to do with their studies. Scions of wealthy families who were promising nuclear physicists were put to work in the plastic-toy business. The professions that prospered were law, medicine, accounting and architecture. Even then, overseas professionals were routinely called in for significant assignments. This is true even today. While Hong Kong has yet to adopt a rule-based competitive policy, it has never felt the need to adopt any affirmative-action program for local talent.
In addition, in the 1970s, with the spread of television, TVB (begun in 1967) exerted a strong influence with improved public communication, particularly in the imposition of Anglo-US anti-China propaganda on an uninformed and unthinking public poisoned by a colonial education. In the early 1970s, remnants of Qing Dynasty Manchu feudal laws were officially abolished, putting an official end to one colony, two legal systems. It may be said that the MacLehose regime signaled the beginning of Hong Kong's self-delusion in the name of modernization. In reality, MacLehose repositioned Hong Kong by giving it a central anti-China role in the Cold War.
During his time in charge, MacLehose oversaw a historic period of social reform and public investment that formed the foundation for unprecedented economic growth, including the building of Hong Kong's underground transit system. Lord MacLehose was knighted in 1983, a year after his retirement. These social programs formed the foundation of Hong Kong's subsequent economic success in the command economy, not the much-touted free-enterprise myth.
In retirement, Lord MacLehose summed up his opposition as governor, to any introduction of democratic elections in Hong Kong by saying: "If the communists won, that would be the end of Hong Kong. If the nationalists won, that would bring in the communists," in an interview in Britain's Daily Telegraph. Of course even MacLehose was not delusionary enough to contemplate the possibility of the British winning. British colonialism had no use for democracy until Britain was forced to return Hong Kong to China.
MacLehose, on October 10, 1979, reported the government's housing policy of creating between 40,000 and 45,000 units annually: "The housing program continues to be of prime importance, and in the review of public-sector expenditure it was rightly given very high priority ... None of the housing, amenities, schools and landscaped surroundings would be of any value without employment. And the new towns are not intended as dormitories. So the progress of industry in the New Territories is vital." Thus public housing and an industrial policy of low-end manufacturing for a geopolitically guaranteed US market put Hong Kong on the road to prosperity.
Eighteen years later, on October 8, 1997, Tung Chee-hwa made his first address as the first chief executive of the Hong Kong SAR under Chinese sovereignty. Again, housing was a key theme. The current system, he said, had "produced erratic price patterns and left potential home buyers and developers in the lurch". He set as a goal the production of 85,000 new public and private units annually within two years.
Tung's policy speech, which laid out a five-year plan for the SAR, went far beyond MacLehose's vistas. Hong Kong's new leader unveiled plans to cut the waiting times for public rental housing from six and a half years to four years by 2003 and no more than three years by 2005. He spoke of building major infrastructure links and developing technology parks to diversify the economy into the next century. And he announced concrete initiatives to alleviate the livelihood burdens of the SAR's expanding elderly population. Tung identified improving competitiveness and education as the key challenges facing the new Hong Kong - and launched comprehensive initiatives to achieve such goals. He stressed the rapidly growing ties - notably economic, cultural and technological - between Hong Kong and China, though he was careful to omit mentioning political ties. By doing so, he was turning the attention of a new generation of Hong Kong residents to the vast opportunities that awaited them in what was officially their motherland once more. But the arm's-length attitude on political integration with China means that this vast opportunity remains elusive to the Hong Kong economy.
Most critically, Tung's vision did not include any awareness of the new geopolitical landscape. The new Hong Kong SAR, by constitution, puts fundamental obstacles in the way of its needed integration into the new Chinese economy, while its former colonial role to serve Anglo-US interests in China is becoming inoperative. Hong Kong has yet to shed its compradore mentality or its compradore policy. It continues to look at China from the outside in, representing the geopolitical and economic interests of the West, by presenting its residual colonial system as the more superior of the two systems in OCTS, instead of an obsolete system that must be restructured in time.
When faced with economic collapse from Hong Kong's failure to restructure its economy to respond to the new geopolitical landscape, the new SAR government hangs on to obsolete myths of its colonial predecessor. Hong Kong's top leaders tirelessly mouth meaningless slogans of focusing on "sound fundamentals", rule of law, free markets, small government, sound monetary regime based on its dysfunctional currency peg, in subservient tribune to US neo-liberal globalization, which has destroyed the colonial command economy. To make matters worse, it has abandoned its public housing and other social programs started three decades earlier by MacLehose, in a panic attempt to save the over-leveraged real-estate tycoons at the expense of the future of the Hong Kong economy. While the new leaders continue to pin their hope for Hong Kong on external trade, they excuse lamely their dead-end policies by lamenting that Hong Kong has no control over external factors.
Henry C K Liu is chairman of the New York-based Liu Investment Group.
By the late 1970s, British Hong Kong's colonial officials and business leaders realized they could no longer put off the question of what would happen to the New Territories, which makes up more than 90 percent of Hong Kong's land area. The New Territories had been leased to Britain in 1898, for 99 years, so that lease was set to expire on July 1, 1997.
In 1979, the British government initiated talks with China about Hong Kong's future. Governor Murray MacLehose unexpectedly brought up the subject during a private meeting in Beijing with Chinese leader Deng Xiaoping, who made it clear that China intended to reclaim Hong Kong.
In 1982, on the heels of victory in the Falkland Islands, British prime minister Margaret Thatcher made an ill-fated attempt to perpetuate British colonial rule over Hong Kong. She proposed British administration of Hong Kong after 1997, which Chinese officials rejected outright. Thatcher not only insisted on British sovereignty in Hong Kong, but also insisted that the unequal New Territories Treaty signed in 1898 was legal. China is not Argentina, and Deng stated his clear intent to take back Hong Kong in 1997. The bilateral talks over Hong Kong quickly deadlocked. The British had hoped to extend their control over their most valuable colony, but China refused to recognize the validity of what it considered unequal treaties forced on it by the British in 1841.
London finally conceded that there was no legal basis to force China to renew the New Territories lease, and that modern-day Hong Kong could not survive without that major portion of the colony, nor without Chinese acquiescence. In 1984, after two years of lame posturing about China's need to honor international treaties, Britain was left with little choice but to agree to China's proposal for a Joint Declaration. Hong Kong would be a Special Administrative Region (SAR), with its own legal and economic systems until 2047, 50 years after its return to China.
The Joint Declaration set a framework to handle bilateral issues between Britain and China. Deng Xiaoping applied the "one country, two systems" (OCTS) formula to the Joint Declaration for the return of Hong Kong to Chinese sovereignty. That formula had been originally fashioned as a solution to the Taiwan problem as a Chinese internal affair. Subsequent to the Sino-British Joint Declaration, Deng approached Washington directly for acceptance of the same formula for solving the Taiwan problem. The administration of president Ronald Reagan summarily turned the idea down as a non-starter. Nevertheless, the OCTS formula became official Chinese policy for the reunification of Taiwan, with wholesale Chinese political compromise on Hong Kong in deference to its implication on Taiwan.
OCTS is a fundamental error of multi-level dimensions on the part of China, not the least of which is Chinese acquiescence on the principle of foreign meddling in Chinese internal affairs. Short-term, it permitted the continuation of neo-colonialism on Chinese soil under Chinese sovereignty for another half century. This was a significant backsliding. Since the 1911 revolution, no colonialism had been allowed to exist under Chinese sovereignty, even though it continued to exist in occupied territories where Chinese sovereignty had been temporarily suspended. One of the two systems referred to in the policy of OCTS is in fact neo-colonialism disguised as capitalism. Furthermore, the system in Taiwan is national capitalism, not colonialism. Thus the policy of OCTS may apply to Taiwan, but not to Hong Kong. Because the policy of OCTS was misapplied to Hong Kong, it gave Taiwan an opening to say it did not apply to Taiwan because Taiwan is not a foreign colony. Thus the policy's original purpose was negated while political compromise on the return of Hong Kong was made for naught.
The reality today is one country: China; two governments: Beijing and Taipei; and three systems: socialism (with Chinese characteristics) on the mainland, national capitalism on Taiwan, and residual colonialism in Hong Kong. The British are gone from Hong Kong administratively, but Anglo-US neo-imperialism continues to rule Hong Kong by proxy through its overwhelming economic prowess.
The events at Tiananmen Square in 1989 altered the geopolitical context affecting Hong Kong. More ominously, Beijing's overture to gain US acceptance of the policy of OCTS opened the way for US interference on the future of Hong Kong. Up to that point, Washington had been officially neutral in a bilateral problem between China and Britain involving the redress of historical colonialism.
After Tiananmen, the issue of Hong Kong was abruptly transformed from one of righteous termination of British colonialism on Chinese soil to official Chinese acceptance of colonial institutions for 50 more years in the name of democracy and free enterprise market fundamentalism. Moreover, the issue of Hong Kong prompted the US Congress to adopt the Hong Kong Policy Act, which provides a legal basis in US law for self-righteous US monitoring on Chinese acceptance of Western democracy and capitalism in Hong Kong and, by extension, within Chinese territory.
US recognition of the People's Republic incurred the price of the Taiwan Relations Act, which binds the US with the force of domestic law to interfere in China's internal affair by helping Taiwan defend itself militarily against reunification by force from China. Similarly, US recognition of Hong Kong under Chinese sovereignty incurred the price of the Hong Kong Policy Act, which also interferes in China's internal affair by holding China to the observance of the OCTS policy with the force of US domestic law. China rejects both these US domestic laws as unacceptable interference in its internal affairs. Yet Chinese policies on Hong Kong and Taiwan are operationally constrained by these two US domestic laws.
Until Hong Kong and Taiwan are free of foreign intervention, China's status as an independent power remains blemished. If the US could unilaterally withdraw from the Anti-Ballistic Missile (ABM) Treaty on the grounds that it no longer served US national interest, why shouldn't China have the same option on OCTS when and if the policy no longer serves Chinese national interest? Because there was nothing Russia could do about US's unilateral withdrawal from the ABM Treaty, while the US can cause economic pain to Hong Kong by denying the SAR its special trade status with the US if the OCTS policy is not observed. The US has no such power over Shanghai, or Shenzhen, or any other city in China.
The British exploited to the maximum this new post-Tiananmen geopolitical climate with the full backing of US moral imperialism. Hong Kong's last colonial governor, Christopher Patten, an ambitious Conservative politician who had earlier lost his seat in parliament, arrived in 1992 to pursue the goal of setting Hong Kong up as an anti-China base by 1997, in the name of democracy as the parting gift of British colonialism. In direct violation of a bilateral understanding of "50 years without change" for Hong Kong, Patten embarked on a crash program of "democratic reforms" in Hong Kong now that British colonial rule was ending by 1997.
This was coupled with the evacuation of century-old British monopolies through inflated financial compensation from government funds. Even the British military was paid handsomely (US$1 billion) for removal expenses, for which the newly installed financial secretary, never given the option to resist, was rewarded with a knighthood for being of service to the British crown. Faithful collaborators with British colonialism were hailed as democratic community leaders and defenders of freedom. The lead member of the Executive Council that "advised" the British colonial governor (Lydia Dunn) was made a baroness for faithfully protecting British interests in the name of preserving freedom for the people of Hong Kong.
In a crash localization program, Patten hand-picked key locals to lead the civil service. Well-trained running dogs such as Anson Chan were groomed to head the allegedly apolitical civil service, with a strategy aggressively focused on insulating Hong Kong from any influence by China. Key civil servants were sent to Harvard University's Kennedy School of Government for special indoctrination in the basics of neo-liberal governance, complete with sham degrees and diplomas. Neo-liberalism replaced old-time colonialism, introducing a neo-colonialism of US economic imperialism under the pretext of preserving Hong Kong as an international city with the rule of law, free enterprise, press freedom, small government - scripts written by the Heritage Foundation and the American Enterprise Institute. This fantasy is in direct contradiction to the historical fact that Hong Kong was never more than a British colony structured to serve British geopolitical and economic interests and to enrich British monopolies through a British command colonial economy.
After the signing of the Joint Declaration in 1982, Hong Kong, still under British rule, wasted 15 years prior to its return to China, with no long-range plan to deal with the new geopolitical landscape. Hong Kong hung on to fantasies created by Anglo-US propaganda, totally intoxicated by a bubble economy created by its currency peg and a trade regime heavily dependent on geopolitical preference. While in office, Patten, working feverishly to cater to US ideological fixation, ran what British career diplomats in Whitehall labeled a sideshow, oblivious to British interest in, and need for, good long-term Sino-British relations. While Britain had no power to resist Chinese demands, the US had its trade card on both Hong Kong and China.
The agreement of "50 years without change" was surreptitiously rendered meaningless by Patten's stealth change in the political structure of Hong Kong to make the SAR ungovernable after 1997. A so-called Democratic Party with only a handful of members was formed with open US support to oppose China in the name of liberty. It was the latest version of the British strategy of perpetuating "divide and rule" in its involuntary decolonization program throughout the shrinking British Empire. On the issue of the rule of law, British common law, which was practiced only within former territories of the British Empire and not in former territories under continental civil law of the Napoleonic Code, was allowed to continue in Hong Kong under Chinese sovereignty. Yet the arrangement of the highest judicial authority resting previously in the Privy Council in London was not reciprocated by transferring that authority to the People's Supreme Court in Beijing. Hong Kong was allowed to set up its own Court of Final Appeal. This bizarre arrangement promptly produced a constitutional crisis over the issue of sovereignty in Hong Kong soon after its return to China.
As China adopted its "open to the outside" policy in 1979, Hong Kong and China both soon reaped the immediate benefits of the colony's early participation in the modernization of China. Hong Kong entrepreneurs were able to provide expertise and capital for joint venture projects on the mainland, beginning with tourism and hotels, and soon moving into infrastructure and manufacturing. As a result of this collaboration, China in return increased and changed the types of investments it had made in Hong Kong up to then. For example, in the 1970s Chinese investments in Hong Kong were mainly centered on transport, shipping, finance and distribution of Chinese export goods beyond Hong Kong. These investments were targeted to serve the needs of a still largely closed Chinese economy. By the early 1980s, investments began to include a cigarette factory, real estate and related businesses, department store chains selling mainland products, printing presses, periodicals and gas stations. These investments were focused on trading profits, beyond serving the needs of a closed economy on the mainland. China Resources, which had organized Chinese export trade through Hong Kong, evolved into a huge conglomerate. Chinese banks and insurance companies formed joint ventures with Hong Kong investors.
Between 1976 and 1981, the value of Hong Kong's domestic exports to China multiplied 120 times. The amount of Chinese goods re-exported from Hong Kong - then acting as China's only "door to the world" - comprised 31 percent of the colony's total in 1981. Today, Chinese companies and financial institutions are major players in the Hong Kong economy. Clearly, both sides enjoyed a significant increase in trade as a result of Hong Kong's effort to profit from helping China reach its goal of modernization through economic growth.
But the adverse effect on China has been the acceptance of Hong Kong's colonial economy as a model of reform for the Chinese economy. By learning about the modern world after five decades of near-total isolation through the warped experience of colonial Hong Kong, China modeled the first phase its modernization as a revival of a semi-colonial regime that the nation had endured two political revolutions to throw off. This key compromise poisoned Deng's "Four Modernizations" program and sowed the seeds of corruption in all levels of Chinese government and society and of ideological decay within the Communist Party. The Chinese economy fell into the trap of excessive dependence on exports to the West, primarily to US markets, by building a sweatshop economy along the Hong Kong model, and on foreign capital, along the path welcomed by Western imperialism. It would have been arguably acceptable as a short-term compromise for the "take-off phase" of economic development. But the export frenzy went on for 25 years at the expense of balanced domestic development, in the process letting a social services and health network and a regime of equitable distribution of wealth that had been the envy of the world deteriorate into chaos and decadence.
The adverse impact of compradore culture and associated corruption on the ideological erosion of the Chinese Communist Party was allowed to become structural. It is only recently that China has begun to refocus on internal development, away from exports, to address the imbalance between the coastal regions and the interior, to stimulate domestic consumption and to correct the problem of extreme disparity of income and polarization of wealth. On the issue of foreign capital, China has yet to apply the principle of creditary economics based on the State Theory of Money to free itself from dependence on foreign capital for domestic development. On the ideological front, the noble aspiration of serving the people has been replaced by the crass aim of serving foreign capital for profit. Getting rich at the expense of the people is not glorious, even under capitalism.
The Nazis came to power in 1933 in Germany at a time when its economy was in total collapse, with ruinous war-reparation obligations, and zero prospect for foreign investment or credit. Yet, through an independent monetary policy of state credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany into the strongest economy in Europe within four years, even before armament spending began. While this observation is not an endorsement for Nazism, the effectiveness of German economic policy in this period, some of which had been started during the last phase of the Weimar Republic, is undeniable.
China's pace of growth in the past two-and-a-half decades has been much touted by Western neo-liberals. Yet a case can be made that China's growth rate had been unnecessarily slow, that despite self-congratulatory complacency, China is still falling behind world standards on many measures even by its own projections. And this relative slow growth is not caused by the absence of liberal markets but by China's mistaken view that a disadvantaged participation in neo-liberal globalization is its only option.
It is time for China to realize that acceptance of this fate is not ordained by nature. Furthermore, the economic growth came with the price of unsustainable structural imbalance, malpractice in human-resource utilization and environmental management, and continuing transfer of the nation's wealth overseas through export under dollar hegemony. This self-arresting sluggish growth rate is in large measure the result of the undue influence on China's development strategy exerted by the colonial-economy mentality of Hong Kong tycoons. Such a mentality sees subservient support for economic neo-imperialism in the form of neo-liberal globalization as the only option for growth, instead of the game of voluntary perpetual indenture that it actually is.
Hong Kong's balloon economy had boomed with its new China trade beginning in 1978. By 1987, it recorded a 13.6 percent annual gain in gross domestic product (GDP). On Black Monday, October 19, 1987, the Hong Kong stock market, alone among the world's financial centers facing contagious global collapse, closed for four days. The British Hong Kong government had to use HK$4 billion (US$513 million) to rescue the Hong Kong Futures Exchange from insolvency. The international press called the Hong Kong stock market under British regulatory supervision "a badly run casino".
On the other side of the globe, Alan Greenspan, newly appointed chairman of the US Federal Reserve Board, built his reputation by releasing a single sentence that said he would supply all the liquidity the banking system needed to stay afloat after the 1987 crash. He pumped tens of billions of US dollars, a fiat currency that he could print at will, into US financial institutions by pushing down the overnight lending rate aggressively. Greenspan's move flooded financial markets with money, which helped preserve liquidity and restore confidence in the US financial system, but it started the bubble economy of the 1990s, which ended in Asia on July 2, 1997, one day after Hong Kong was returned to China. Greenspan did in essence the same thing in 1998 and again after September 11, 2001. Greenspan will go down in history as the central banker who revived moral hazard.
When the Asian financial crises began in Thailand on July 2, 1997, the new SAR government maintained with hubris that the fundamentals of Hong Kong's economy were sound. It had US$112 billion in foreign reserves, no external debt, a currency pegged to the US dollar, low taxes, business-friendly government, rule of law, freedom of information, etc, etc. Hong Kong was confident enough to contribute US$1 billion to the International Monetary Fund to help contain the crisis within Thailand. Government leaders were calmly announcing that all Hong Kong needed was to stay the course and keep its "confidence" in what they mistook as a passing storm. They were painfully oblivious to the fact that staying the course would lead Hong Kong directly toward a whirlpool of economic collapse in not a passing storm but a fundamental structural collapse of the neo-liberal global financial architecture. They were also blind to the fact that the Hong Kong economy's easy ride on the geopolitical magic carpet was coming to an end.
The neo-liberal mantra began to sound like empty pitches of snake-oil pushers on the Cross Harbor Ferry. No one could answer the embarrassing question: with such good fundamentals, why are the factual data so consistently bad and for such a protracted period?
By August 1998, the SAR government had to intervene in the Hong Kong stock market, buying up more than US$15 billion in publicly traded blue-chip stocks to fend off speculative attacks on the Hong Kong dollar. Since 1997, Hong Kong has been locked in a downward spiral by staying the course.
All kinds of harebrained schemes surfaced. The government used US$1.74 billion of public funds to lure the Disney Co to Hong Kong, at a time when Disney has been facing financial problems worldwide, and the potential of theme parks as a development stimulant having visibly peaked. Hong Kong Disneyland Phase 1 will include a Disney theme park, Disney-themed hotels and retail, dining and entertainment facilities. It will occupy 126 hectares, and can be expanded to 180 hectares in the future. Phase 1 is expected to open in 2005. The project involves a total commitment of HK$22 billion (US$2.8 billion) in public funds (infrastructure, loans and equity). In its first full year of operation, Hong Kong Disneyland is expected to attract more than 5 million visitors, including 1.4 million new tourists, and stimulate additional spending of HK$8.3 billion. The government claims that over a 40-year period, the project is expected to generate economic benefits amounting to HK$148 billion. Any Hong Kong entrepreneur would tell you that a sixfold return over a 40-year period is hardly a financial gold mine, notwithstanding that the estimated return is denominated in soft "economic benefits", not hard cash.
In all, Hong Kong has proposed some US$77 billion in government-supported infrastructure and other major projects over 15 years, intended to get the stagnant economy moving again. That is massive by any standard - amounting to US$12,000 per resident, about 50 percent of 2001 per capita GDP. But many of these proposed projects fail to coordinate with mainland development plans, let alone fully integrate with them, if not in predatory competition with the Pearl River Delta economy. Hong Kong's vision of itself as the front parlor for entertaining foreign investors and the well-appointed sales office, with the Pearl River Delta as the servants quarters and the factory floor, has not been well received by mainland officials. Many of Hong Kong's plans have to do with keeping the Pearl River Delta from effectively competing with Hong Kong rather than true cooperation on an equal basis for mutual benefit. This is because compradorism does not thrive on equality. It is also the mentality behind Hong Kong's insistence of not wanting to be a "Chinese" city, a view relentlessly expressed by Patten protege chief secretary Anson Chan until her "early retirement".
Such grand schemes have pushed public spending up to 24 percent of GDP, producing a budget deficit while contributing little to constructive restructuring of the Hong Kong economy, which requires full integration with the mainland economy. In the manner that SAR government Requests for Proposals are written, many of the construction and consulting contracts will go to foreign firms in the name of an open market, at a time when the local unemployment rate is over 7 percent, inching toward 9 percent by most forecasts. Also, the thinning demand for local professionals further exacerbates the ongoing brain drain from Hong Kong.
In 1997, when the British returned Hong Kong to Chinese sovereignty, public expenditures accounted for just 17 percent of GDP, albeit calculated on a substantially larger GDP. From 1998-99 to 2001-02, government expenditure recorded a cumulative growth of 17 percent in money terms, while GDP registered a cumulative fall of 5 percent. Public expenditure in the economy averaged about 16 percent in the mid-1980s, about 17 percent in the mid-1990s, but rose to 22 percent in 2001-02. In the face of economic downturn since 1997, the SAR government has consciously adopted a counter-cyclical fiscal policy, keeping expenditure growth above the projected growth trend of the economy. But the government's fiscal stimulant has been focused on ineffective spending, neglecting unemployment and public housing, and integration with the mainland economy. The government has recently cut social welfare payments by 11 percent and in effect reduced the minimum wage for new contracts of foreign domestic helpers by about the same. A recent deal with civil servants will cut their salaries by 6 percent in two stages.
In addition, price rigidity in public-expenditure contracts causes prices to continue to rise despite general deflation in the economy. The government's stated target is to reduce public expenditure to 20 percent of GDP or below by 2006-07. Unless this reduction is achieved through a rise in GDP rather than a cut in public expenditure, it will further distress the economy.
Land premium, constituting 22.6 percent (HK$63.6 billion) of revenue in 1997-98, fell to 4.4 percent (HK$8.5 billion) in 2002. This is the center of the problem. Hong Hong's export partners are mainland China (34 percent), the United States (23 percent), Japan (6 percent), Germany (4 percent), the United Kingdom (4 percent), Taiwan (3 percent), and Singapore (2 percent), with China trade expected to be the leading growth potential. Yet a proportional share of public expenditure has not been directed toward further integration with China.
With the outbreak of the Asian financial crisis in the second half of 1997, the Hong Kong economy suffered severe setbacks, and for the first time in recent memory it recorded negative growth on an annual basis in 1998. The economy rebounded temporarily and attained double-digit growth in 2000 on naive and false expectation that what went down must go back up. But along with the global economic downturn, the Hong Kong economy slowed abruptly again in 2001. The Hong Kong economy yielded growth averaging only about 2 percent per annum between 1998 and 2002. Yet China, Hong Kong's largest trading partner, consistently registered growth rates above 7 percent in the same periods. This disconnect is largely the result of Hong Kong's failure to integrate its economy with the mainland economy.
And there is serious talk of new taxes in Hong Kong, including one on border crossing to the mainland and a new tax on goods and services. New taxes are always unpopular, especially in a traditionally tax-shy city with a maximum 15 percent tax rate on personal salary income and a 16 percent tax on business income. Most in Hong Kong pay no salary income tax at all and only 13,000 people in a city of 7 million pay the peak rate of 15 percent. But the real regressive impact is the obstacle such border-crossing taxes erect against the needed integration of the two economies.
Disparity in costs between Hong Kong and the Pearl Delta is about 10:1 at present. Integration with the Pearl Delta would require Hong Kong costs, particularly wages and rent, to fall drastically even as Pearl Delta costs rise. This cost disparity vastly exceeds that between West Germany and East Germany or that between New York and New Jersey. Since the opening up of the mainland in the 1980s, Hong Kong enterprises, leveraging the low costs there, have expanded their production capacity and enhanced Hong Kong's cost competitiveness globally. Hong Kong's domestic economy has upgraded itself in tandem with its exploitation of low labor and land cost on the mainland. But Hong Kong has been siphoning off most of this profit, only a small portion of which has been reinvested on the mainland. Even then, the reinvestment has been concentrated in more sweatshop production for more export, rather than in socio-economic development. The rest of this profit has been going into bidding up real estate prices in Hong Kong and into money-losing real-estate investment in the US, Britain, Canada and Australia in the form of flight capital through most of the 1990s. In recent years, profit from Hong Kong has been poured into wireless and telecommunication ventures overseas, with unhappy results.
Support services for the Hong Kong trading sector and its mainland factories replaced the local manufacturing sector as the fastest-growing sector. The South China region has now evolved into one of the world's prolific production bases. Since the mid-1990s, service industries on the mainland have also been developing apace. During this period, a bubble economy emerged in Hong Kong, giving rise to high operating costs in the colony, pushing some Hong Kong service industries to move northward as well. Moreover, after its return to China, Hong Kong residents, in increasing numbers, travel across the boundary to shop and vacation, adversely affecting Hong Kong's domestic consumption and the retail sector and its real-estate base.
In the process of economic integration, the price differential between Hong Kong and the mainland will inevitably narrow gradually through factor price equalization. The price of tradable products should adjust swiftly because of relatively free trade between the two economies. But fixed rents in Hong Kong prevent this adjustment from taking shape without widespread business failures and bankruptcies.
The adjustment of non-tradable factors such as land and labor will be slow and painful. However, factor price equalization does not mean that price levels between Hong Kong and the mainland will be the same, just as New York, London and Tokyo have relatively higher prices than their neighboring areas. Prices in Hong Kong will generally remain higher than prices in the Pearl Delta for some time, but the exponential gap cannot remain forever. The conventional wisdom is that the magnitude of this price differential will hinge largely on Hong Kong's ability to provide high-value-added services and goods. But God has not forbidden the Pearl River Delta from developing high-value-added service and goods production. Ironically, the high cost disparity gives more of a boost to the Pearl River Delta's downhill effort to develop such services and goods than to Hong Kong's uphill effort to maintain the cost differential.
As the bursting of the bubble economy coincided with economic restructuring, Hong Kong has experienced heavy deflationary pressure, exacerbated by the linked-exchange-rate mechanism tied to a US dollar that, despite its recent decline, is still overvalued. Hong Kong property prices have dropped from their peak by more than half. And because of the economy's disproportionate reliance on the real property sector, this has magnified the economic crisis. High labor costs in Hong Kong force pay cuts and layoffs, causing high unemployment and underemployment, which in turn reduces domestic demand, particularly consumer spending, as well as incentives for more education and training, shrinking the economy further in a downward spiral.
China's growth so far is based on labor-cost advantage in the global export market, coupled with low land costs and environmental liabilities. Even then, the growth rate is unsustainable on exports alone as the global economy stagnates and global trade shrinks. To keep the growth rate above 7 percent, China would have to focus on domestic development. Hong Kong's future rests on its role in China's domestic development.
Shenzhen, the Special Economic Zone (SEZ) just north of Hong Kong, is keeping a close watch on its cost structure to ensure that it does not escalate to levels that have weakened Hong Kong's competitiveness. Increasingly, other Chinese cities, including Shanghai, are using Hong Kong as a model to avoid, rather than to emulate.
The Hong Kong government budget deficit at the end of the financial year in March was a record amount that represents more than 5 percent of projected 2003 GDP. It was far above the original estimate, mainly because government revenue was 19.2 percent less than originally estimated. Moody's, a major international rating agency, has estimated the 2003 deficit to be as high as HK$90 billion. Government revenue will continue to shrink, as the bulk of it comes from land revenue. Since Hong Kong has no capital-gains tax, there will be an adverse impact on revenue from salary income as Hong Kong shifts wage-earning activities to the Pearl River Delta. The currency peg is a hindrance to economic recovery and cannot hold, notwithstanding government intransigence on the issue.
Local polls on top popular concerns repeatedly show democracy trailing by wide margins major livelihood issues, such as rising unemployment, small business bankruptcies, home mortgage foreclosures, education, crime and public health. The chief executive has introduced a mild form of industrial policy that will help the SAR compete in select, strategic industries. Hong Kong is now solidly dependent on its ability to integrate with the rest of China's economy.
The effect from exports on the domestic sector has been weakening in the past 20 years. Less than 30 percent of the working population is now in trade-related fields. Domestic demand is still very weak as the local economy has yet to recover from the severe wounds of the economic crisis and all disposal income has been soaked up by real estate costs, depleting purchasing power even for the still employed.
China feels the need to support the stagnant Hong Kong economy to prevent the link between Chinese sovereignty and economic depression, but is rather helpless because Hong Kong's Basic Law, its mini-constitution, specifically forbids Chinese interference in Hong Kong. Yet the cause of Hong Kong's economic woes has little to do with Chinese sovereignty. It has to do with Hong Kong's delusion about its geopolitical free ride as a free market, made inoperative after 1997 when the United States abandoned preferred trade treatment for Hong Kong for lack of geopolitical incentive now that it is part of China. But the mainland economy is thriving. Hong Kong's economy is in trouble not because it is now under Chinese sovereignty, but because Hong Kong refuses to be Chinese. Why should China feel the need to defend residual colonial compradorism in Hong Kong, which claims superiority over socialism with Chinese characteristics on the mainland?
Hong Kong's self-styled central banker, Joseph Yam Chi-kwong, head of the Hong Kong Monetary Authority, whose central bank function has in effect been stripped by the peg, recently warned publicly in writing that "a fiscal deficit carries the risk of leading to an interest-rate shock if a budget package lacks credibility or community support". Since the Monetary Authority operates under the direct control of the Financial Secretary, one can assume that its head was speaking for the government. The message is clear that the danger of a budget deficit is directly related to the defense of the currency peg. In other words, the peg is preventing Hong Kong from using a fiscal deficit to counter the most difficult economic crisis, despite the fact that Hong Kong has more than US$100 billion in reserves. Yam is an open admirer of Alan Greenspan, whose style Yam tries hard to emulate, notwithstanding the difference in background and training between the two. But Greenspan is flooding the US, and by extension the world, with US dollars that he can print at will, and in fact threatening to print more to fight deflation and to support President George W Bush's $300 billion deficit. But Yam, with US$120 billion in reserves, is unable to tolerate an US$11 billion deficit because of the peg.
An interest-rate shock resulting from an attack on the peg in 1997-98 pushed Hong Kong dollar inter-bank rates far above their US dollar equivalents and sent the Hong Kong economy into a tailspin. Hong Kong is not Argentina, which has been done in with dollar debts and its currency peg. But it is acting like Argentina with its budget crisis.
Yam also warned that the ability of Hong Kong's banks to absorb such an interest-rate shock without adjusting their lending rates has been eroded in recent years by greater competition and lower profitability. Thus the government is acknowledging that a free credit market is detrimental to Hong Kong's financial wellbeing.
On November 12, the Heritage Foundation and the Wall Street Journal released the 2003 Index of Economic Freedom. The Index is an annual survey of the world's economies, including country-by-country analyses and the most up-to-date data available on foreign investment codes, taxes, tariffs, banking regulations, monetary policy, black markets, and more. For the ninth consecutive year, Hong Kong was named the world's freest economy. The Heritage Foundation rates Hong Kong No 1 in its index of economic freedom and the People's Republic of China No 127. Apparently, freedom is inversely related to growth rate.
In 2001, Hong Kong's GDP was US$162.6 billion with an export value of $201.9 billion. The Pearl River Delta had a GDP of $258 billion with an export value of $289.1 billion. The growth rate differential between the two is 15:1 in favor of the Pearl River Delta. For Hong Kong to be calling the shots for the future of the region would be the tail wagging the dog.
Concerted efforts have been made by the government to promote and position Hong Kong as Asia's world city. The Brand Hong Kong program, launched in May 2001, is billed as a long-term undertaking to focus greater international attention on Hong Kong's strengths and advantages as the most free, open and cosmopolitan city in Asia. In July 2000, the government established a dedicated department, Invest Hong Kong (InvestHK), to spearhead efforts to attract inward investment. InvestHK actively promotes Hong Kong as the premier business hub in the Asia-Pacific region, and as the best location to access the enormous potential of the mainland market. The government's message to the world is that major reasons companies are attracted to Hong Kong are low and simple taxes, the free flow of information, political stability and security, corruption-free government and excellent communications, transport and other infrastructure. But the real reason is the potential of the China market.
Central to Hong Kong's long-term success is greater economic cooperation and inter-dependence with the adjoining Pearl River Delta hinterland, which has specific advantages and significant potential as a consumer market, a trading hub, a manufacturing base, a services market and as a destination for investment. An economy cannot be sold like brands of cigarettes or diapers. If fundamentals behind prosperity are missing, no amount of selling will make up for a delusion of grandeur. Hong Kong will do better to spend its money where it counts, such as a full-employment program.
The Pearl River Delta, which includes Hong Kong and Macau, is the fastest-growing and most affluent region in China. It has a population of about 48 million, which is more than the populations of Canada, Taiwan or Malaysia. The Pearl River Delta has a GDP of US$258 billion - more than Switzerland, Sweden or Austria - which would put it among the world's top 20 economies. Hong Kong has helped fuel the Pearl River Delta's rapid growth and development over the past two decades. Hong Kong is the largest investor in the area, and there are more than 36,000 Hong Kong-linked companies employing more than 5 million people in Guangdong province.
Despite the depth and breadth of these links, there is a need to boost significantly cross-boundary cooperation and integration to build on existing strengths and synergies and maximize the area's potential. The emphasis is on free flows of people, goods and capital between the Hong Kong SAR and the Pearl River Delta's major cities, which include Guangzhou, Shenzhen, Zhuhai, Zhongshan, Dongguan, Foshan, Huizhou, Huiyang, Huidong, Zhaoqing and Jiangmen as well as Macau. This cannot be accomplished with Hong Kong setting itself apart as an autonomous and non-Chinese entity.
Yet not until last July did Hong Kong's first Economic and Trade Office in the mainland open in Guangzhou to promote economic cooperation and to strengthen business and economic liaison between Hong Kong and the Pearl River Delta.
The chief executive, Tung Chee-hwa, announced in his Policy Address in October 2001 an ambitious infrastructure plan worth HK$600 billion (US$77 billion). Of this, one-third would be spent on expanding the railway network to make it the backbone of Hong Kong's public transport system. From 2002 to 2007, six new rail projects costing US$13 billion (HK$100 billion) will come on line at a rate of about one a year. The existing railway network will be expanded by 40 percent to more than 200 kilometers. Urban areas will be connected with new towns in the eastern and northwestern parts of the New Territories. Yet there were no priority projects to improve linkage with the mainland until recently. A second rail passenger boundary crossing at Lok Ma Chau will be developed to handle the substantial growth in two-way travel and commerce across the boundary, but no target date has been announced. By contrast, a dedicated rail link will be built to Hong Kong Disneyland, due to open in 2005.
Plans are being developed for another six new rail projects before 2016. These include a Port Rail line linking the container port at Kwai Chung with the railway network in the Pearl River Delta and a high-speed railway linking Hong Kong to Guangzhou via Shenzhen. The year 2016 is 13 years in the future.
Over the next decade, more than 100 kilometers of major trunk roads will be constructed and improved, including the Deep Bay Link and the Shenzhen Western Corridor. Total investment on these projects will be more than HK$100 billion. The proposed Shenzhen Western Corridor will provide a strategic link between Hong Kong and Shenzhen across Deep Bay. It is an integral part of the infrastructure being put in place to provide more and faster cross-boundary links with the mainland to expedite the flow of people, cargo and capital between Hong Kong and the Pearl River Delta. Again, no target completion date has been announced.
Hong Kong has one of the world's busiest boundary crossings. In 2001, about 106 million people and 11.3 million vehicles crossed back and forth between Hong Kong and the mainland. Every day, an average of about 313,000 people and more than 31,300 vehicles cross back and forth between the Hong Kong SAR and the mainland, with most people heading into neighboring Guangdong province.
Container Terminal 9 (CT9), now being built on Tsing Yi Island by the private sector, is aimed at consolidating Hong Kong's position as the world's busiest and most efficient container port. The 68-hectare project will have six berths and a design capacity to handle more than 2.6 million 20-foot-equivalent units (TEUs) a year. CT9 is expected to be completed in 2004, and will bring annual total capacity at the Kwai Chung Container Terminal Basin to more than 15 million TEUs. The new marine basin will be able to handle the largest container ships currently on the drawing boards. Yet the private interests behind these projects have emerged as the most vocal and influential opposition to logistic integration with the Pearl River Delta. A proposal for a 15 billion yuan (US$1.83 billion) bridge linking Hong Kong, Macau and the mainland Chinese city of Zhuhai, which neighbors Macau, has sparked bickering among Hong Kong tycoons over their special interests (see The New York of Asia: Port in a storm.
The container-terminal industry, speaking through the powerful Hutchison Whampoa Group, opposes moves that may affect the current governmental arrangement of privately developed container terminals. The Hong Kong Container Terminal Operators' Association, which represents private terminal operators, including Wharf's Modern Terminals, CSX World Terminals and Hutchison Whampoa's Hongkong International Terminals, while claiming not to be against the bridge project, was quoted by the press as being opposed to "proposals that changed the government's port development policy so as to create an unfair situation for the existing players".
The proposed bridge would be a regional infrastructure that would be key in integrating Hong Kong and the Pearl River Delta into one vibrant regional economy. In that sense, would be vital to the economic survival of Hong Kong and beneficial to Guangdong province and China in general.
Shenzhen's port reported fast growth last year. The SEZ port handled about 87.67 million tons of cargo and 7.62 million TEUs, representing a 32 percent increase in volume and a 50.1 percent growth in container throughput. The figures elevated Shenzhen ahead of Los Angeles and Rotterdam to become the world's sixth-busiest container port in 2002.
Hong Kong remained the world's busiest container port and handled an estimated 19 million TEUs in 2002 - a 6.6 percent increase over 2001. Shenzhen aims to increase its container-handling capacity to 11 million TEUs by 2005 and 18 million TEUs by 2010.
Shenzhen airport's passenger and cargo traffic increased 20 percent and 35 percent year-on-year respectively in 2002. Passenger numbers jumped to 9.35 million, while cargo volume leaped to 334,100 tons. By comparison, Hong Kong International Airport's growth was slower - passenger numbers grew 4.5 percent to 33.5 million in 2002, while cargo traffic was up 19.5 percent to 2.5 million tons. Shenzhen airport operated 120 domestic and nine international flight routes in the year, whereas Hong Kong had 130, of which 40 were to and from the mainland.
The number of mobile-phone users in Shenzhen increased to 6.05 million in 2002 from about 3.88 million in 2001. Some 174 fixed-line and mobile phones are owned by every 100 residents in Shenzhen in 2002. During the year, the SEZ's Internet user numbers surged to 1.88 million, from 1.06 million in 2001. Hong Kong had about 6.22 million mobile-phone users in 2002, up 82 percent over the previous year, representing a penetration rate of about 91 percent. Registered Internet users in the SAR totaled 2.36 million in 2002. But Hong Kong's population is about 6.8 million while Shenzhen's is about 4.7 million. Taking this into consideration, Shenzhen had caught up with Hong Kong in telecommunications. Both Hong Kong and Shenzhen have reached saturation in telecom market growth. Future growth would come from other cities in the Pearl River Delta. Shenzhen's gross domestic product grew 15 percent last year to 223.9 billion yuan, enabling per capita GDP to reach US$5,561 (HK$43,376), the highest in the mainland.
Hong Kong government revenue has fluctuated wildly between 14 percent and 21 percent of GDP in the past decade, largely affected by volatile land lease revenue. The government's long-term fiscal strategy and tax reform needs to address issues related to its excessive dependence on land lease revenue and the narrow tax base.
The performance of companies involved in real estate in Asia has lagged far behind those in non-real-estate sectors since 1997. In Hong Kong, the five-year average return on capital employed for non-property sectors since 1997 was 17.3 percent, compared with merely 6.7 percent for diversified firms with both property and non-property businesses and only 6.5 percent for real-estate companies. The listed companies in Hong Kong that have done well since 1997 are the ones with heavy investment in China.
Even the British-dominated Hong Kong General Chamber of Commerce has been urging the SAR government to listen more to the business community on economic integration with the Pearl River Delta. Chamber director Eden Woon, a US citizen and a former US Air Force intelligence officer, said he was pessimistic about the government's handling of issues concerning integration with the Pearl River Delta. He complained that businessmen generally did not have enough say in such issues as cross-border infrastructure, environmental protection and immigration policies. Woon called on the government to set up a "Greater PRD Council", an unofficial forum like the Asia Pacific Economic Cooperation (APEC) forum, in which council members would meet annually to discuss business issues of delta integration. Under a proposal Woon handed recently to the government, several committees would be set up to deal with key issues. Michael Enright, co-author of The Hong Kong Advantage and a professor at the School of Business at the University of Hong Kong, notwithstanding the embarrassment of the mysterious disappearance of the so-called Hong Kong advantage, echoed Woon's views.
The proposal of Woon and Enright of an APEC-type forum, a loose coordination body of private interests from different sovereign states, would further reinforce the separation of the Hong Kong from the Pearl River Delta by treating the two Chinese entities as de facto sovereigns.
While Adam Smith realized the growing importance of capital in economic progress, he also was apprehensive of the growing danger of its abuse. His attitude of distrust toward the capitalist as an advisor of government has been clearly stated: "The interest of the dealers in any particular branch of trade or manufactures is always in some respects different from and even opposite to that of the public. The proposal of any new law or regulation of commerce which comes from this order of men ought always to be listened to with the greatest precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous but with the most suspicious attention."
The SARS crisis shows that far from wanting smaller government, the public wants stronger government leadership and action, to improve public hygiene and health services, to reduce unemployment, to help small businesses in distress, to revitalize the economy with full integration with the mainland.
Three things have been made clear by the severe acute respiratory syndrome (SARS) crisis: 1) People when frightened look to the government for help. People want more government, not less, in times of crisis. 2) People are prepared to give up freedom for protection, especially when they never enjoyed freedom under colonialism to begin with. 3) Everyone wants government intervention to save the market; no more laissez faire, which never existed under colonial command economy. Bottom line: when things get tough, people want more socialism.
With 30,000 people lining up to apply for 3,600 openings, to call it a crisis is an understatement. The "round up the usual suspects" approach will not be enough.
The government has announced that US$128.2 million will be set aside to promote Hong Kong and to encourage the return of exhibitions, to get trade activities back to normal after the spread of the SARS crisis is brought under control. The government has also announced it will create 21,500 training places and short-term jobs to strengthen service training in the most SARS-affected areas. These jobs will provide home-cleaning services for the elderly and boost environmental hygiene. The program will cost about US$55.12 million. This public-health budget is less than half of the government's public-relations budget. The government will do well to reverse the priority. What is needed is a full-employment program to improve environmental hygiene and other community services (see On offer: A full employment program for Hong Kong by Henry C K Liu and L Randall Wray, March 30, 2002).
Chief Executive Tung Chee-hwa has been the target of political attack by the so-called Democratic Party members in the Legislative Council, blaming him for alleged incompetence and weak leadership in this period of economic crisis. These individuals were noticeably docile and silent during colonial rule. What kind of democratic party is it that has only 590 members, with a chairman who never faced even token elective challenge from the party's founding in 1994 to his voluntary retirement in 2002? And they have the nerve to accuse the chief executive, who has faced two elections since 1997 in accordance with election procedures stipulated by the Basic Law, of being not democratically elected? But most hypocritical of all is that the loud opposition from this party of 590 to Hong Kong's integration with the mainland is one reason Hong Kong is in such a state of economic paralysis.
Tung is an honest, hard-working, conscientious and patriotic leader that any city would be lucky to have. If anything, he is excessively democratic, trying to represent fairly all the diverse and often opposing interests in the community and overseas. His constitutional authority is much weaker than that of the British colonial governor, who enjoyed total dictatorial power, unchecked by any Basic Law, and with the colonial judiciary system in his pocket.
Hong Kong's economic woes are the result of a paradigm shift in geopolitics, not poor leadership. Hong Kong's problems are not made by Tung Chee-hwa, nor can he be expected to solve them without Hong Kong waking up to the geopolitical reality that its fate is tied to its willingness to be an integral part of the motherland. The people of Hong Kong should unite behind Tung to let him lead Hong Kong into an era of renewed national pride and prosperity.
[The article
appeared in AToL
on May 22, 2003]
