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China's Transition, by Andrew J. Nathan
Hong Kong's 6 million people, 98 percent of them ethnic Chinese, have the world's tenth largest trading economy, a 5.5 percent annual growth rate, and a GDP per capita in excess of Mother England's. Compared with Britain, Hong Kong also has a better infrastructure, better social services, cleaner streets, and a better-educated population.
Queen's Road Central bustles with young executives--sleek, smart, with foreign MBA's, many of them women, many running family firms that manufacture in South China and sell in Paris and New York. Multi-story malls such as Pacific Place and Ocean Terminal display Chinese dried mushrooms and Rolex watches, antique calligraphy and Herm¶s scarves, Scotch whiskey and dried tiger's penis. Hong Kong residents worship at the world's largest outdoor Buddha; attend classes at some of the world's most sophisticated universities; bet at the race track and dress up in black tie and ball gowns for the Annual Ivy Ball, attended by hundreds of U.S. university graduates.
A taxi ride from Central brings you to mountain paths threading through the woods of Tai Tam Reservoir. On the back of the island, beaches look out on scores of small rocky islands whose fishing villages and seafood restaurants can be reached by ferry. Seagoing cargo ships thread their way into the deep-water harbor. The harbor draws Victoria Island together with Kowloon peninsula in a living sculpture of glittering skyscrapers, decorated with ferries, freighters, and planes moving in and out of Kai Tak Airport.
Frank Welsh, an English businessman and writer, has written a history not so much of Hong Kong as of British rule there, a study in colonial rather than in Chinese history. 1 Drawing chiefly on British archives and memoirs, he presents a parade of merchants, generals, ambassadors, financial secretaries, governors and the men's wives, showing them as alternately affable, pompous, visionary and eccentric. I have always wondered about Nathan Road, Kowloon's main commercial street. It turns out to be named after its builder, Sir Matthew Nathan, governor from 1904 to 1907, bachelor engineer and also founder of the Kowloon-Canton Railway.
Welsh gives about 300 pages to the colony's first fifty years, the remaining 250 to a gallop through the twentieth century. He tells an affectionate story of foibles and follies, half-intended wars, business ventures, hot weather, fever, gambling, prostitution, and public works. The book is a parade of the droll and the quotable, except for episodes of war and diplomacy where the tone becomes appropriately sober. Welsh has used only a few Chinese sources, spelling Chinese personal and place names wrong almost as often as he spells them right.
Welsh puzzles over how Britain got involved on this "barren rock" and how it made a go of it. The colony remained until the 1950s "a colonial backwater," a trading post linking the Chinese and British economies. The international order that emerged after World War II was marked by a growing international division of labor in manufacturing and by burgeoning international trade. It was the fall of China to communism that made it possible for Hong Kong to take advantage of those trends with a combination of cheap refugee labor and entrepreneurs from Shanghai and Ningbo.
While China isolated itself under Mao, its exiled capitalists in its lost territory built a paradigm of an export-oriented economy, of the sort that the mainland now wants to emulate. Hong Kong started with textiles and other low-quality goods and followed Japan up the value-added ladder, moving ahead of competitors into more capital- and technology- intensive products. After Deng Xiaoping opened up China, Hong Kong shifted its sweatshops to the mainland, while retaining engineering, design, and marketing functions in the air-conditioned towers of Central and Kowloon. And as the rest of East Asia boomed, Hong Kong took advantage of its location, facilities, and freedoms to become the center of regional banking, lawyering, shipping, and media, to develop a major stock market and to nurture some of the biggest global investors.
The Crown Colony consists of three parts. Victoria Island, 32 square miles, was ceded in perpetuity in 1841 (with treaty confirmation in 1842) after a handful of young British merchants and naval officers picked a fight with the Chinese empire and won what became known as the Opium War. This displeased Prime Minister Lord Palmerston, who wrote, "You have obtained the Cession of Hong Kong, a barren island with hardly a house on it. . . . Now it seems obvious that Hong Kong will not be a Mart of Trade." In 1860, after another clash, Britain acquired the peninsula of Kowloon, comprising nearly four square miles, aiming to protect the island from pressure from other foreign powers. In 1898, during the "scramble for concessions," the colony added the 365-square-mile New Territories, again with a view to buffering the existing territory from outside pressure.
The New Territories, however, were not acquired outright, but by a ninety-nine year lease, in the style of fin-de-si¶cle imperialism. Hence the magic date 1997, which was at the center of the Sino-British troubles marking the end of Hong Kong's colonial life. They stemmed from the same source as the Opium War at its beginning--in Welsh's words, "a clash of cultures [that] was inevitable . . . given the supreme self-confidence of both parties."
If Britain had not raised the issue of 1997 in 1979, the Chinese might not have done so, either. They considered the Unequal Treaties, as they called them, illegal anyway. This meant they could take back Hong Kong whenever they wanted, which was no time soon as long as the colony kept producing foreign exchange for the motherland. As T. L. Tsim, a Hong Kong columnist, put it, the Chinese view was, "We don't think there is a problem. If you still think there is a problem, it is your problem." 2 But the British feared declining business confidence due to uncertainty about 1997. So a few years after Mao's death in 1976, when Sino-Western relations were warming, they privately offered to stay in Hong Kong beyond the end of the lease and continue to run the territory in the mutual interest of London and Beijing. Deng Xiaoping had to say no.
In 1982, Mrs. Thatcher visited Beijing fresh from her Falklands victory, aiming to talk sense into the old man. She took the line that the original treaties were still valid, apparently angling to prolong the British presence indefinitely. Deng found this infuriating. The Hong Kong stock market plunged. The late, legendary David Bonavia of The Times wrote of Thatcher's visit, "Seldom in British colonial history was so much damage done to the interests of so many people in such a short space of time by a single person." 3
After two more years of negotiations, the Chinese and the British issued a Joint Declaration in 1984, which they hailed as guaranteeing the stability and prosperity of Hong Kong. China would resume sovereignty in 1997. Until then, Britain would govern. In 1997, Hong Kong would become a Special Administrative Region (SAR) under a Basic Law to be written by China's national legislature. For at least fifty years beyond that, Hong Kong would enjoy "a high degree of autonomy" and maintain its social system unchanged, under Deng's concept of "one country, two systems." (By separate agreement with Portugal, tiny neighboring Macao reverts to Chinese control in 1999.)
"The runup to '97," however, revealed misunderstandings buried in the Joint Declaration. For Britain, exit with honor from its last colony required "mak[ing] possible the widest democratic participation by the people of Hong Kong in the running of their own affairs," in the words of Hong Kong's last Governor Chris Patten. 4 This was in keeping with the British practice of decolonization elsewhere and with democratizing trends in the post-Cold War era.
Moreover, the previously apolitical residents of Hong Kong wanted political reform. Until then always psychologically on the way from someplace to someplace else (as Welsh's title suggests), the people of Hong Kong were shocked that the Joint Declaration and the Basic Law were written without any real input from them. The prospect of merging into the chaotic mess north of the border concentrated their minds on the value of their security, prosperity, and freedom. On vacation trips to China, they found themselves treated as future wards by scruffy mainlanders. Hong Kongers responded with a mix of "fear, hostility, condescension and aversion," in the words of Hong Kong sociologist S..K. Lau. 5
The killings in Beijing on June 4, 1989, sparked vast anti-China demonstrations in Hong Kong. When the PRC's National People's Congress adopted the Basic Law in 1990, it contained numerous provisions designed to keep power in the hands of Beijing. A pro-democracy group swept twelve of the fourteen seats it contested in Hong Kong's 1991 Legislative Council elections, the first in which any LegCo members were directly elected. Meanwhile, Beijing's reluctance to approve financing for an expensive new Hong Kong airport undermined the conciliatory policy of Britain's hitherto dominant China-policy "mandarins," Sir Percy Cradock and then Hong Kong Governor Sir David Wilson.
A few weeks before the newly arrived Governor Patten introduced the most sweeping of a series of British reform proposals, he told some visitors, including me, that he intended to persuade Beijing that accountable government would make Hong Kong easier rather than harder to rule after 1997. Welsh points out that the shift in 1971 from appointing governors with Colonial Office careers to appointing those with Foreign Office backgrounds reflected a change in priorities from administering Hong Kong to dealing with Beijing. By the same token, the appointment in 1992 of Patten, a former M.P., former minister of environment, former chairman of the Conservative Party, talented campaigner and close ally of Prime Minister John Major (and early in his career, an aide to New York Mayor John Lindsay), reflected the importance in British politics of a graceful departure from Hong Kong, as well as the fact that such a departure would need the Hong Kong people's support.
No one who met Patten doubted his commitment to democratic government, except the Chinese leaders. Where Britain saw honor, the Chinese saw perfidy. Their view was described in the serialized memoirs of Xu Jiatun, Beijing's chief representative in Hong Kong from 1983 until his defection shortly after the 1989 crackdown. China expected the British to return power in Hong Kong "to China, not to the people of Hong Kong." (Hong Kong, after all, had no sovereignty.) That which China was planning to keep unchanged for fifty years was not a new democracy created during the waning years of British rule, but the same executive-led system that the British found adequate for 150 years and that would have been as easily dominated from Beijing as it had been from London.
The Chinese suspected Britain of using democratic reform to sow dragon's teeth of chaos, nurturing in Xu's words "pro-British forces which could be relied on to continue to rule Hong Kong after 1997 as a regent of London even in the absence of British rule." They feared people such as Martin Lee, the leader of the United Democrats, a ramrod Lincoln's Inn barrister with a clipped British accent, who had given up drinking tea and coffee to get in shape for the political imprisonment he anticipated after 1997.
In the eyes of the Chinese, Patten violated previous understandings and common sense. He reversed the practice of consulting the Chinese in advance of major decisions and denied them the veto they felt was implicit in the concept of "convergence" between the pre- and post-1997 systems. He spoke with irony, understatement, and logic, and acted as if he thought words meant what they said, in Beijing's eyes signs of weak reason or bad will. Beijing called Patten in ascending order a "political prostitute, a "two-headed snake," and "the triple violator" (for violating the Joint Declaration, the Basic Law, and some pre-Patten diplomatic letters).
Patten proposed to transform the Legislative Council from an appointed advisory body into an autonomous legislature, with a majority of its members accountable to the electorate through competitive elections in geographic and functional constituencies. He envisioned LegCo functioning on the Whitehall model of public debate and legislative supremacy. Chinese leaders wanted elections in which party-selected representatives would be confirmed in a display of public consensus. They expected LegCo to serve as a "flower vase" akin to Beijing's National People's Congress. Patten argued that the choice was his and LegCo's, since Britain still ruled Hong Kong and his proposals were not inconsistent with the letter of either the Joint Declaration or the Basic Law. The Chinese answered, in effect, that it was their Basic Law and they knew what it meant. The contretemps revealed two different concepts of "a high degree of autonomy," two different concepts of law, and two different concepts of national honor.
China's leaders had large interests at stake. Reform in Hong Kong (as in Taiwan) increases pressure for democratization in China. The prosperous province next door, Guangdong, may be the place where domestic political control comes unbuttoned. Other restless regions, such as Tibet and Xinjiang, may ask for democratic self-rule on the Hong Kong model. Abroad, a weak response in such a crucial place to a challenge from a weak power would reduce the credibility of Beijing's demands that countries such as France and the United States respect Chinese sensitivities in Taiwan and Tibet. The Sino-British agreement granted Hong Kong a quasi-independent foreign policy in technical areas such as
aviation, GATT (WTO) membership, attendance at international trade meetings, Interpol membership, Olympic membership, and so on. In 1992 the U.S. Congress adopted the McConnell Act, expressing an American national interest in Hong Kong's freedom and prosperity. A democratic Hong Kong is more likely to invite foreign interference in internal disputes with the home government in Beijing.
To stave off such problems, the Chinese leaders preferred to confront Britain sooner instead of the people of Hong Kong later. Beijing's chief policymaker for Hong Kong, Lu Ping, warned residents in 1994 that
"the value of Hong Kong to China has been and will be its economic value. . . . Of course there are always a handful who are so naive [as] to think that they can turn Hong Kong into a political city in order to influence the mainland in the sense of politics. If that were the case, Hong Kong would be of negative value instead of positive value to China. This [would be] disastrous for Hong Kong." 6
Inside the colony the confrontation produced strange partnerships. In the words of the sociologist Paul C. K. Kwong, "on one side is a peculiar alliance of high official[s] and Chinese tycoons which is trying to maintain a colonial structure encrusted until recently in a polity featuring a political appointment-cum-consultative system. . . . On the other side is a lameduck colonial government which is wooing the public, the middle class, the smaller businessmen, and international capital to support its hastily drawn up blueprint of quicker democratization." 7
"We're all investing in China," an elegant businesswoman told me at a dinner in Hong Kong in 1994, adding with a wrinkled nose, "We don't like Patten." Hong Kong's "property boys," as some call them, encounter the corruption, lawlessness, and arbitrariness that are part of doing business in China but tell themselves that "things in China are done on a handshake," "I have connections that will protect me," and "the most important human right is to have enough to eat." They persuade themselves that China's current 12 percent growth rate will continue, the Chinese army won't split after Deng, the collective party leadership will hold together, economic growth will improve human rights, and outside investment will subvert the police state from within. The Hong Kong elite expresses more anxiety about the economic consequences of American human rights pressure on China than about the impact of human rights violations themselves on political stability in China and Hong Kong.
The property boys are in some ways more intimately involved in China's economic development than the reformers in Beijing. It is not merely the magnitude of the investment funds passing through Hong Kong that matters, although the amounts in transit constitute two-thirds of direct foreign investment in the mainland. More important is the alchemy that occurs when tens of billions of dollars from China flow into the thousands of Hong Kong "shell companies" (also known as "false foreign devils") set up by Chinese enterprises and government offices in Hong Kong, and are then reinvested back in China in private companies or joint ventures. In a dialectic worthy of Marx, the pass-through transforms money-losing socialist capital sodden with pension obligations, central government quotas, investment controls, and profit remittance requirements into money-making capitalist capital responding with robber-baron keenness to domestic and international markets.
The result is an ambiguous kind of "property-rights reform," to borrow a euphemism beloved by both economic theorists and Chinese reformers. Just as the ancient Daoist philosopher Zhuangzi did not know whether he was a philosopher dreaming he was a butterfly or a butterfly dreaming he was a philosopher, so China's state enterprises do not seem to know--or do not want others to know--whether they are socialist firms employing market techniques or capitalist companies renting government doorplates. In either case, Chinese state enterprises are eating their "stateness" away from within under the ardent tutelage of Hong Kong's patriotic capitalists.
Patten was unable to convince Beijing that the secret of Hong Kong's success is the rule of law, which would depend on a democratically elected, independent legislature (and an independent judiciary, another focus of debate). Having been rebuffed by Beijing in a series of talks that collapsed in 1994, he moved with LegCo support to implement his proposals without Chinese approval. Beijing in turn threatened to dissolve LegCo and two other tiers of elected bodies in 1997 and start over. The stage was set for repression. Patten's gamble in this sense had already failed. He ultimately could not win unless Beijing changed its mind about Hong Kong democracy.
But neither could he lose. A possible future British Prime Minister, Patten had gained an international reputation standing up to China and had no incentive to back down. He chose to place plates of glass around Hong Kong, in the words of an American diplomat, so that if the Chinese shattered them, at least the world would hear.
Should the glass shatter or slowly crack, Americans will become more aware of our interests in this once-borrowed place. Hong Kong is one of our major trading partners, and the center of our business presence in China and the Asia-Pacific region. A healthy Hong Kong is a strong force for the "peaceful evolution" of China. Its successful integration into China would establish a worldwide precedent for the peaceful settlement of territorial issues, the coexistence of different social and economic systems and the solution of political and ideological issues by open competition. The crushing of Hong Kong's freedom would damage the post-Cold War momentum toward democracy, hurt economic growth and political stability in the region, and destroy a valuable way of life that embodies entrepreneurship, personal freedom, and cultural pluralism.
There is, unfortunately, almost nothing America can do to avert a Hong Kong "train wreck." Expressions of concern are cheap, MFN trading privileges have already been abandoned as an instrument for influencing China and Beijing's leaders have shown they will pay any economic price to keep power. The only hope is that the modernization of China will bring wiser, more tolerant leaders to power in Beijing.
Yet the biggest threat to Hong Kong's future prosperity is not political repression, which the economy can survive within limits. Nor is it that Beijing will violate the principle of "one country two systems" as it understands it--as keeping a market system open and "letting the horses keep racing and the dancers keep dancing." It is that Hong Kong will be infected with the mainland's corruption. Xu Jiatun stated that, in the late 1980s, 200 sons and daughters of high-ranking mainland cadres were doing business in Hong Kong. Many mixed public and private money, led extravagant lives, and used their influence to gain positions and payoffs from Hong Kong businesses. 8 Some "worms turned into dragons," that is, became rich; others went bankrupt and fled. Hong Kong investors, traders, publishers, and officials began their accommodations with people in power in Beijing and Guangdong the moment the Joint Declaration was signed. They started paying a tax in money and freedom that could easily grow large enough to undercut Hong Kong's competitiveness.
Hong Kong's hotel rooms were fully booked for June 30, 1997. At midnight the Union Jack was lowered at Government House. The next morning, the city looked as beautiful as ever. Hong Kong had survived. But barring unlikely changes in China, Hong Kong has made an invisible transition, from a stable member of the developed world to an emerging market in a Third World dictatorship.
Note 1: Frank Welsh, A Borrowed Place: The History of Hong Kong (New York: Kodansha America, 1993). Back.
Note 2: T.L. Tsim and Bernard H. K. Luk, The Other Hong Kong Report (Hong Kong: Chinese University of Hong Kong Press, 1989), p. xxiv. Back.
Note 3: Quoted in Welsh, Borrowed , p. 507. Back.
Note 4: Christopher Patten, "Our Next Five Years: The Agenda for Hong Kong," Address at the opening of the 1992/93 Session of the Legislative Council, October 7, 1992, p. 1. Back.
Note 5: Cited in Zhiling Lin and Thomas W. Robinson, eds., The Chinese and Their Future: Beijing, Taipei, Hong Kong (Washington, D.C.: AEI Press, 1994), p. 301. Back.
Note 6: "Lu Ping Speech on Hong Kong's Future," from South China Morning Post , May 7, 1994, in Foreign Broadcast Information Service, China: Daily Report , May 9, 1994, p. 73. Back.
Note 7: Paul Chun-Kuen Kwong, Hong Kong Trends, 1989-92: Index to the Other Hong Kong Report (Hong Kong: Chinese University Press, 1992), p. 7. Back.
Note 8: "Xu Jiatun's Memoirs," from Lien Ho Pao May 4-13, 1993, in Foreign Broadcast Information Service, China: Daily Report, March 8, 1994, p. 26. Back.
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