Hong Kongs Future Uncertain

Uncertainty surrounding the upcoming decision has already shaken the confidence of many Hong Kong business executives and governmental officials. Economic indicators, for example, as well as prices on the Hong Kong stock exchange have dropped markedly during the past year. In addition, property values in Hong Kong have declined on an average of nearly 30 per cent in the last twelve months.

Another indicator of Hong Kong’s uncertain future is that private investors and government officials recently decided not to spend $8 billion on a badly needed new airport. Both corporate and public investors feel a sense of urgency for a final decision because most loans are arranged for fifteen years and would be jeopardized if signed after July 1, 1983. As the result of Hong Kong’s uncertain financial climate, many local and international firms are channeling their investment capital to the United States as well as toother developing Asian trade centers such as Singapore.

Great Britain obtained Hong Kong, an area consisting of approximately 400 square miles and a population of about 5.5 million, from China after Opium Wars between the two nations in the early 1840s. Hong Kong Island and the tip of the Kowloon Peninsula on the mainland of China were ceded in perpetuity by China to Britain by the Treaty of Nanking in 1842. By 1895, the British had also obtained control over additional land on the Kowloon Peninsula, referred to as the New Territories, which also became part of the Crown Colony. It is only the New Territories section of Hong Kong which is scheduled to revert to the PRC under terms of a 99-year lease signed in Peking in 1898.

Complex Political Issues

Of critical concern to Hong Kong’s current Governor who is appointed by Britain’s Parliament is that the New Territories accounts for nearly 90 per cent of Hong Kong’s land area and contains the commercial lifeblood of the colony. The area which would be left to Britain contains no airport, no agricultural land and virtually no industries. A related problem is that if the New Territories is reclaimed, the remaining part of Hong Kong would be largely dependent upon China for food and water.

Chinese Vice Chairman Deng Xiaoping has repeatedly told business leaders throughout the world that China would prefer to retain the status quo for the near future and deal with the Hong Kong problem when the “time is ripe,” that is, when she is ready. The time is not yet ripe for two reasons. In the first place, China regards Taiwan as the “problem” which she wishes to settle before deciding on the Hong Kong situation. Secondly, and more important, is that the economic benefits generated by the existence of Hong Kong in its present form are immense. The British colony, for example, accounts for approximately 35 per cent of China’s annual foreign exchange earnings. China also benefits from Hong Kong’s financial services, port facilities, international contacts, and skills in marketing Chinese-made products.

The situation is made more bizarre by the fact that many of Hong Kong’s leading businessmen, owners of ships, banks and department stores, for example, are Communists. What currently exists in a large sector of the Hong Kong business community is a massive paradox; administered capitalism in the service of the People’s Republic of China. China would have everything to lose and little to gain by absorbing Hong Kong. PRC leaders particularly recognize the potential difficulty of having to govern and feed Hong Kong’s westernized Chinese residents who are long accustomed to British influences.

From a political standpoint, some Chinese leaders do not agree with Deng’s status quo position. They believe that it is imperative that Hong Kong revert to the PRC in 1997 so it does not appear that modern China has “sold” out to foreigners as the Ching Dynasty did when the original lease was signed. It is feared that other Asian and African nations would look down upon any type of compromise, causing the Chinese to lose face. Many Chinese have never acknowledged China’s relinquishment of Hong Kong and have always considered the colony to be a part of China. Others believe that the British are in Hong Kong to simply administer a part of China, with no more than a very technical sovereignty. There are also those who maintain that the treaties signed in the 19th century between China and Britain were “unequal” because the terms were dictated to a weakened China by an aggressive imperialist power.

Despite the fact that Hong Kong is spiritually and emotionally Chinese, the vast majority of its residents also support the status quo. Although most do not philosophically support their colonial status, they recognize the economics of the situation. Hong Kong residents have grown to appreciate that the fast-paced laissez-faire business environment that exists in the colony has allowed them to enjoy one of the highest standards of living in Asia.

Alternative Solutions Likely to Be Considered

Although it is expected that many formulas will be considered before Hong Kong’s international future is determined on or before July 1, 1997, several alternatives short of a status quo merit attention:

1. London could acknowledge Chinese sovereignty over all of Hong Kong. It could do so by accepting the position that the original treaties were invalid. In return, China would agree to allow Great Britain to continue administering the territory. This alternative appears to be especially workable because it would save the political face of both Britain and China but still allow both nations to have a stake in Hong Kong’s supercharged economy.

2. Short of reclaiming Hong Kong, China could declare the New Territories to be a special economic zone with British administrators hired to run it. Although this alternative is met with some enthusiasm by most Chinese leaders, the plan is unacceptable to Parliament because Britain does not want to be involved in mercenary operations. It is believed that Britain will not allow itself to be politically humiliated and would probably sever all ties to Hong Kong before agreeing to such an arrangement.

3. Perhaps the most radical alternative would be for China to include a clause in its new constitution that would allow for special administrative regions outside of the current boundaries of the PRC. Hong Kong, Taiwan, and the nearby Portuguese colony of Macau whose population is also predominately Chinese could fall into this category. This could be a politically expedient, although economically damaging, move since China would be able to incorporate all its “problem areas” simultaneously.

4. Possibly the most logical move would be for China to expand its newly created Western oriented Shenzhen economic zone across the border to absorb Hong Kong. This would be a logical extension of an experiment in capitalism that has proven to be phenomenally successful since beginning two years ago.

Hong Kong is presently a political pawn in the game of Chinese power politics. In fairness to both parties of the original lease agreement, however, it was extremely difficult to imagine what the situation might be a century later. For those who negotiated the lease in 1898 with a terminal date in 1997, future events were so far away as to be .of relatively little concern. It is certain that there will be changes in Hong Kong’s relationship with China after 1997. Although the specifics are not clear at this time, it is suspected that they will not be so drastic as to undercut Hong Kong’s usefulness to China. Unless the colony’s long term future is quickly settled, however, the confidence and trust that has made Hong Kong one of the most aggressive and successful trading centers in the world will disappear.