Hong Kong Under Chinese Rule: Economic Integration And Political Gridlock

Economic Integration and Political Gridlock

Yongnian Zheng, Chiew Ping Yew

• Publisher: WSPC
• Year: 2013
• ISBN:
  9789814447683
• Topic: Biological Sciences
• Subtopic: Science General
• Index: Biological Sciences

This edited volume is a compilation of the analyses written by East Asian Institute experts on Hong Kong since the handover. It covers most, if not all the important events that have taken place in Hong Kong since 1997, including its economic integration and relations with China, its governance conundrums, the Hong Kong identity and nation-building, the implementation of the minimum wage, and the elections from 2011–2012. The book's panoramic view of Hong Kong makes it a useful resource for readers who seek a broad understanding of the city and how it has evolved after its return to China. It also offers some glimpses into the direction Hong Kong is heading in its socio-economic relations with China at both the state and society levels, as well as its domestic political developments and the prospects for democratization.

Contents:

• Integration and Interdependence:
  • After Smooth Handover, Now the Hard Part (WANG Gungwu and John WONG)
  • CEPA: A Gift from Beijing? (John WONG)
  • Hong Kong's CEPA with Mainland China (ZHANG Yang and John WONG)
  • Economic Recovery: A Bumpy Road Ahead (ZHANG Yang and Sarah Y TONG)
  • Broadening Its Economic Linkages with Guangdong (YU Hong)
• Governance Crises and Social Discontent:
  • Ending the Governance Crisis? (ZHENG Yongnian and TOK Sow Keat)
  • The Politics of Chief Executive Elections from Tung to Tsang (LEE Ngok and Thomas CHAN Man-hung)
  • State, Market Force and National Identity (Bill Chou)
  • Identity Politics (KWONG Kin Ming and YU Hong)
  • The Road to a Statutory Minimum Wage: Lessons and Implications (YEW Chiew Ping)
  • Is Hong Kong Dying? (KWONG Kin-ming and YEW Chiew Ping)
• Electoral Reforms and Democratisation:
  • Democratisation in Hong Kong: A Crisis Brewing for Beijing? (ZHENG Yongnian and TOK Sow Keat)
  • Political Reform and Dilemma (YEW Chiew Ping)
  • The 2011 District Council Election: A New Political Landscape? (YEW Chiew Ping)
  • The 2012 Chief Executive Election and After (YEW Chiew Ping)
  • The 2012 Legislative Council Election: New Political Landscape and Governance Challenges (YEW Chiew Ping and KWONG Kin-ming)

Readership: Researchers, professionals, undergraduate and graduate students interested in the Hong Kong's integration and relations with China, and One Country, Two Systems.

Part I: Integration and Interdependence

Chapter 1

After Smooth Handover, Now the Hard Part

WANG Gungwu and John WONG*

Hong Kong’s political and social integration with China remains the most intractable part of the city’s post-colonial transition. There is still a great deal of uncertainty as China itself is also undergoing dynamic changes.

On 1 July1997 Hong Kong was returned to China and became its Special Administrative Region (SAR) based on the principle of one country, two systems, which is backed by the Basic Law and the Sino-British Joint Declaration. Despite the continuing squabbles between Britain and China prior to the handover, the event had proven to be a smooth handover after all and Hong Kong had been largely left to run its own affairs.

At the time of the handover, the Hang Seng stock index reached 15,000 (compared to the low of 10,000 in 1996).¹ Hong Kong quickly returned to “business as usual”. Much of the pre-handover worries and polemics were soon brushed aside as post-handover euphoria rapidly gained ground amidst glowing reports of continuing economic prosperity. This culminated in Chief Executive Tung Chee-hwa’s first policy address for the SAR in early October 1997, which was devoted to the livelihood issue of the Hong Kong people and promised to address Hong Kong’s long-term problems such as housing and education.² Tung’s popularity index immediately soared to a record high of 89% while the Hang Seng index also climbed beyond the 16,000 level. In the immediate post-handover aftermath, Hong Kong was indeed in an exuberant “honeymoon” mood, apparently impervious to the financial turmoil that was then brewing in Southeast Asia.

However, barely two weeks after Tung’s policy address, the Asian financial crisis spread to Hong Kong, with its “linked exchange rate”, i.e. the US dollar peg, coming under heavy speculative attack. In a matter of just a few days, the Hong Kong stock index plunged by 35% to about the 10,000 level and its overheated property market plummeted by over 20% on account of the sharp rise of interest rates, which were introduced to defend the peg. Under the circumstances, the post-handover euphoric sentiments fizzled out almost immediately. In fact, the October 1997 attack on the Hong Kong dollar sparked off a serious economic recession in Hong Kong, with gloom and doom spreading rapidly from the financial and property markets to tourism and domestic retail sectors. As unemployment began to rise, the Hong Kong economy was under a cloud. As if economic and financial problems were not enough, Hong Kong had since been hit by a series of crises, including the much publicised “bird flu” and the disastrous opening of the new Chek Lap Kok (CLK) airport.

In the event, the Hong Kong economy still ended 1997 with a 5.3% growth and 6% inflation. In 1998, however, the Hong Kong economy plunged recording 5.1% negative growth (contraction), with a creeping deflation.³ For years, Hong Kong had experienced full employment with acute labour shortages. By early 1999, unemployment had risen sharply to 6%, the worst in about three decades, and was on an upward trend.⁴

Things Suddenly Fell Apart

Scarce in land and natural resources except for its strategic location, Hong Kong has always depended on a booming economy as the raison d’être of its precarious existence. With such a spectacular collapse of its economic growth, Hong Kong was undermined by a serious crisis of confidence and things seemed to be falling apart on many fronts. Politically, the Tung Cheehwa leadership was increasingly under fire from many quarters for its constant policy drifts and its lack of a clear direction. The civil service, previously noted for its operational efficiency and professionalism, had suffered from a serious decline in morale, especially after mounting public criticisms for its ineptness in handling crises. Some observers would even add that Hong Kong’s top economic bureaucrats, who are actually half an administrator and half a politician, had lost their nerve when confronted with financial crises, citing as proof their hasty decisions to directly intervene in the stock market in August 1998 when the Hong Kong dollar came under the second attack by international speculators.

Even Hong Kong’s legal system, which Hong Kongers have so proudly treasured as the bulwark for their justice and equality was not immune to the crisis.⁵ On 29 January 1999, the Court of Final Appeal delivered a controversial judgement to openly challenge China’s National People’s Congress (NPC) by restoring the right of abode of all mainland children even if they have only one parent who is a Hong Kong resident, regardless of whether they were born in wedlock or before their parents obtained residency rights. Furthermore, the judgement was “unequivocal” in asserting the right of Hong Kong courts to “examine whether any legislative acts of the National People’s Congress or its Standing Committee … are consistent with the Basic Law and to declare them to be invalid if found to be inconsistent”.⁶ This was initially hailed as a landmark ruling, but it almost touched off a constitutional confrontation with Beijing.

Shortly after the Hong Kong Court’s judgment, legal experts in China attacked the Hong Kong Court for overruling the acts of the NPC as tantamount to placing the Hong Kong Court above the national legislature, and hence contrary to the Basic Law.⁷ In the event, the Hong Kong government, in a move to end this constitutional crisis, asked the Court of Final Appeal to clarify its right of abode decision, particularly in regard to obiter dicta concerning the legal supremacy of the NPC.⁸ On 26 February 1999, Chief Justice Andrew Li conceded that the original judgement “does not question the authority of the Standing Committee of the National People’s Congress under article 158”, and that “it cannot query the authority of the NPC and the Standing Committee”.⁹ With this clarification or a backtrack, to some, the matter was laid to rest.¹⁰

The upshot nonetheless served to show that the Hong Kong court had obviously picked the wrong issue at the wrong time to assert Hong Kong’s legal independence. The outcome of the court ruling could well be socially damaging to Hong Kong as it would risk opening the floodgates to hundreds of thousands of Mainlanders coming to settle in Hong Kong. As Hong Kong was experiencing a deepening economic recession and rising unemployment, the issue was naturally unpopular with many ordinary Hong Kong people.¹¹ Furthermore, any ruling on the right of abode involving such a large number of people is a matter of state policy or a political decision that should not be regarded as a pure legal matter to be decided by a handful of unelected high court judges. Hence the ramifications of the right of abode ruling, coupled with the earlier decision by the Secretary for Justice Elsie Leung not to persecute, on political grounds, the Hong Kong newspaper tycoon Sally Aw for a commercial offence, had undermined public confidence in Hong Kong’s judicial system.¹²

As the economic crisis deepened, social cohesion was weakened. Fault lines between Hong Kong’s powerful and conservative business community and pro-democratic activists became more clearly drawn. Hong Kong’s most prominent businessman Li Ka-shing threatened to abandon a HK$10 billion investment project in December 1998 because the Hong Kong business environment had deteriorated as a result of growing political tendency towards populism and welfarism. Several outspoken Hong Kong businessmen also joined in the chorus of attack and openly accused pro-democracy politicians of advocating populist or even socialist measures like subsidies and minimum wages in order to win votes.¹³

In the meantime, Hong Kong’s popular independent party, the Democratic Party led by Martin Lee, had also been polarised by the economic crisis. Lee had all along geared the Party towards meeting the middle class aspiration for greater democracy, and he wanted to achieve his goals through political debate and legislative changes in the LegCo. The more radical faction of the Party, however, wanted to focus on the labour movement and they wanted to take politics to the streets. In their view, with rising unemployment and worsening social conditions, the ordinary Hong Kong people would naturally find the politics of “rice bowl” (livelihood issues) more appealing than the kind of democratic reforms advocated by Westernised elite like Martin Lee.¹⁴

There were also disturbing developments on the social front. After the handover, Hong Kong had witnessed what a Hong Kong sociologist called a further fragmentation of its elites. The process actually started before the handover when Britain and China were vying with each other in order to win over Hong Kong’s elites to their separate causes. Governor Chris Patten co-opted pro-democracy activists to support his democratic reforms and groomed selected senior civil servants as political successors. Beijing, on the other hand, used Chinese nationalism to court prominent business and community figures as well as grass-roots leaders to support the smooth transition of Hong Kong. Thus, after the change of flag on 1 July 1997, not only were Hong Kong’s political and social elites in fragments, but no single group was able to prevail over the others.¹⁵

Before the handover, the politics of identity dominated political debate in Hong Kong, with battle lines drawn between the pro-China and the pro-democracy camps. It was the political community, rather than the social classes, that was in conflict. After the handover, while many old social tensions remained, new sites of social conflicts had emerged. Once the political anxiety over the handover subsided with China honouring its word to leave Hong Kong alone, the politics of identity had given way to potential class conflict among organised labour, business interests and the middle class. As economic recession set in, inter-class conflict had begun to sharpen over the shrinking economic pie. According to a Hong Kong sociologist, the middle class in Hong Kong, little organised and badly divided, may lose out to organised business and organised labour in the emerging social conflict.¹⁶

Some Hong Kong sociologists might have overstated the problem of social conflict in Hong Kong where people have been highly pragmatic and socially mobile, and where life is organised around the practical aspects of making money. But it is nonetheless true that over the years Hong Kong has become a highly contentious society, which is rife with all sorts of domestic and foreign interest groups, each with its own agenda. Fanned by a free press, some interest groups have also become very vocal and assertive. What this means is that when a deeply divided society like Hong Kong is in crisis, it would be exceedingly difficult for its government to mobilise the needed political and social consensus to introduce hard policies to address its underlying problems.

How a Robust Economy Tumbles

This is not to say that Hong Kong was in a state of disarray. What was really happening was that the severe economic downturn had brought many of Hong Kong’s latent political and social problems to the fore, and these were further compounded by problems of post-handover transition. For an economy long used to high growth with full employment, a drastic change in economic fortunes would inevitably expose its political and social fault lines. The question can then be posed: Why had the Hong Kong economy suddenly nose-dived so sharply in a year? Or, why had the Hong Kong economy so readily fallen victim to the Asian financial crisis?

With hindsight, it is quite simple to explain why the financial crisis had struck Thailand, Malaysia, Indonesia and South Korea. But Hong Kong had much stronger economic fundamentals and far stronger external balance than these Asian economies, i.e. Hong Kong had a huge foreign exchange reserve while having no foreign debt. Furthermore, Hong Kong is supposed to have a functioning legal system with effective and transparent regulations that are needed by international business. It had none of the Indonesian kind of “KKN” (or corruption, cronyism and nepotism). As the region’s foremost financial centre, Hong Kong’s banks and financial institutions were well supervised and well regulated. In fact, as the reputable Political and Economic Risk Consultancy put it, “The banking system in Hong Kong is in better shape than any other economy in Asia and deserves its ranking as Number One”.¹⁷ Why was the Hong Kong economy in such a low degree of immunity to the Asian financial crisis then?

Take Hong Kong and Singapore, which are structurally quite similar: both are heavily dependent on external economic activities and hence equally vulnerable to external fluctuations. Hong Kong is fortunate enough to have South China as its hinterland, which had not only remained relatively prosperous during the Asian financial crisis but also wanted Hong Kong to prosper. By comparison Singapore is much less fortunate. Singapore’s hinterlands were deep in economic crisis which therefore had adversely affected Singapore’s trade, and they also seemed to be quite rel...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Preface
• Contents
• Part I: Integration and Interdependence
• Chapter 1 After Smooth Handover, Now the Hard Part
• Chapter 2 CEPA: A Gift from Beijing?
• Chapter 3 Hong Kong’s CEPA with Mainland China
• Chapter 4 Economic Recovery: A Bumpy Road Ahead
• Chapter 5 Broadening Its Economic Linkages with Guangdong
• Part II: Governance Crises and Social Discontent
• Chapter 6 Ending the Governance Crisis?
• Chapter 7 The Politics of Chief Executive Elections
• Chapter 8 State, Market Force and National Identity
• Chapter 9 Identity Politics
• Chapter 10 The Road to a Statutory Minimum Wage: Lessons and Implications
• Chapter 11 Is Hong Kong Dying?
• Part III: Electoral Reforms and Democratisation
• Chapter 12 Democratisation in Hong Kong: A Crisis Brewing for Beijing?
• Chapter 13 Political Reform and Dilemma
• Chapter 14 The 2011 District Council Election: A New Political Landscape?
• Chapter 15 The 2012 Chief Executive Election and After
• Chapter 16 The 2012 Legislative Council Election: New Political Landscape and Governance Challenges
• Index