Congressional Research Service: "Report for Congress", 95-743 S June 20, 1995 -ti- Hong Kong's Transition to Chinese Rule By Robert Sutter, Senior Specialist in International Politics Office of Senior Specialists Hong Kong's Transition to Chinese Rule: Issues, U.S. Interests, U.S. Options Robert Sutter Senior Specialist in International Politics Office of Senior Specialists With Assistance of Shahid Khan Research Associate Foreign Affairs and National Defense Division June 20, 1995 ---------- SUMMARY Participants at a CRS seminar on Hong Kong's transition to Chinese rule (see Appendix) generally agreed that there are now-- and are likely to be more--difficulties for U.S. interests as a result of PRC pressures on Hong Kong's political autonomy, rule of law and individual rights. PRC pressures and resistance in Hong Kong could also have negative effects on U.S. interests in Hong Kong's economic progress, although Hong Kong seems poised to continue to advance economically along with the rest of coastal China. U.S. options to deal with the situation were seen as limited. The participants generally favored a more active regimen of diplomatic, economic and other U.S. interactions with Hong Kong, and with PRC leaders over Hong Kong issues. Many approved of a vigorous use of reporting requirements and other provisions of the U.S.-Hong Kong Relations Act (P.L. 102-383), though some warned explicitly against new U.S. legislation that could risk counterproductive reaction by the PRC. ---------- CONTENTS SUMMARY...................................................... v BACKGROUND................................................... 1 U.S. Interests in Hong Kong............................... 2 LEGAL, POLITICAL AND CONSTITUTIONAL ISSUES................... 4 ECONOMIC ISSUES.............................................. 4 OTHER ISSUES................................................. 5 U.S. POLICY.................................................. 6 APPENDIX..................................................... 9 ---------- HONG KONG'S TRANSITION TO CHINESE RULE: ISSUES, U.S. INTERESTS, U.S. OPTIONS BACKGROUND [1] 1. See among others, Hong Kong's Political Transition. CRS Issue Brief 94051.CRS-2 Hong Kong has long been a point of U.S. economic, political, and other interests in Asia. Recent developments there have mixed implications for those interests. On the one hand, Hong Kong's economy, increasingly tied to the vibrantly expanding Chinese mainland economy, continues to grow around 6% in recent years. Over the last decade, Hong Kong has risen from the 15th largest to the 8th largest trader in the world, and its per capita GDP has climbed from $6,000 to $20,000. With a population of 6 million, Hong Kong's economy presently equals one-fifth of mainland China's GDP. Under the terms of the Sino-British Joint Declaration of 1984, Hong Kong will become a Special Administrative Region (SAR) of China on July 1, 1997. The Joint Declaration contains assurances that Hong Kong's lifestyle and capitalist economy will remain until the year 2047, and it further states that Hong Kong's freely-elected government will retain a level of autonomy over local laws and financial and monetary matters. In addition, in 1990, the Standing Committee of China's National People's Congress approved the Basic Law for Hong Kong (a so-called mini-constitution) which: defined the legal rights of Hong Kong residents; the region's relationship to Beijing; and, the political structure and formation of the post-1997 Hong Kong government. On October 7, 1992, Hong Kong's new Governor Christopher Patten unveiled proposals to expand the voting franchise in Hong Kong and broaden the scope of democratic institutions. Patten's proposals reflected a growing desire on the part of the colonial government and the people of Hong Kong that, in the aftermath of the 1989 Tiananmen crackdown, Hong Kong should erect safeguards against capricious Chinese government action after 1997. The proposals were seen by the British authorities as consistent with the 1984 Sino-British Joint Declaration, but Beijing disagreed. For Beijing, Patten's proposals raised a security issue, because it viewed the establishment of more democratic institutions as a threat to its ability to resume unimpeded sovereignty over Hong Kong in 1997. Subsequent Chinese rhetoric denounced the proposals as a violation of the 1984 Sino-British Joint Declaration. In 1993, attempts by both sides to reach a negotiated settlement on the reform package broke down after seventeen frustrating rounds. On December 2, 1993, Governor Patten announced that he would submit part of his reform package to the Legislative Council (Legco) without China's endorsement. Legco finally passed the reform measures in June 1994. District board elections were held the following September. In response, Beijing announced its intention ---------- page 2 to dismantle all of Hong Kong's democratic institutions after its resumes sovereignty in 1997. The controversy over Patten's political reforms has represented only the most notable of a series of PRC-Hong Kong political issues that have marred the pathway to Chinese rule. Other issues include perceived threats to the continued rule of law, civil liberties, civil service integrity and freedom of the press long enjoyed in Hong Kong. The British and Chinese authorities have also been engaged in protracted and sometimes contentious talks over such sensitive economic and other issues regarding major infrastructure projects (e.g. the new Hong Kong airport) and the use of government owned lands in the territory. U.S. Interests in Hong Kong The United States has several areas of interest in these developments. Economic: Hong Kong is the largest base of American economic operations in Asia. Over 30,000 Americans live and work there; 1,000 U.S. firms have corporate offices in Hong Kong, most of which are used as financial and marketing bases in support of substantial manufacturing facilities in mainland China and as headquarters for business activities throughout Asia. By 1995, U.S. investments in Hong Kong totaled $10.5 billion. According to the U.S. Consul General in Hong Kong, U.S. exports to the territory in 1994 amounted to $11 billion, while U.S. imports were about $9 billion. Hong Kong is the major transshipment point for Chinese products exported to the United States, which were valued at over $20 billion in 1993. Human Rights/Democracy: Since 1989 Tiananmen Massacre in Beijing, U.S. leaders, especially in the Congress, have paid sometimes close attention to the human rights situation in Hong Kong. They have been generally supportive of Governor Patten's efforts to increase modestly the level of democracy in the territory prior to its reversion to China. Some have been critical of China's pressure tactics and opposition to those democratic moves. Taiwan: U.S. leaders sometimes view Beijing's handling of the Hong Kong transition as a model for the way Beijing would likely handle reunification with Taiwan. Chinese authorities have stated that their "one country-two systems" policy approach to Hong Kong also applies to Taiwan. A smooth transition in Hong Kong would presumably buttress the arguments of those who assert that American interests in Taiwan would not suffer from reunification, while a rocky transition would support the arguments of those who press for strong U.S. support for Taiwan's separate status from the mainland. MFN, other aspects of China policy: Considerations over Hong Kong have been an important element in the ongoing U.S. debate over China policy since the Tiananmen incident, especially the debate over whether or not the United States should approve Most Favored Nation (MFN) tariff treatment for Chinese exports to the United States. On the one hand, critics of China argued in the past that MFN and other favorable treatment for China should be ---------- page 3 withheld unless Beijing met certain conditions, including a more accommodating Chinese stance on democracy and human rights in Hong Kong. An important counterargument held that cutting off MFN would have a disastrous economic and perhaps negative political impact on Hong Kong, especially as the bulk of Chinese exports to the United States pass through the colony. Congressional Action and Current U.S. Law. Congress has focused more on Hong Kong in recent years. So far, the main thrust of legislation has been to provide for continuity in U.S. relations with Hong Kong after it reverts to Chinese control. In 1990, Congress enacted the Immigration Act of 1990, which establishes a separate immigrant visa quota for Hong Kong and offers a deferred visa to Hong Kong residents, thereby providing a possible future refuge without provoking an immediate exodus. In 1992 Senator Mitch McConnell, concerned over what he viewed as the complete lack of any U.S. policy for dealing with impending Chinese rule over Hong Kong, introduced legislation which set forth prescriptions for how the United States should conduct bilateral relations with Hong Kong as a non-sovereign entity. His bill (S. 1731), enacted as P.L. 102-383, does a number of things, including the following: o Declares that support for democratization is a fundamental principle of the United States that should apply to U.S. policy toward Hong Kong after 1997. o Declares congressional support for the Sino-British Joint Declaration and makes a number of findings about what that agreement provides for, including that Hong Kong's legislature (Legco) will be constituted by elections, and that all agreements the United States has implemented with Hong Kong by June 30, 1997, will continue in force after that date. o Requires the United States to apply the same laws toward Hong Kong after 1997 as were in force before that date, but permits the President to suspend those agreements beginning July 1, 1997, if he determines that China is not giving Hong Kong sufficient autonomy. o Requires the Secretary of State to report to Congress every 18 months on the situation in Hong Kong, including on the development of Hong Kong's democratic institutions. In the 103rd Congress, Senator Connie Mack and Representative John Porter, concerned about possible Chinese reprisals against journalists for their reporting, each introduced legislation (S. 665 and H.R. 1265) that would have provided a certain number of deferred visas for Hong Kong journalists and their families. Late in the session, on October 5, 1994, the Senate passed S. Res. 265 commending the recent district board elections in Hong Kong. The legally required U.S. State Department report on Hong Kong of March 31, 1995 warned of potential uncertainties in Hong Kong's legal and political systems if greater Sino-British progress on these issues is not made prior to 1997. It urged the two parties to seek agreement allowing the Hong Kong ---------- page 4 Legislative Council to continue in office after 1997, the setting up of a Court of Final Appeal, and the sorting out differences over an ambitious ship container project. It also pointed to problems of media self-censorship and discontent in the civil service. A Chinese Foreign Ministry spokesman on April 6, 1995, criticized "irresponsible comments" of the U.S. report. LEGAL, POLITICAL AND CONSTITUTIONAL ISSUES Seminar participants were generally down beat in assessing the legal, political and constitutional issues facing Hong Kong's transition. Speakers and commentators cited a number of areas as indicators of an erosion in Hong Kong's political autonomy, rule of law and individual rights. It was argued that this erosion has been caused by Chinese influences and pressures, partly in reaction to greater political assertiveness in Hong Kong. In addition to threatening to abolish existing democratic institutions (e.g. Legco), Beijing's pressure was seen to challenge a wide range of rights and privileges heretofore taken for granted in Hong Kong. Examples of a decline in the freedom of the press were listed as a noticeable toning down and less-critical stance among the Hong Kong press regarding political decisions sensitive to the PRC; potential restrictions on the media as evidenced by the Chinese government pressuring a recent applicant for a television broadcasting license to drop BBC programming; difficulties faced by dissidents in finding publishers, whereas in the past there was less difficulty in this area; and, reports by academics that they have been ordered not to comment publicly on political developments sensitive to the PRC. China's desire to renegotiate the setting up a Court of Final Appeals and its requests to review the personnel files of civil servants were also cited as examples of the "subversion" of the Hong Kong judicial and civil service systems. Meanwhile, it was stated that PRC authorities have deliberately shunned prominent democratic politicians in Hong Kong, presumably foreshadowing a Chinese effort to isolate and neutralize these popular political leaders once Chinese sovereignty is restored in 1997. The outlook for political issues was not completely pessimistic, however. Thus, it was acknowledged at the seminar that PRC leaders have pulled back from hard line political positions in the past, and that recent press reports and speeches by some prominent PRC leaders suggest that a more moderate PRC stance on some contentious political issues may be in the offing. ECONOMIC ISSUES Several seminar participants made the point that a decline in political autonomy, the rule of law, individual rights and civil service integrity in Hong Kong will damage economic conditions there. Other mainland Chinese influences working against Hong Kong's economic growth include a perceived rise in corruption and the role of special Chinese interests (e.g. the sons and ---------- page 5 daughters of prominent PRC leaders) in the large Chinese companies investing in Hong Kong. Nevertheless, a prevailing view at the seminar was that Hong Kong would remain economically vibrant and an important gateway to the rapidly changing Chinese economy. PRC leaders were said to base many of their decisions about Hong Kong on the status and prospects of the economic markets there. Thus, if a particular hard line Chinese decision on political developments in Hong Kong causes no adverse reaction in the economic markets, PRC authorities are said to be unlikely to alter the political policy. The participants portrayed a striking convergence of current U.S. and PRC economic interests in Hong Kong. For the U.S., Hong Kong has: -- a total of 1,000 American companies, 350 of which have chosen Hong Kong as a location for regional headquarters; -- a community of 35,000 American residents; -- notably large concentrations of U.S. banks and insurance companies; -- the eleventh largest market for U.S. goods and services (thirty-two percent of which are re-exported to China); -- over 3,000 Hong Kong students in U.S. schools in Hong Kong (there are 10,000 Hong Kong students in the U.S.); -- the third largest American Chamber of Commerce in the world. In large part because of expected future growth in the Chinese economy, it was anticipated that the growing economic interests of the U.S. and PRC in Hong Kong would continue to increase. This economic growth could be slowed by political tensions and repression, but its underpinnings lay with the fundamental dynamics on the PRC economy. OTHER ISSUES Impact on Taiwan. Several participants accepted the view that officials and other observers in Taiwan are watching carefully how the PRC handles the Hong Kong transition. A smooth transition respectful of Hong Kong's autonomy was seen likely to boost Taiwan's interest in reunification with the mainland, while a rough transition would prompt Taiwan to seek to enhance its current independence from mainland rule. PRC leadership succession, domestic politics. Several participants suggested that the ongoing jockeying for power and position in Beijing is certain to make officials there devote more attention to developments in such a sensitive area as Hong Kong. The actual impact on PRC policy toward Hong Kong was unclear, however. Some seminar participants suggested that PRC leaders will take a ---------- page 6 tough line on this issue of national sovereignty, whereas others pointed to signs of senior PRC leaders calling for a more moderate and carefully nuanced policy toward the territory. U.S. POLICY There was a range of opinion among participants as to how important a role U.S. policy could play in influencing Hong Kong's future. On one side were those who stressed that Hong Kong's future would be determined mainly by developments in China, in East Asia and in international economic conditions; on the other side were those who argued that only the U.S. could make a difference in taking the lead to push for greater autonomy, rule of law and individual rights in Hong Kong. In the main, there was agreement among participants that the U.S. should remain actively involved through diplomacy, economic interaction, cultural exchanges and other governmental and nongovernmental channels in interchange with Hong Kong as an autonomous entity. And the U.S. was widely seen to be wise to continue to follow the reporting and other provisions of the U.S.-Hong Kong Relations Act and other legislation that emphasizes the strong interest the U.S. has in an autonomous Hong Kong. Those participants who emphasized the need for U.S. leadership in helping to protect political autonomy, rights and the rule of law had several specific suggestions. They urged that: o Britain should be urged to allow elected representatives to be members of the island's Executive Council; o the United States should ensure Hong Kong's participation on multilateral forums, even if Beijing has misgivings; o the United States should raise Hong Kong's profile by dealing with it on a bilateral basis instead of through British authorities; and o the United States should make an aggressive effort, both public and private, to press China to abide by the terms of the Joint Declaration and not allow any dismantlement of Hong Kong's political institutions. By contrast, others believed that U.S. interests in Hong Kong would be best preserved through a policy of greater cooperation and engagement in U.S.-PRC relations. Their specific recommendations included: o encouraging high level U.S. dialogue with senior PRC officials, especially those (e.g. Qiao Shi, Li Ruihuan)who have been identified in recent media reports as more moderate on Hong Kong; ---------- page 7 o avoiding changes in U.S. legislation that could be seen as a challenge to PRC sovereignty and thereby result in a strongly negative PRC response; and o encouraging greater U.S.-China economic interchange and avoiding economic restrictions and sanctions that would hurt Hong Kong's economy and reduce the perceived growing economic convergence of the U.S. and PRC in Hong Kong. ---------- page 8 ---------- page 9 APPENDIX HONG KONG'S TRANSITION TO CHINESE RULE: PROSPECTS AND IMPLICATIONS FOR THE UNITED STATES Members and professional staff are cordially invited to a CRS seminar on the prospects and implications of Hong Kong's transition to Chinese rule. DATE: Friday, May 19, 1995 TIME: 9:00-11:30 a.m. PLACE: SC-5, U.S. Capitol Despite Hong Kong's continued economic prosperity, the territory's 1997 transition to rule by the People's Republic of China promises to be difficult. Guarantees for Hong Kong's future made in the Joint Declaration of 1984 are being called into question by trends and controversies that threaten important Hong Kong institutions, as well as legal, business and other norms. Limited U.S. media attention to recent developments has disclosed few if any U.S. policy initiatives. Congress made U.S. relations with Hong Kong a priority in passing the U.S. Hong Kong Policy Act of 1992. A Department of State spokesman will be in attendance to answer questions concerning Administration positions and views. After a brief review of internal and external trends affecting Hong Kong's future by Ezra Vogel, U.S. National Intelligence Officer for Asia, a panel of experts will provide different perspectives as to what these trends mean for U.S. interests and what the U.S. can or should do about them. PANEL:Thomas Boasberg, Covington and Burling Merle Goldman, Boston University Thomas Gorman, American Chamber of Commerce, Hong Kong David Michael Lampton, National Committee on U.S.-China Relations MODERATOR: Robert Sutter, Congressional Research Service If you wish to attend, please return through INSIDE MAIL the form at the bottom of the page to CRS/PGM (7230), LM-209 or FAX to 7-4446. If accommodations for people with disabilities are needed, call the Office of Special Programs at 7-7904 or TTY 7-7154 at least seven days before the program. If you have any questions, please call the Office of Special Programs, 7-7904. For information about other CRS seminars and upcoming events, call 7-7905. Sincerely, Daniel P. Mulhollan, Director Congressional Research Service