[CRS Issue Brief for Congress]


Hong Kong After Its Return to China: Implications for US Interests


Updated June 10, 1998

Kerry Dumbaugh Foreign Affairs and National Defense Division, CRS

 

Hong Kong's return to China on July 1, 1997, went surprisingly smoothly. In the ensuing months, policy analysts are trying to assess how the territory will fare in the longer run under Chinese rule. The answer is important to U.S. interests because of the enormous U.S. economic presence in Hong Kong; because any adverse developments in Hong Kong are likely to affect U.S.-China relations; and because China's promise to give Hong Kong a high degree of autonomy under the "one-China, two-systems" policy has major implications for Taiwan. But given the political situation, the American ability to affect the course of events in Hong Kong seems marginal unless the U.S. decides to confront Beijing more directly. Developments in U.S.-China relations in recent years suggest Washington might be hesitant to do so.

A number of key indicators -- developments to watch over the coming months in gauging trends in Hong Kong -- can assist U.S. observers in analyzing prospects for the future and making decisions about U.S. policy. Continuity in Hong Kong's civil service and China's attitude toward civil service issues are noteworthy indicators. Others include: the working relationship between C.H.Tung, Hong Kong's new Chief Executive, and the Hong Kong government apparatus; the retention rate in Hong Kong's excellent civil service; the track record of the new legislature, elected in a record-turnout on May 24, 1998; and whether the Hong Kong government is able to continue to deal effectively and autonomously with the repercussions of the Asian financial crisis. How these matters evolve will offer key information for U.S. policymakers.

A close look at current developments and attitudes in the territory indicates that views in Hong Kong continue to be somewhat mixed. Optimists tend to believe that the change from British to Chinese rule will make little difference, and that Hong Kong will continue to have strong economic growth, foster a friendly and supportive business environment, and provide an atmosphere allowing significant scope for individual freedom. They cite the smooth handover and the resultant stability in the territory as evidence for their views. They also see positive signs in the autonomy with which the Hong Kong government so far has defended the U.S.-Hong Kong dollar peg.

But many pessimists in Hong Kong have never been confident that Chinese leaders understand or accept what has made Hong Kong successful. They believe China's decision to dissolve Hong Kong's legislative bodies upon the handover date is a better indication of Beijing's likely future approach. They believe the agreement to establish a high Court of Final Appeal contains significant loopholes that China will exploit; they question Beijing's understanding of the rule of law or Hong Kong's British common law tradition; and they doubt China will tolerate a free press.

In the coming months, all parties are likely to put pressure on U.S. policymakers to adopt certain policies. Some groups in Hong Kong favor greater U.S. involvement and activism; many in the business community argue for a more calibrated and targeted approach; and China objects strenuously to any increase in U.S. involvement in Hong Kong. American policymakers will have to balance these competing perspectives with U.S. national interests in making policy decisions affecting both Hong Kong and China.

 

MOST RECENT DEVELOPMENTS

On June 3, 1998, President Clinton recommended an extension of China's most-favored-nation status (MFN) for another year. MFN trade status has special significance for Hong Kong, a large international trade center.

On May 24, 1998, legislative elections were held for the first Legislative Council since Hong Kong's smooth reversion to Chinese rule on July 1, 1997. Democratic-minded candidates drew heavy public support, with Martin Lee's Democratic Party winning 13 seats in the 60-seat body, and another 5 or 6 candidates winning from other democratic parties. From October 20-28, 1997, partly in reaction to the Southeast Asian financial crisis, the Hong Kong stock index lost about a third of its value, and severe pressure was placed on the Hong Kong dollar, which is pegged to the U.S. dollar at 7.8/1, and which was vigorously defended by the Hong Kong government. In February, 1998, Hong Kong Financial Secretary Donald Tsang submitted the first Hong Kong budget prepared after the end of British sovereignty.

 

 

 

BACKGROUND AND ANALYSIS

In the months preceding China's resumption of sovereignty over Hong Kong on July 1, 1997, policy analysts spent much effort assessing how the territory will fare under Chinese rule. The answer is important to U.S. interests for several reasons: first, because of the enormous U.S. economic presence in Hong Kong; second, because any adverse developments in Hong Kong in the aftermath of the reversion are likely to affect U.S.-China relations; and third, because China's promise to give Hong Kong a high degree of autonomy under the "one-China, two-systems" policy has political implications for Taiwan.

Observers are more optimistic about Hong Kong's future now than before the reversion. Hong Kong's economy, increasingly tied to the vibrantly expanding Chinese mainland economy, has continued to grow. Annual growth in the past few years has been 5-6%. Over the last decade, Hong Kong has risen from the 15th to the 8th largest trader in the world, and its per capita GDP has climbed from $6,000 to $23,800. With a population of only 6 million, Hong Kong's economy now equals one fifth the GDP of mainland China and its 1.2 billion people. Along with this extraordinary economic track record, Hong Kong plays an increasingly vital role as a conduit and financial center for U.S., Chinese, and international economic and business interests. Under these circumstances, some believe that the change from British to Chinese sovereignty will make little difference, and that Hong Kong will continue to demonstrate strong economic growth, foster a friendly and supportive business environment, and provide an overall atmosphere that allows significant scope for individual freedom. According to this view, Hong Kong's economic future is much more likely to be adversely affected by widespread regional problems, such as the Southeast Asian financial crisis, than by issues of Chinese sovereignty.

There is somewhat less optimism about Hong Kong's political future and the political rights of its citizens. Before the reversion, Britain and China at times argued acrimoniously over political reforms, new governmental institutions, and other arrangements surrounding the colony's transition to Chinese rule. China routinely accused Britain of using its last years of rule over the colony to establish new democratic institutions where none existed before, and said these would hamper China's own ability to rule Hong Kong. As a result, China threatened repeatedly during the 18 months preceding reversion to undo many of the political reforms enacted under Hong Kong's British Governor, Christopher Patten. Some observers believe such actions demonstrate that China is likely to politicize economic and other decisions in Hong Kong in the future. They believe Chinese leaders may be willing to tolerate economic decline in Hong Kong when issues of sovereignty and Chinese governance are involved.

In the past decade, the United States took a fairly low profile on matters involving Hong Kong. In part this is because no country -- not Britain, and not the United States -- questions China's sovereign rights over Hong Kong beginning July 1, 1997. But as the Hong Kong SAR begins holding elections for its legislature, interested parties in both Hong Kong and China may put increasing pressure on U.S. policymakers to follow certain policies. In this growing lobbying effort, the options that most in Hong Kong suggest are in direct contrast to those Beijing supports; moreover, there is divided opinion within Hong Kong itself. Chinese leaders already have objected to what they call the "gradual insistence" by some U.S. policymakers on "inserting the United States" into the affairs of Hong Kong, and there is every sign that they will continue to do so. More liberal-minded activists in Hong Kong wish for a broader and more visible U.S. presence and, in particular, for more vocal U.S. support for democratic principles and institutions. The U.S. and international business community in Hong Kong, also receptive to a more visible U.S. presence, nevertheless argues for an involvement that remains cognizant of Beijing's interests and targets more specific issues, often economic ones. All these groups may become more vocal in making their cases before American officials.

 

U.S. Interests in Hong Kong

Hong Kong has long been a point of U.S. economic, political, and other interests in Asia. Each of these interests brings its own set of advocates, both domestic and international, who add their contributions to the U.S. policy process.

Economic: Hong Kong is the largest base of American economic operations in Asia. At present, 31,000 Americans live and work in Hong Kong; approximately 1,000 U.S. firms have corporate offices there, most of which function as financial and marketing bases for 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 the 1989 Tiananmen Massacre in Beijing, U.S. leaders, especially Members of Congress, have paid closer attention to the prospects for human rights in Hong Kong. They have been generally supportive of Governor Patten's modest measures to increase 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 moves toward democracy. U.S. officials and Members of Congress also have been outspoken in opposition to Chinese statements that Beijing will dissolve Hong Kong's Legislative Council in 1997 because of changes in electoral laws proposed and implemented by the Governor.

Taiwan: U.S. leaders sometimes view Beijing's handling of the Hong Kong transition as a method of forecasting the way Beijing would likely handle reunification with Taiwan. Chinese authorities have reinforced this by frequent statements that Deng Xiaoping's "one country-two systems" policy approach is what China will follow for both territories. 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. 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: Hong Kong has been an important element in the U.S. debate over China policy since the Tiananmen crackdown, especially in the debate over whether or not the United States should approve Most Favored Nation (MFN) tariff treatment for Chinese exports to the United States. Critics of China argued in the past that MFN -- the tariff treatment the United States extends to almost all of its trading partners -- should be withheld from China 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.

The Hong Kong Policy Act (P.L. 102-383). Congress' major legislative action on Hong Kong so far occurred in 1992. Senator Mitch McConnell, concerned over what he described 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 the following:

 

 

Actions on Hong Kong in the 104th and 105th Congress

Under British rule, officials of the Hong Kong government working in the United States have received diplomatic privileges and immunities by virtue of their association with the British government. With that link being terminated on July 1, 1997, Hong Kong's officials would lose this status absent some action by the United States to either give Hong Kong separate diplomatic status or else accredit Hong Kong representatives to the Chinese Embassy in Washington. Accreditation to the Chinese Embassy would run counter to U.S. policy, spelled out in the Hong Kong Policy Act of 1992, to treat Hong Kong as a separate, distinct entity from China. Therefore, on June 17, 1997, the 105th Congress passed legislation (S. 342, still awaiting the President's signature as of this writing) which extends separate diplomatic privileges and immunities to Hong Kong's official economic and trade missions in the United States under the authority of the International Organizations Immunities Act. On March 11, 1997, the House passed H.R. 750, the Hong Kong Reversion Act, which declares U.S. support for an autonomous Hong Kong and delineates what U.S. interests are in Hong Kong and how those interests can be furthered.

The 104th Congress was also active in Hong Kong issues. In P.L. 104-107, the FY1996 Foreign Operations Appropriations Act (H.R. 1868), the 104th Congress amended the U.S. Hong Kong Policy Act (the HKPA) by requiring a report to be submitted also in 1996 (the original HKPA did not call for a 1996 report), and by requiring additional detailed information to be included in the 1996 report only. Other requirements included information on: 1) the Basic Law and its consistency with the Sino-British Joint Declaration; 2) the openness and fairness of elections to Hong Kong's legislature; 3) the openness and fairness of the election of Hong Kong's new chief executive, and the executive's accountability to the legislature; 4) the treatment of political parties in Hong Kong; 5) the independence of Hong Kong's judiciary and its power to exercise final judgment over Hong Kong law; and 6) Hong Kong's Bill of Rights. (The Basic Law will serve as Hong Kong's de facto constitution after July 1, 1997; the Sino-British Joint Declaration of 1984 contains China's basic promises on Hong Kong's future autonomy.)

In H.R. 4278, the FY1997 Omnibus Appropriations Act (P.L. 104-208), the 104th Congress again directed that the Administration include additional information in the annual Hong Kong report -- again, for one report only, the 1997 report, as required by Section 301 of the original Hong Kong Policy Act. The additional requirements imposed by the Omnibus Act were almost identical to those required under the FY1996 Foreign Operations bill.

Earlier, the 104th Congress had included language in the Foreign Relations Authorizations Act, FY1996 (S.908/H.R. 1561) that would have increased and made permanent the reporting requirements currently required under the HKPA. The President vetoed this bill for reasons unrelated to the Hong Kong provisions.

In 1996, the Senate also considered legislation to extend diplomatic privileges, exemptions, and immunities to Hong Kong's Economic and Trade Offices in the United States. Now, representatives of Hong Kong stationed in the United States receive their diplomatic privileges as representatives of the United Kingdom (U.K.). S. 2130 sought to give Hong Kong diplomatic privileges in its own right under the provisions of the International Organizations Immunities Act. Since the House did not act on the measure prior to adjournment, no such change in Hong Kong's diplomatic status has been enacted.

Past legislation on visas: Senator Connie Mack and Representative John Porter have been concerned about possible Chinese reprisals against journalists for their reporting. In the past, they each have introduced legislation that would have provided a certain number of deferred visas to Hong Kong journalists and their families; this legislation has not been enacted, but similar legislation has been introduced in the 105th Congress (S. 968 and H.R. 890).

 

Background to Developments in Hong Kong

Hong Kong's current situation has its roots in the terms under which the British originally acquired the territory -- through a combination of wartime concessions and a 99-year lease, the latter negotiated and signed with China in 1898. In 1982, approaching the end of its lease, the British Government began a series of difficult bilateral negotiations with China about Hong Kong's future. These ultimately led to the Sino-British Joint Declaration of 1984, which provided for returning all of Hong Kong to Chinese rule on July 1, 1997.

Lacking power and basis for opposition, and faced with the strong Chinese insistence on regaining sovereignty over the territory, Britain had felt compelled to give ground repeatedly in the course of the negotiations. China made compromises as well - - most notably its pledge to leave Hong Kong's socioeconomic system virtually unchanged for 50 years after 1997, and its promise to approach rule of Hong Kong under the general guidelines of "one country-two systems." In its final form, the Joint Declaration set out the basic criteria for Hong Kong's future, as agreed upon by the British and Chinese Governments. Further details of Hong Kong's future governance were provided in a second document enacted by the Chinese Government -- the Basic Law -- that will serve as Hong Kong's de-facto constitution after 1997. Subsequently, British officials reportedly considered initiating political reforms that would grant the people of Hong Kong greater autonomy in the period leading to 1997. But London moved cautiously, in part out of concern over the Chinese government's staunch objections to granting the Hong Kong government a distinct political status separate from PRC control after 1997.

Between 1984 and 1989, the British and Chinese settled into a pattern of frank but generally cooperative interaction and negotiation over Hong Kong. Negotiations over plans for the Basic Law were prolonged. Britain, responsible for administering Hong Kong through June 1997, generally tried to push for as much autonomy as possible for the territory. Among other things, British negotiators proposed instituting direct elections for Hong Kong's legislature, the Legislative Council (Legco). China opposed these efforts, saying they were attempts to interfere with China's ability to administer Hong Kong after 1997.

A Basic Law was finally adopted on April 4, 1990. But many of its provisions were vague, leaving room for continuing controversy, mostly on political matters. For instance, with few further details, the Basic Law provided only that the Hong Kong Legislative Council "shall be constituted by election." The elections were to be implemented "with gradual and orderly progress," and with "the ultimate aim the election of all the members of the Legislative Council by universal suffrage."

In a second prescription for controversy, the conclusion of the Basic Law negotiations coincided with China's June 1989 crackdown in Tiananmen Square. In the weeks after Tiananmen, over one million Hong Kong citizens demonstrated against the Chinese government's action. People in Hong Kong also were influential in supporting dissidents in China and in smuggling out political critics and information that proved to be damaging to the Beijing regime's standing at home and abroad. Tiananmen and its aftermath changed British and Chinese attitudes toward Hong Kong in several ways.

For the British, the Chinese people in Hong Kong, long considered politically apathetic, were suddenly showing keen interest in politics. Many in Hong Kong pressed for more support from London to establish better safeguards against possibly capricious Chinese government action toward Hong Kong after 1997. A number of Hong Kong's increasingly important middle class of professionals and business people advocated strengthening and expanding the colony's institutions of representative government.

For China, Hong Kong's reaction to Tiananmen raised a major security concern. It heightened China's sensitivities over any action by the British or others that could be seen fostering political or other conditions in Hong Kong that were at odds with Beijing's concepts of stability. Consequently, when China's National People's Congress promulgated the Basic Law in April of 1990, it strengthened wording concerning subversion.

British Actions: To reassure those in Hong Kong and avoid unduly antagonizing Beijing, British authorities took several steps. Among other things, the Government: passed a Bill of Rights for Hong Kong citizens in 1991; granted an additional 50,000 Hong Kong heads of families with close ties to Great Britain the option to emigrate there; and encouraged the United States, France, and others to grant more generous immigration options to Hong Kong employees of American, French, and other institutions and businesses in Hong Kong.

The British also reaffirmed their support for Hong Kong in two other ways. First, they proceeded with plans to build a large, complicated, and expensive airport project; second, they obtained Chinese approval that those Hong Kong legislators elected before 1997 would be allowed to serve out their terms after China took over in July 1997 (the latter concept is referred to as the "through train"). Almost from the outset, the airport plan and the "through train" for certain Legco members (e.g., vocal critic of the PRC, Martin Lee) met with serious Chinese objections. Chinese leaders were able to effectively freeze international financial support for the airport by asserting that they had not been adequately consulted on the project and that its financing might have to be reviewed after 1997.

In an effort to cut through the difficulties over the airport and the "through train" and to get these programs back on track, Prime Minister John Major in September 1991 became the first Western head of government to travel to Beijing after the Tiananmen incident. He signed a memorandum of understanding with Beijing over the airport. Subsequently, however, Chinese officials continued to voice reservations that made it difficult to move ahead with the project.

Under the circumstances, Britain decided to shift the style if not the substance of its policy toward Hong Kong. The more cautious policy of the recent past -- solicitous of PRC concerns and fearful of antagonizing China -- was put aside in favor of a more direct approach under the leadership of a new Hong Kong Governor, Chris Patten. Shortly after assuming office in the Fall of 1992, Governor Patten precipitated a protracted political confrontation with Beijing when he proposed to broaden the political representation of legislative institutions in Hong Kong. By Western standards, the proposals seemed mild. Patten did not propose increasing the number of directly elected seats in Legco -- a figure upon which China and Britain had already agreed -- but instead opted for a series of steps to institutionalize procedures on which the Joint Declaration and the Basic Law were silent.

China's Reaction: Beijing was suspicious of the trends in British policy, particularly after the Tiananmen crackdown. Although often speaking out in opposition to British actions in Hong Kong, Chinese leaders particularly objected to Hong Kong's New Airport and Port Construction Project. The huge project came with a price tag in excess of $20 billion (U.S.), and involved numerous multinational contracts to construct terminals and runways, highways and railroad lines, bridges, and a tunnel crossing Hong Kong Harbor. The project's great size and expense raised Chinese suspicions that Britain would attempt to drain Hong Kong's substantial treasury surplus prior to 1997. Furthermore, Beijing felt Britain's handling of the airport proposal ignored China's insistence that it be sufficiently consulted by Britain on all major issues affecting Hong Kong after 1997, since China would ultimately inherit the consequences of those decisions.

But China's greatest objections to British actions came with Governor Patten's political reforms. Beijing swiftly and vigorously denounced both the Governor and his reforms, saying that the reforms contravened the Joint Declaration and the Basic Law and were nothing short of an attempt to create new democratic institutions in Hong Kong where none had existed before. Chinese leaders maintained that Patten's changes would complicate Chinese reassertion of sovereignty in 1997; make more difficult the delicate task Beijing faces in trying to run the territory effectively after 1997; and in the meantime divide political opinion and reduce business confidence in the territory.

In response to Patten's initiatives, Beijing announced it would set up its own advisory body for Hong Kong, known as the "Preparatory Committee." In February 1994, China pledged to end the "through train" it had previously agreed to, and vowed to dismantle the current legislative structure of Hong Kong, including Legco. On December 21, 1996, the 60 members of the provisional legislature were named.

 

Current Situation

Attitudes in Hong Kong have turned more optimistic since the July 1 handover. Since Hong Kong's economy continues to have sound fundamentals, economic indicators continue to feed optimistic projections about the future. Many Hong Kong residents, particularly in the business community, have extensive political and economic connections in China and personal relationships with Chinese leaders. As a result, they seem confident in their continued ability to close business deals or craft political accommodations with Beijing. They see this continuing on into the future, envisioning a Hong Kong that will function along the same pragmatic lines with largely the same key players as is the case today. But many observers are less sanguine about the future of Hong Kong's political system, particularly if financial troubles now affecting the region worsen over the longer term.

Provisional legislature. Beijing's decision to dissolve the elected Legislative Council (Legco) on July 1, 1997, and replace it with the appointed temporary body sworn in on July 1, 1997 -- the so-called "provisional legislature,"once thought likely to challenge American confidence about the "one country, two systems" concept -- ultimately has had little noticeable affect on American attitudes toward Hong Kong.

A provisional legislative body was not provided for in either the Joint Declaration or the Basic Law, and Beijing's decision to appoint such a group was viewed by many American policymakers as but the beginning of heavy-handed Chinese interference in Hong Kong's promised decisionmaking autonomy. China defended its decision by saying that political reforms instituted by Hong Kong's last British Governor, Christopher Patten, were breaches of Sino-British agreements. Beijing has carefully referred to the new body as a "provisional" legislature, and has indicated it will last no longer than June 30, 1998. To do otherwise would be a clear violation of China's own official commitments on the Hong Kong SAR's first official Legislative Council, articulated in a document adopted on April 4, 1990, by China's Seventh National People's Congress, entitled the Decision of the National People's Congress on the Method for the Formation of the First Government and the First Legislative Council of the Hong Kong SAR. Paragraph 6 of this document specifies the "20-30-10" formula for how many Legco members are to be elected or chosen by which constituencies:

 

The first Legislative Council of the Hong Kong SAR shall be composed of 60 members, with 20 members returned by geographical constituencies through direct elections, 10 members returned by an election committee, and 30 members returned by functional constituencies. If the composition of the last Hong Kong Legislative Council before the establishment of the Hong Kong SAR is in conformity with the relevant provisions of this Decision and the Basic Law of the Hong Kong SAR, those of its members who uphold the Basic Law of the Hong Kong SAR of the People's Republic of China (PRC) and pledge allegiance to the Hong Kong SAR of the PRC, and who meet the requirements set forth in the Basic Law of the Region may, upon confirmation by the Preparatory Committee, become members of the first Legislative Council of the Region." As it is, Beijing can claim that the "provisional" legislature will be only a transitional body and not the "first" Hong Kong SAR legislature.

Many in Hong Kong were suspicious that in dismantling Legco, Beijing would take the opportunity to permanently disqualify a number of democratic-minded Legco members (such as Martin Lee) from serving on future legislative bodies, and to redefine or reduce the legislature's functions. They also feared that China would use the tenure of the interim body as an excuse to roll back all of Governor Patten's political reforms and replace them with more restrictive laws. Finally, some also believed that Beijing would exploit the interim legislative body, extending its tenure to beyond the current one-year term that Beijing authorities have promised. Legislative elections have been announced for May 24, 1998, and from all appearances, Democratic Party candidates will be permitted to run for office with no restrictions placed on them. Once it is elected, the new legislature will then convene while the provisional legislature will pass into history. (See Hong Kong's "Provisional Legislature" Controversy, CRS Report 97-557.)

Proposed Electoral Reforms for 1998. On July 8, 1997, the Hong Kong SAR's Secretary for Constitutional Affairs released the proposals for electoral arrangements for electing the "first" Legco, now tentatively scheduled for May or June, 1998. Although the proposals retain the "20-30-10" formula which China has agreed to, they would make other important changes from the methods used to elect the last Legco under the British in 1995. In addition to making changes in the number and makeup of "functional constituencies," the proposed arrangements would eschew the "plurality" (or "winner takes all") system used in the 1995 elections (and in most U.S. elections) in favor of the List Voting System -- a "proportional representation" system based on multi-seat constituencies. Although roundly criticized by the Hong Kong Democrats as a move calculated to severely restrict the number of Legco seats they are likely to receive -- Martin Lee estimates his Democratic Party will go from 32 seats out of 60 in the 1995 elections to 12 seats out of 60 in the 1998 elections -- "proportional representation" is considered a legitimate system in many democracies, and is used in such countries as Germany and Ireland.

Freedom of the Press. In addition to the dissolution of Legco, the extent to which China allows freedom of expression -- including freedom of the press and freedom of assembly -- is another variable cited by pessimists. Under the Basic Law, China has accepted a number of legal guarantees for Hong Kong's political and economic future. Among these is one contained in Article 27 of the Basic Law, which declares, "Hong Kong residents shall have freedom of speech, of the press and of publication; freedom of association, of assembly, of procession and of demonstration; and the right and freedom to form and join trade unions, and to strike."

Despite the apparent clarity of such language, Chinese officials at times have made statements that suggest either a more restrictive approach or total disregard of these provisions will prevail after the transition to Chinese rule. China's Foreign Minister, Qian Qichen (also chairman of the Preparatory Committee), was quoted in an October 16, 1996, Asian Wall Street Journal article as saying that journalists would be able to publish criticism, "but not rumours or lies" or personal attacks on Chinese leaders. In the same article, Qian was quoted as saying that Hong Kong's annual Victoria Park commemoration of the 1989 Tiananmen Square crackdown would be prohibited after July 1, 1997. Other particularly sensitive issues for press freedom involve articles or reports on Taiwan or Tibet, both of which are particularly sensitive to Beijing. Apart from the dissolution of Legco, how Beijing handles the issue of press and other freedoms in Hong Kong could be the most potentially explosive issue in the aftermath of the transition.

Rule of Law. Among other things, a number of legislators and businessmen are concerned about the future of rule of law in Hong Kong, which up to now has enjoyed decades of consistency and predictability under British common law. Both the Basic Law and the Joint Declaration provide for a Court of Final Appeal (CFA), located in Hong Kong, to serve as the highest appellate court for cases in the Hong Kong SAR. The CFA maintains jurisdiction over everything except "acts of State." Some observers, including some prominent independent-minded leaders in Legco such as Martin Lee, find great fault with the "acts of state" provision in the CFA agreement. They point to it as the kind of loophole that will give Beijing an excuse to maintain significantly greater control over Hong Kong's affairs than many hope for. Under the CFA agreement, "acts of state" constitute exclusions of the Court's jurisdiction. Some in Hong Kong argue that in the past, Beijing has had "exaggerated perceptions of sovereignty requirements" (as one Hong Kong observer put it), and Chinese leaders therefore are likely to interpret "acts of state" so broadly as to seriously limit the kinds of cases that can be appealed to the Court. The CFA's detractors are also concerned that only one overseas judge will sit on the Court; they believe the Court's impartiality will be seriously compromised by having four local judges who are likely to be more subject to Beijing's influence and even control.

 

Assessment and Implications

As has been true for awhile, confidence competes with uncertainty in most discussions with Hong Kong citizens. This somewhat schizophrenic mood is not unusual for Hong Kong. What seems different now from past years is the growing fractionalization of the Hong Kong body politic. Whereas five years ago Hong Kong seemed divided more or less into two camps -- Beijing on the one side, London on the other -- as British influence has waned, Hong Kong appears to have splintered into a number of fluid but definable groups, each with its own agenda and motivations. The interaction among these groups, the way they are perceived in the United States, and ultimately the relationship they have with Beijing, will all be important factors in Hong Kong's political and economic future.

One of these distinct groups is the Hong Kong civil service. While formerly considered to be an extension of British government, the civil service for some time has been distancing itself from London. Always professional, skilled, and efficient, Hong Kong civil servants are no longer British. Every cabinet- and senior-level position is now held by a Hong Kong Chinese. Moreover, in the months prior to the transition, Hong Kong civil servants have been struggling with a difficult portfolio. On the one hand they must tend to the interests of Hong Kong and of their own departments, while at the same time trying to strike a balance between British and Chinese government expectations and demands; on the other, they are continually reminded of their own vulnerability to dramatic and unforeseen career changes once the transition is complete. Publicly optimistic about their future autonomy, they remain privately uncertain.

Another distinct group is the democracy activists, best represented by the Hong Kong Democrats, the political party swept into office in the 1995 Legislative Council elections. They seem themselves to be divided about their platform and the best approach to the future. Some are more belligerently confrontational, while others adhere to the role of the "loyal opposition." As a group, they appear to contribute to the polarization of the Hong Kong issue. They continue to be shut out of political processes and decisions by the Chinese government and some in Hong Kong's pro-China business community, but they are a key influence in the international debate over Hong Kong's situation. At the same time, their internal differences weaken them as an effective, unified force on Hong Kong's political scene, and they seem more marginalized as the transition approaches.

Distinct divisions have also appeared in what was once thought of as a unified Hong Kong business community. It appears increasingly that an "international" business community forms one branch and a Hong Kong/Chinese business community forms a second. To an extent, these groups share common interests: both maintain that stability and continuity are crucial for Hong Kong's future; and both agree that predictability in government, judicial, and economic affairs is paramount to Hong Kong's future economic success. But while the "international" business community boasts largely western European and American business leaders representing large multinational corporations, the newly politically active "Hong Kong" business community represents old, established Hong Kong and Chinese interests that are now gaining political power and prestige.

Many members of this latter group have almost unfathomable personal wealth. Some do not represent corporations; they are corporations. Many have served in high positions in the British colonial Hong Kong government; at the same time, they have maintained long-standing and close connections with mainland China. As a result, they now have enviable access to top Chinese leaders and appear highly influential in Beijing.

It is the very access and influence of this Hong Kong/Chinese business group that poses questions for the future. One question, for instance, is whether the chief common interest the group shares with Beijing is to prevent the rise of political pluralism in Hong Kong and assure control by a small Hong Kong elite, of which they would be the principal members. Some have also suggested that in light of rampant official corruption in China, the group's great wealth could be used to undermine the rule of law and corrupt Hong Kong government decisions, while at the same time rendering the group's members immune from official sanction. On a more self-serving note, members of the American business community who long enjoyed comfortable access to the ruling British elite in Hong Kong may be subtly shut out of this new inner circle. In any event, this elite group's resources and increasing activism make it a force to be reckoned with in Hong Kong's future.

 

U.S. Policy Options

The ability of the United States to directly affect the course of events in Hong Kong now that the 1997 transition has occurred seems marginal unless U.S. officials decide to confront Beijing more directly over the Hong Kong issue. Developments in U.S.-China relations in recent years suggest that the United States might be hesitant to do so. President Clinton's decision earlier this year to renew China's MFN trading status was endorsed by the House on June 24, 1997, by a vote of 259-173 -- 32 fewer votes than a similar disapproval resolution in 1996. The outcome of the vote means that the Senate is not likely to consider the MFN issue this year. This suggests that the United States will be more reluctant now than it was in the immediate post- Tiananmen period to consider using access to MFN as a means to pressure China on Hong Kong or other issues. In the coming months, any number of groups -- both within China and Hong Kong and within the United States -- will be anxious to present their own policy alternatives to U.S. policymakers.

Some in Hong Kong and the United States who strongly supported Governor Patten's reforms argue for a U.S. policy that is more assertive and that focuses more on preserving and expanding political rights in Hong Kong. They urge the United States to use provisions in the Hong Kong Policy Act (P.L. 102-383) that allow the United States to suspend legal and other benefits for Hong Kong after 1997 if the PRC does not allow sufficient autonomy there. These benefits range from textile quotas to immigration quotas and technology transfer restrictions. Their loss to Hong Kong would have a strong negative impact on China and presumably could be used to dissuade the PRC authorities from infringing too much on Hong Kong autonomy. Those supporting a more assertive U.S. policy argue that the benefits of such an approach, followed vigorously, outweigh the disruptions it is likely to cause in U.S.- China relations.

Others, also generally positive about U.S. involvement in Hong Kong, argue for a more modulated and calibrated U.S. policy approach. Many in Hong Kong in particular say that U.S. congressional interest in the territory is beneficial for Hong Kong; one Hong Kong official has gone so far as to say that such interest is "extremely welcome." At bottom, many of these observers want the United States and others to show Beijing that they are keenly interested in the outcome in Hong Kong and that any heavy-handed Chinese pressure would be viewed negatively by them. They have encouraged more U.S. congressional hearings on Hong Kong, more contact between U.S. and Hong Kong officials, and in particular, more contacts between Members of the U.S. Congress and members of Legco.

These positive Hong Kong views are in direct contrast to most current Chinese views on the same subject. Officials in Beijing have repeatedly warned against greater U.S. involvement in Hong Kong. They aver that Chinese sensitivity on this question is very high and that U.S. "meddling" would pose unpredictable consequences. They have offered little critical comment on U.S. statements and policy up to this point, but they indicate that stronger statements of support or an outpouring of high-level U.S. sympathy for Hong Kong democracy activists could harden Chinese policy toward the Hong Kong SAR and could seriously escalate confrontation over the region. For the PRC, it would also call into question U.S. motives in dealing with China and reinforce the notion prevalent among some in China that the United States was working closely with Great Britain and others in the West to use various sources of leverage to weaken and ultimately bring down the Chinese communist system.

Others have suggested that better relations between the United States and China -- the two largest economic players in Hong Kong -- will be a key component in Hong Kong's future. Hong Kong could easily become a collateral casualty of poor U.S.- China relations. So, many observers with policy suggestions to offer the United States include among them the holding of regular high-level U.S.-China dialogues, greater U.S.-China economic exchanges, and a minimization of actions that seem to challenge China's sovereignty or authority over Hong Kong. By the same token, better U.S.- China relations could facilitate a more visible U.S. presence in Hong Kong, even in the face of objections from Beijing. Such an enhanced presence could include expanded direct U.S. contacts with Hong Kong and a continued U.S. insistence that China honor the terms of the Sino-British Joint Declaration.

Ultimately, the U.S. Administration and Members of Congress are likely to be in the difficult position of having to try to balance a number of competing U.S. policy goals. They will have to make difficult choices between the U.S. economic, political, and security goals in China on the one hand, and U.S. economic and political imperatives in Hong Kong on the other.

 

 

 

LEGISLATION

H.J.Res. 79 (Solomon)
A joint resolution of disapproval for the President's recommendation to extend China's most-favored-nation trading status for another year. H.J.Res. 79 was rejected by the House on June 24, 1997 (173-259) -- 32 fewer votes than a similar disapproval resolution in 1996. The outcome of the vote means that the Senate is not likely to consider the resolution this year.

H.R. 750 (Bereuter)
The Hong Kong Reversion Act. The bill requires the Secretary of State to make regular detailed reports about Hong Kong's autonomy; makes a number of declarations about what U.S. interests are in Hong Kong; and establishes a separate diplomatic privileges and immunities status for Hong Kong under the International Organizations Immunities Act. The bill was marked up by the House International Relations Committee on March 6, 1997, and was passed by the House on March 11, 1997, by a vote of 416 - 1. The Senate has not taken action on the bill.

H.R. 1757 (Gilman)
The Foreign Relations Authorization Act, FY1998-FY1999. The bill authorizes appropriations for State Department activities and consolidates foreign affairs agencies of the United States. Section 1713 of the bill expresses the sense of Congress that Hong Kong's reversion to China should be peaceful, and that basic freedoms and rule of law should be respected. The House International Relations Committee had marked up an earlier version of the bill (H.R. 1486, the Foreign Policy Reform Act), before H.R. 1757 was introduced on June 3, 1997. The House amended the bill and passed it on June 11, 1997, by voice vote. On June 17, 1997, the Senate struck all after the Enacting Clause and substituted the language of S. 903, as amended, passing that bill the same day by a vote of 90-5. On June 19, 1997, a message on the Senate action was sent to the House. The conference report to H.R. 1757 (H. Rept. 105-432) was filed on March 10, 1998.

S. 342 (Thomas)
To extend diplomatic privileges and immunities to the Hong Kong Economic and Trade Offices in the United States. The bill extends such privileges under the International Organizations Immunities Act (22 U.S.C. 288 et seq.). The measure passed the Senate by unanimous consent on May 20, 1997, and it passed the House by voice vote on June 17, 1997. The bill was presented to the President for his signature on June 19, 1997.

S.Con.Res. 38 (Roth)
A resolution welcoming Chinese President Jiang Zemin's reaffirmation of China's obligations toward Hong Kong under the Joint Declaration and the Basic Law. Introduced on July 10, 1997.

 

 

 

CHRONOLOGY

 

06/03/98 --President Clinton recommended extending China's most-favored-nation status for another year.

05/24/98 --Hong Kong held its first post-transition legislative elections. Democratic candidates were elected to one-third of the 60 seats in a record voter turnout.

10/20/97 --From October 20-28, 1997, partly in reaction to the Southeast Asian financial crisis, the Hong Kong stock index lost about a third of its value, and severe pressure was placed on the Hong Kong dollar, which is pegged to the U.S. dollar at 7.8/1.

09/28/97 --Hong Kong's provisional legislature adopted the electoral reforms, after first adopting a number of amendments, some of which increased the electorate base of the functional constituencies.

09/08/97 --Hong Kong's new Chief Executive, C.H. Tung, visited the United States.

07/08/97 --The Hong Kong government proposed new electoral reforms for 1998 elections of the legislature.

07/01/97 --Hong Kong reverted to Chinese sovereignty after more than a century of British rule.

05/19/97 --President Clinton announced that he would request an extension of China's MFN status for another year.

02/19/97 --Deng Xiaoping, China's paramount leader and principal architect of the "one country, two systems" approach, died in Beijing at age 92.

12/21/96 --The Selection Committee announced the names of the 60 members of the appointed provisional legislature.

12/11/96 --C.H. Tung, a wealthy Hong Kong shipping magnate, was selected to be Hong Kong's first Chief Executive beginning in July 1997. Mr. Tung was widely regarded as Beijing's preferred choice for the position.

04/30/96 --By a vote of 234-188, the House failed to override the President's April 12, 1996, veto of H.R. 1561, the Foreign Relations Auth. Act.

03/08/96 --The Conference Report on H.R. 1561, the Foreign Relations Authorization Act, was reported with language requiring more extensive reporting requirements on developments in Hong Kong. It was later passed by the House on March 12 (226-172) and the Senate on March 28, 1996 (52-44).

03/04/96 --British Prime Minister John Major promised: that Britain would work to ensure China's compliance with the Sino-British Joint Declaration; and that Hong Kong's ethnic minorities (Indians and Pakistanis) would be guaranteed the right to live in Britain if pressured to leave Hong Kong.

02/12/96 --The President signed H.R. 1868 (P.L. 104-107), which contained language expanding the State Department's reporting requirements on Hong Kong.

09/17/95 --Hong Kong held Legislative Council (Legco) elections which for the first time returned a wholly elected body: 20 members from geographical (direct) constituencies; 30 from functional constituencies; and 10 from an Election Committee constituency -- for a total of 60 members.

06/29/95 --China and Britain reached agreement on the Financial Support Agreements for the new airport and the airport railway.

06/09/95 --Britain and China reached agreement on Hong Kong's future Court of Final Appeal.

02/24/94 --China first announced it would dissolve Legco and Hong Kong's Municipal Councils and District Boards in 1997.

10/07/92 --Three months after becoming the 28th British Governor of Hong Kong, Christopher Patten unveiled his plan for democracy in his inaugural annual Policy Address in Hong Kong.

09/91 --Prime Minister John Major became the first Western leader to visit Beijing after Tiananmen Square. He made the trip to sign the Memorandum of Understanding on the Airport Project.

 

 

 

FOR ADDITIONAL READING

 

Kraar, Louis. "The Death of Hong Kong," Fortune, June 26, 1995. p. 118-139.

Overholt, William. The Rise of China. New York, 1993. 431 p.

Rafferty, Kevin. City on the Rocks: Hong Kong's Uncertain Future. London, 1991. 565p.

Segal, Gerald. The Fate of Hong Kong. New York, 1993. 234 p.

Tucker, Nancy Bernkopf. Taiwan, Hong Kong and the United States, 1945-1992. New York, 1994. 335 p.

 

CRS Reports

CRS Report 97-822. Hong Kong's 1998 Electoral Reforms, by Kerry Dumbaugh.

CRS Report 97-311. Hong Kong's Reversion to China: Problems and Remedies for the United States, Kerry Dumbaugh, Coordinator.