Frontier of Capitalism

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16 Frontier of Capitalism: The Sino British Negotiation O U T L I N E I Introduction II The Basic Law

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V Interpreting “One Country, Two Systems”

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III The British Strategy

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IV The Chinese Strategy

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VI International Implications VII Conclusion

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I INTRODUCTION China’s Qing Dynasty (1644 1912) was feudalistic and inward-looking, with weak technological advances and it was unprepared to establish connections with the outside world. Richness in agricultural and natural resources fueled China’s inward-oriented behavior, and the teaching of Confucian principles made the Chinese race depend more on self-reliance. China’s self-imposed isolation from the rest of the world proved to be costly. In the 19th and 20th centuries, the world was undergoing epochs of western imperialism. The unpreparedness of the Qing government reflected more on its shear incompetence than the incidences of foreign aggression. With little focus on modern technology, armory, and navy, the Qing government was fighting a losing battle in virtually all incidents of foreign aggression, throughout the two centuries. It would be alarming or totally unacceptable in modern times if such a government were so incapable of defending the land and so eager to cede land to foreign countries. Surely, the indigenous residents were not “consulted” when land was ceded. Land cession was meant to be permanent and not recoverable. At the end of the First Opium War (1839 42) between the Great Britain and Qing China, the 1842 Nanking Treaty concluded with the perpetual cession of Hong Kong Island to the British, followed by a similar cession of the Kowloon Peninsula in 1860 after the Second Opium War. As a result of the need for more land for the purposes of defense, and to ensure the steady supply of daily materials, the New Territories was leased by the Qing government to the British government for 99 years in 1898. The lease was negotiated between the United Kingdom and the Guangxu Emperor of China. The Qing government was overthrown in 1911, and the succeeding Nationalist government was replaced in 1949 by the People’s Republic of China. Despite China’s statement of anticolonialism and the intention to recover former colonies in the United Nations in 1972, there was no land under the rule of the People’s Republic of China that was being colonized. Western imperialism, as well as Japanese occupation and invasion, all took place before the birth of the People’s Republic of China. The loophole in international law was the 99-year lease of the

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New Territories that expired in 1997, but the lease was made between the Qing government and Great Britain. For the last century, the New Territories had been developed by the British colonial government, and urbanization resulted in a growing number of residents. Thus, the so-called “indigenous” people had been diluted, and most local villages had been left destroyed along with rapid urbanization. The legitimate question was whether the land in the New Territories should be returned to the People Republic of China at all, since the People’s Republic of China was not a signatory in the lease agreement. Strictly speaking, given that the Qing government no longer existed, the expiry of the lease would not exist and the New Territories should be considered as part of Hong Kong along with the two land cessions in 1842 and 1860. Hong Kong is a small place on the world map, and may not catch the attention of members of the United Nations. As a new member in the United Nations, China had received goodwill from other countries. Since the end of the Second World War, the United Kingdom was faced with domestic problems. The United Kingdom since the 1950s had granted political independence to a number of former colonies. The colonial British government held the view that Hong Kong was geographically and territorially too tiny, and could not survive without various daily supplements from mainland China. The UK government had expressed their “willingness” to return Hong Kong to China on at least two occasions: at the end of the Second World War and the withdrawal of Japanese occupation in 1945; and at the peak of the Cultural Revolution and the political riots in Hong Kong in 1967. By not standing firm on the validity and legitimacy of the two land cessions in 1842 and 1860, and the insistence that the People’s Republic of China was not a signatory of the cession treaties and lease agreement, the British government had already given an advantage to the Chinese authorities. In the incidents in 1945 and 1967, Premier Zhou En-lai replied that China would take back Hong Kong at an “appropriate time.” One of the first things that Deng Xiaoping did after ensuring his power in 1978 was that 1997 was considered as the “right time” to take back not only the New Territories, but the entire Hong Kong Island. After China’s statement in the United Nations in 1972, the British government had quietly been working on an “exit” strategy. The ignition point in the Hong Kong issue came to light in the late 1970s, when business people in Hong Kong asked what would happen to Hong Kong when the New Territories lease expired. There were a number of “testing the water” trips, visits, and exchanges by Hong Kong officials, Legislative Council members, and key businesses from Hong Kong, as well as Chinese officials and “Hong Kong watchers” from Beijing. Despite Deng’s promise of “capitalistic life as usual” in his famous idiom of “keep betting in horse racing, keep taking steps in dancing,” business confidence was shaken as the business community did not rely on words. Many analysts considered that the Hong Kong handover was not just a reversion of Hong Kong’s sovereignty to China, it was the clash of two polarized systems of capitalism and communism. Since its heydays as a British colony, Hong Kong was based on the ideology of market capitalism, laissez-faire principles of economic freedom, and nonintervention by the government (Dean, 1974; Tsang, 1995). A strong rule of common law and the presence of professional institutions had gradually been instituted. Local power rested independently in the three divisions of the Executive, the Judiciary, and the Legislature. Over the decades, such a system had basically taken root in Hong Kong. On the contrary, China since 1949 had chosen communism as its own ideology, and experienced periods of violence and crises, and maintained a closed door policy. Given the regime’s low international credibility, it was unimaginable or even absurd for Great Britain to handover the most capitalistic and freest economy to the control and rule of the largest communist country. There were vast differences between China and Hong Kong in almost every aspect of life. There has been a debate when looking at the performance of other former British colonies that, other than Canada, Australia, and New Zealand, many former British colonies were not growing and their economic performance was often worse than before independence, due probably to fragmentation, undemocratic and ineffective regimes, absence of reliable systems, unattractiveness to foreign investment, and lack of economic competitiveness. By looking at the experience of former British colonies, some conspiracy advocates argued that before their departure in 1997, the colonial government would “plant” policies that could weaken Hong Kong’s future development. Although Hong Kong was not given independence but a reversion of sovereignty, the arguments for postcolonial Hong Kong remained cautious. The concerns about post-1997 Hong Kong erupted as business confidence remained low. Leaders in London and Beijing finally agreed to have a Sino British Negotiation on the future of Hong Kong in 1982. While the Hong Kong economy experienced a period of uncertainty, the Joint Declaration was reached in 1984 between London and Beijing. The two governments agreed to return Hong Kong to China in 1997, and Beijing agreed to maintain Hong Kong’s capitalistic system for 50 years under the “one country, two systems” framework. Autonomy, self-rule, or “Hong Kong people ruling Hong Kong” was promised to post-1997 Hong Kong. A Basic

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Law that represented the post-1997 constitution was drafted between London and Beijing. Under the “one country, two systems” framework, 1997 was a reversion of sovereignty, but the system remained unchanged. The 50 years until 2047 would be the “transition” as to whether the Hong Kong system would be removed, or Beijing would extend autonomy beyond 2047. Whether there would be a system change in 2047 would depend on how these 50 years would be governed, or how both Hong Kong and China would change in their own pace and directions within these 50 years. Thus, these 50 years would be a period full of unknown and uncertain interactions. From a political economy point of view, the sovereignty change was not the only issue, it really would constitute a battle between the two ideologies, as each side has to accept, change, and live with each other. Could the two ideologies weld together into a more harmonious ideology, or would ideological divides lead to instability, antagonism, and bitterness? As a country, China should welcome Hong Kong, which has been used as a reference point. What Hong Kong people worried about would be the infiltration of communist ideology, especially in the extreme policies conducted during the Cultural Revolution. This is the essence of the ideological battle, in that while the two ideologies were bonded together, given time which would be the more influential ideology? Equally, would the intention of the United Kingdom to return Hong Kong to China be a possibility in allowing China to embrace capitalism through the Hong Kong connection? Would taking over Hong Kong be another “bringing in” policy in China, as Hong Kong would provide lessons of economic openness, property rights, and market economy to China? This ideological battle presents living history in a contemporary world political economy, as both economic and political activities between the two economies unfold on a daily basis from July 1997 to June 2047.

II THE BASIC LAW The formal Sino British Negotiation over post-1997 Hong Kong in the 2 years from 1982 to 1984 was international, and studies covered a number of analytical dimensions, especially in politics and economics. While some hailed the Sino British Negotiation as a landmark in international relations, others were more critical on the future survival of Hong Kong (Dunn, 1985; Jao et al., 1985; Hicks, 1988; Yahuda, 1993; Lo, 1994; Ma, 1997). The negotiation took a total of 12 rounds before the Sino British Joint Declaration on Hong Kong was concluded and signed between British Prime Minister Margaret Thatcher and Chinese Premier Zhao Ziyang on December 19, 1984, in Beijing. The Joint Declaration was registered by both governments at the United Nations on June 12, 1985. Effectively, China would resume sovereignty of Hong Kong Island, Kowloon, and the New Territories on July 1, 1997, from Great Britain. Hong Kong would become a Special Administrative Region (HKSAR) of China, but in accordance with the “one country, two systems” and autonomy principles, China’s socialist system would not be practiced in the HKSAR. Hong Kong will maintain the capitalist way of life for a period of 50 years until 2047, as stipulated in Hong Kong Basic Law. The Joint Declaration basically incorporated all the existing economic, legal, and administrative aspects of Hong Kong. The HKSAR will be under the authority of the central government in Beijing, but will enjoy a high degree of autonomy, except in foreign and defense affairs. The Chief Executive will be appointed by the central government based on election results or consultations to be held locally. Principal officials will be nominated by the Chief Executive for appointment by the central government. The various policies will be stipulated in the Basic Law of the HKSAR by the National People’s Congress, and will remain unchanged for 50 years (“Basic Law,” Wikipedia). While Chapter I of the Basic Law specified the general principles in Articles 1 11, Articles 12 23 in Chapter II showed the relationship between the central authority and the HKSAR. Chapter III that covered Articles 24 42, illustrated the fundamental rights and duties of residents. The articles provided support to various aspects of individual freedom in post-1997 HKSAR. Chapter IV on political structure that related to post-1997 elections at different levels would be controversial. Article 45 and Annex I showed the method for selecting the Chief Executive. The wordings were general, if not vague, as can be seen from the following italic words in Article 45. Article 45 says “The method for selecting the Chief Executive shall be specified in the light of actual situation in the HKSAR and in accordance with the principle of gradual and orderly progress. The ultimate aim is the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures.” The choice of words looked general, but could have deliverable consequences. For example, what would constitute “actual situations?” What would constitute the principle of

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“gradual and orderly” progress? Could “gradual and orderly” be regarded as a principle? How should “gradual and orderly” be interpreted? And “progress” in what areas and directions? Would it take 10 or 50 years to be regarded as “gradual?” What would be the end point in the “gradual process?” Would “orderly” be meant to exclude violence, demonstration, and riots? How should “ultimate” be considered in actuality? What would have to occur before “ultimate?” How long would it take before the arrival of “ultimate?” Finally, “universal suffrage” should mean equal participation for all in open elections, and not by establishing a “broadly representative nominating committee,” as the nomination of such a committee would naturally mean the inclusion of the minority and exclusion of the majority. This in itself contradicted the spirit of “universal suffrage.” Such a lack of clarity also applied to Article 68 that specified the method for electing Legislative Council members. Annex I referred to the representation in the Election Committee, but not an elaboration on universal suffrage. The last statement in Annex I should be taken to mean that amendments could only take place after 2007 under the various specified conditions. Chapter V (Articles 105 135) of the Basic Law looked into the economy. Article 106 stated that the HKSAR shall have independent finances, use its financial revenues exclusively for its own purposes, and these should not be handed over to central government. The central government should not levy taxes in the HKSAR. Article 107 specified the fiscal condition in the HKSAR, and expenditures must be kept within the limits of revenues. Article 111 stated that the Hong Kong dollar should continue to circulate. While other articles concerned the various aspects that existed in Hong Kong at the time of the handover, such as education, science, and cultural issues, one other concern was the ability of the HKSAR to introduce amendments to the Basic Law. Article 159 provided the procedure to amend the Basic Law, and the procedure seemed to be that even if amendment bills from the HKSAR had secured a two-thirds majority in the Legislative Council and consent from the Chief Executive, the amendment would have to be submitted to the Standing Committee of the National People’s Congress for its views and approval. This would have imposed limits on the “high degree of autonomy” stipulated in Article 12. While the Basic Law tried to incorporate the situation before 1997, a number of issues originated in the Basic Law had appeared to be problematic, controversial, and divisive. For example, Article 23 related to national security proved to be sensitive when attempts were made to draft it into a law in 2003, as many suspected that Article 23 could be used against the people of Hong Kong, while others argued that such aspects as “treason and subversion” would have already been dealt with in other aspects of the common law in the HKSAR, and enacting a national security law was unnecessary. In in the final analysis, it was a matter of distrust. The issue of the 99 years lease of the New Territories did not seem to have been solved in the Basic Law. Because the New Territories was leased to Britain, some indigenous villagers went as far back to the 1898 lease and argued that land would have to return to them after the land lease expired in 1997. Over the years, and due to the need to expand residential demands, the British Hong Kong government in December 1972 established the Small House Policy in which “any male indigenous villager who is descended through the male line from someone who was a resident in 1898 of a recognized village in the New Territories may apply to build a small house (a maximum of three storeys in height and 700 ft2 in each floor) on their own land at zero premium, or on public land through a private treaty grant, once during his lifetime” (Hong Kong Free Press, January 21, 2016). In the People’s Republic of China, all land belonged to the state. Land occupants would only have the “use right.” Indigenous villagers in the New Territories claimed that their right was constitutionally protected, as Article 40 of the Basic Law recognized the lawful traditional rights of the indigenous inhabitants of the New Territories. Article 122 provided further protection to old land lots and village lots. This argument used by the village descendants was ill-intended. If land in the New Territories were to return to indigenous village descendants, the same should apply to those village descendants who settled in the Hong Kong Island and Kowloon areas before 1842 and 1860, respectively. Indeed, the 1972 policy on the entitlement of land by the villagers in Hong Kong should be outdated in a number of ways. It violated the law on equal opportunity between the two sexes, as land titles were given only to male descendants. The policy discriminated against urban residents and created a privileged class, as urban residents would never receive a piece of “free” land. Thus, there appeared a clear bias in resource and land distribution. The government would have to calculate the amount of land needed to be reserved for village descendants. It would be true that in “n” years, land in the New Territories would have to be totally occupied by these village descendants. And when the aging descendant passed away, the young descendant would then inherit another small house. As such, one descendant could end up with the ownership of more than one “small house” for sale and transaction. Other problems include the abuse of the policy, as many male “descendants” were not born nor lived in Hong Kong. Villagers owned agricultural land, but the work on agricultural farming had long been abandoned as

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young villagers migrated overseas or earned their living in urban areas. Villagers could have sold their rural land to developers and other buyers for different purposes in the property market, and these “descendants” in turn could approach the government for their own land entitlement. In short, these descendants could have received double benefits. Criticisms should also be made on the part of the relevant government department, because of their inefficiency in the implementation of policy. Since 1997, there have been clashes and debates between village descendants, nonindigenous residents, and developers. Ultimately, it would be a simple case of vested interest on the part of the village descendants in amassing land and wealth. It is clear that the “small house policy” would evolve into a problem in the Basic Law. The Basic Law was an “untested” constitution, as it had not been implemented before 1997. The remote possibility of making amendments to the Basic Law would mean that problems might not be dealt with effectively. Identified problems in the Basic Law could accumulate and eventually snowball into bigger issues that would exert political pressure on the government.

III THE BRITISH STRATEGY The British Prime Minister Margaret Thatcher led the Sino British Negotiation in 1982 2 84. She was assisted by Sir Geoffrey Howe, the British Secretary of State for Foreign and Commonwealth Affairs, and three sinologists, Sir Percy Cradock, the British Ambassador to the People’s Republic of China, and the two successive Hong Kong Governors, Sir Edward Youde and Sir David Wilson, together with a number of bureaucrats and administrators. The official encounter on the future of Hong Kong began in 1979 with the visit by Hong Kong Governor Sir Murray MacLehose to meet Premier Deng Xiaoping in Beijing. The British had been making preparation for an “exit” strategy. There were a number of considerations. High priority was given to the economy, as investments in Hong Kong came from Britain and overseas countries, and the geographical size of Hong Kong was too small for any sustainable development. Given there were vast differences between Hong Kong and mainland China, one workable approach was to develop and expand the Hong Kong economy to an advanced and modern stage, so that the Hong Kong economy would be ahead of the mainland economy. A vibrant Hong Kong economy would serve as a reference point to the development in the mainland economy. The “economic card” was thought to be the right strategy for Hong Kong, as this would be acceptable to Beijing politically. Hong Kong should maintain market capitalism, so that private ownership and the market could function and perform to their utmost. Economic policies would gear to the functioning of a laissez-faire economy, with low tax rates, low welfare spending, and a reliable currency, so as to build up strong business confidence. After the early 1970s, the Hong Kong government started to improve the infrastructure by building the cross-harbor tunnels and the underground railway system in the urban areas. In the 1980s, more traffic infrastructure had been under construction, including bridges, tunnels, light-rail trains, and highways, culminating in the building of the new airport, completed in 1998. The business community had gradually been transformed to become more international, and was supported by greater use of English, and establishment and expansion of new tertiary and vocational educational institutions. Assistance was provided to civil servants to have their children study in Britain and gain international qualifications. Professional associations were allowed to set local standards, so that they could play a part in the overall requirements of their professions. International standards were applied in businesses and professions so that Hong Kong could develop in parallel with the international community. Welfare spending was kept low, and “supply-side” economics were pursued. The policies on public housing and medical needs were adequate. As early in 1954, public housing provisions protected the needs of low income households, while the Home Ownership Scheme (HOS) instituted in late 1970s assisted “sandwich” income earners in a subsidized-sale program of housing ownership. Medical provisions were supplied through both public and private channels, so that all medically-needy individuals would be attended to (Li, 2006, 2012a). The political dimension was the establishment of the “special administration district” suggested by Governor Murray MacLehose in 1971. It would serve three primary functions: (1) preserve for China some of the economic and political benefits of the present status of Hong Kong; (2) save China from having to absorb a population with different standard of living and attitude of mind; and (3) preserve for foreigners a tolerable trading base while concentrating them in a single area where they did not affect life in the rest of China (Li, 2012a, p. 36). The fundamental difference between Hong Kong and mainland China was that the British had constructed a reliable and

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sustainable capitalist system in Hong Kong, and whoever came to rule Hong Kong would have to adhere to the system. In the actual Sino British Negotiation, there were discrepancies within the British team, especially between Prime Minister Thatcher and the sinologists. Prime Minister Thatcher put forward two related proposals. One was that the land cessions in the two treaties were legitimate in the eyes of international laws, and should be permanent and nonnegotiable. The negotiation should only be confined to the 99-year lease that expired in 1997. However, the unfounded fear of a geographically small Hong Kong which would need supplies across the border weakened the insistence on the two treaties. The alternative was to allow the sovereignty to return to China, but the British government would remain the governing body. This would allow the greatest degree of stability and certainty in the transition. Prime Minister Thatcher was firm in her proposal, and even suggested the possibility of independence for Hong Kong after the June 1989 political turmoil in Beijing, thinking that the capitalistic way of life in Hong Kong would not be kept under China’s rule (Li, 2012a, p. 37). However, Prime Minister Thatcher could have extended her secession argument to the fact that the other signatory in the 99-year lease no longer existed. Thatcher’s proposals could have unfortunately been “hi-jacked” by other sinologist members in her team. The sinologists, led by Sir Percy Cradock (1994), took a different approach. While he was the charge d’affaires in Peking, Sir Percy Cradock was “manhandled by the Red Guards and the mobs” when his office was set on fire in 1967 at the peak of the Cultural Revolution. Nonetheless, the sinologists were sympathetic to socialist China, eager to turn Hong Kong back to China, and prepared to accept China’s terms, but they were unprepared to introduce political changes to Hong Kong. Their ready to “kowtow” attitude would have weakened the proposals by Prime Minister Thatcher. The sinologists were fighting a “losing” battle in the negotiation, as their strategy could not pierce through the negotiation for the benefit of Britain and Hong Kong, especially in the political area. The views of Hong Kong were supposedly to be represented by the sinologists in the Sino British negotiation, as no Hong Kong citizens were included. On the contrary, democrats in Hong Kong, led by Mr. Martin Lee who was the founding chairman of the Democratic Party in Hong Kong, warned that China could exercise political high-handedness in Hong Kong after 1997, and a more democratic Hong Kong would serve as another “cushion” for the stability and sustainability of Hong Kong. The Hong Kong Governor, Sir David Wilson, showed no support to suggestions from Martin Lee. Thus, Sir David Wilson produced minor changes and largely maintained the status-quo of the existing political structure, which was more of representation than free election or universal suffrage. The outcome of the negotiation by sinologists was the Sino British Joint Declaration that basically prescribed all the economic, political, administrative, and social aspects existing in Hong Kong, and all these aspects were to be preserved and guaranteed by the Basic Law for 50 years until 2047. While the outcome of the Sino British Negotiation had been made known, one could surmise the ideas in the British side of the negotiation. There could be several arguments. One argument was that many former British colonies performed poorly. British imperialists would depart with a legacy that would result in a lack of sustainability in the postcolonial period. Policies could be instituted to allow divisive political factions, lead to a fall in education standards and decline in both physical and public infrastructure, and so on. As such, a post-1997 Hong Kong would perform weaker than pre-1997 Hong Kong. Secondly, the sinologists probably believed that the economic “cushion” would be enough for Hong Kong to maintain its “stability and prosperity.” Thus, by not introducing deep political change before 1997, the sinologists should have been aware that it would be an “uphill” battle for Hong Kong people to fight on their own for political changes and freedom from Beijing in the post-1997 years. As such, the sinologists would have shed their responsibility, as the 50 years would become the “transition” years, while the outcome of that “transition” was unknown and uncertain, and would not be the responsibility of the sinologists in the negotiation team. Or, was it the “bitter pill” argument and the purpose of allowing China to take over Hong Kong was to impose changes in China along with the capitalist experience of Hong Kong? If so, Hong Kong served as the “bait” in modernizing China, bringing it closer to the international community. Indeed, it is yet to be seen who would influence who in the 50 years. However, the successor to Margaret Thatcher, British Prime Minister John Major in 1990, did not pursue the sinologists’ line of negotiation, though the Sino British Negotiation was already concluded and the Basic Law had been drafted. Prime Minister John Major replaced Sir David Wilson, and brought Mr. Christopher Patten to become the 28th and last Governor of Hong Kong for the remaining years of 1992 2 97. Similar to Margaret Thatcher’s line of strategic thinking, Governor Patten agreed to the need to establish a political “cushion” for Hong Kong. Governor Patten attempted to introduce political reform permissible within the Basic Law and the various agreements in the negotiation. His most controversial actions were the 1994 electoral reform. The original format was that those Legislative Council members who served the 1995 term would serve beyond the handover

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until 1999. This was known as the “through train,” as it should provide continuity. However, Governor Patten redefined the use of functional constituencies to ensure that Hong Kong residents were able to vote for the socalled indirectly elected members of the Legislative Council, thereby widening the voters and taking a step closer to free elections. The institutional reform proposed by Governor Patten proved to be popular, and unprecedented support was shown not only by the democrats, but he was seen as a leader who would stand up for the rights of the Hong Kong people. His British eloquence was shown to its best and was admired even by his critics. However, his measures were strongly criticized by the pro-China camp, who argued that Hong Kong would suffer as a result of his measures. In the end, there was no “through train,” as members of the Legislative Council elected in 1995 were dissolved in July 1997, and replaced by a Provisional Legislative Council until elections in 1998. The attack on Governor Patten from the pro-Beijing camp was severe and vicious. In different media exposures provided by Chinese officials, Chris Patten was denounced the “whore of the East” and “a wrong doer who would be condemned for a thousand generations.” The accusations on Chris Patten served another political purpose. They showed vividly to the people of Hong Kong the communist way and manner of conducting things in mainland China. It was political “capping” that aimed to identify Chris Patten as someone not acceptable. The use of a propaganda war and rhetoric went beyond the integrity of a leader, and it was unethical for leaders in an international negotiation to make personal attacks on others. The key difference between Chris Patten and the sinologists was that Chris Patten was a professional politician who would look for political solutions and maximize gains. On the contrary, the sinologists’ attitude remained soft and were ready to give in. Although their expert knowledge on China was thought to be useful in the negotiations, it turned out that might not have acted for the benefit of Hong Kong. Thus, should Margaret Thatcher have picked and trusted professional politicians rather than sinologists from the very beginning, the outcome of the Sino British Negotiation and post-1997 Hong Kong would have been very different. Since 1997, declassified files had revealed some details of the Sino British Negotiation (South China Morning Post, August 18, 2013). It was revealed in the early stage of the negotiation that in September 1982 Prime Minister Thatcher believed that continued British administration of Hong Kong was feasible after 1997. Thatcher argued that “China’s proposal for Hong Kong to become a largely self-governing special administrative zone . . . would be ‘disastrous’ for investor confidence and lead to its collapse as a financial center,” and “there would certainly be a wholesale flight of capital from Hong Kong and that this money having left Hong Kong would not return.” To retain confidence in Hong Kong, Thatcher concluded that “Britain wanted to continue administering Hong Kong after 1997 under Chinese sovereignty . . . Confidence in Hong Kong, and thus its continued prosperity, depends on British administration.” Thatcher rightly pointed out that under the 19th century treaties between Britain and Qing China, both Hong Kong Island and Kowloon would remain British. Thatcher went as far as making an assessment of the military capability to defend Hong Kong, but China had larger armed forces and the Hong Kong garrison would be too weak for any large-scale attack. Although Ambassador Percy Cradock was a sinologist and was ready to give in to Beijing, he also remarked on Chinese leaders as “an ‘incorrigible and ineducable’ group, otherwise they would not be where they are. . .. They are elderly men with rigid views, blinkered by dogma and national pride and deeply ignorant of how a place like Hong Kong works.” It was recorded in the British minutes that China did not recognize the two treaties. Zhao Ziyang rejected Thatcher’s proposal and that “China would not let others administer Hong Kong on its behalf nor place Hong Kong under the trusteeship of others.” The Chinese negotiators considered that “their British counterparts had a colonialist and imperialist attitude which was outmoded, lacking in reality and would get nowhere.” Unfortunately, the sinologists in the British team were concerned that the outlook of the talks was “bleak,” and a confidence breakdown would occur should the talks breakdown. It was only by December 1982 that Thatcher softened her position, and Geoffrey Howe wrote in the minutes that the negotiation would have to be “on the basis of the Chinese proposal.” The British feared that Deng might decide upon an early takeover of Hong Kong should agreements not be reached. Britain was on the defensive side of the negotiation until December 1984 with the signing of the Joint Declaration. There were still policy areas where one could criticize the British Hong Kong government. Governor Chris Patten was a member of the Conservative Party in the United Kingdom, and one would expect his contribution would concentrate on the business community. Beginning from April 1995, the social welfare network in Hong Kong was widened, and the Comprehensive Social Security Assistance (CSSA) scheme replaced the simple Public Assistance Scheme introduced in 1971. Li (2012a, pp. 522 2 534) documented that since 1995 welfare expenditure had kept expanding at a disproportionate rate. Furthermore, there was no economic recession in the 1990s as the Hong Kong economy boomed and overheated, before it collapsed after the Asian financial crisis in

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1998. The issue was why a prowelfare policy was introduced and large welfare provisions were made prior to a time of economic boom. The political interpretation could be the planting of a fiscal bomb and increase of the fiscal burden in Hong Kong, meant that fiscal policy would become more politicized. Spending more at a time of economic boom would fuel inflation and overheating. Given economic openness in Hong Kong, a prowelfare and heavy fiscal burden regime should best be avoided. It should be best to remain flexible, for the Hong Kong economy to move along with the international community. Another concern would be the United Kingdom’s unwillingness to allow Hong Kong’s seven million residents to come to Britain. Many Hong Kong residents held British nationality. Instead, the British National (Overseas) status was “tailor-made” in the Hong Kong Act 1985. British National (Overseas) are British nationals and Commonwealth citizens, but not British citizens, they do not have the right of abode in the United Kingdom and do not have consular protection in mainland China. The British National (Overseas) merely allowed the people of Hong Kong to retain a relationship with the United Kingdom after 1997, and enjoy consular protection when traveling outside Hong Kong and mainland China. At the peak of the political uncertainty in the 1980s, other English-speaking Commonwealth countries, typically Australia, Canada, and Singapore, were willing to take on financially able and professional migrants from Hong Kong. The Sino British Negotiation could produce an excellent case study on strategy and negotiation. For example, should Britain have made it clear about the meaning of the two treaties when China made the remark on colonialism in 1972? Or, was it a wrong move on the part of Britain to allow Governor Sir Murray MacLehose to visit Beijing in 1979? Would the sinologists’ approach have already been predicted by the Chinese side? The year 1979 was the time when Deng was rising as the reformist leader who needed to accumulate more political capital and charisma. As such, the British move fitted squarely into Deng’s “trap” in building up his personality strength in China. Would it be strategically stronger if Britain had waited until nearer to the end of the lease of the New Territories? Would the use of the “economic card” strategy be unsuitable, as China then was so poor and would not appreciate economic success in a capitalist Hong Kong? There was a total of 18 years between 1979 and 1997. Britain could have gained more time for strategic preparation, and waited for such better timing as 1989. These can only serve as the academic food for thought, as history cannot be rewritten. In any case, the territories of Hong Kong and Kowloon that were ceded to Great Britain and the 99-year lease of the New Territories occurred in the Qing Dynasty, while the People’s Republic of China came into existence in 1949 and was not a signatory to these territorial cessions and lease. The legal logic could be simple, and analogy would be that if the father of person A owed money to the father of person B and the two fathers have passed away, could person A claim the money back from person B?

IV THE CHINESE STRATEGY To China, the Sino British Negotiation came at the right time, as both the charisma of Deng and the goodwill shown on China’s economic reform by the international community provided a good political mood. Deng was assertive and insisted on a few political criteria in recovering Hong Kong. From the very beginning, Deng made it clear that the return of the whole of Hong Kong was not negotiable. Hong Kong’s successful economic performance would not be taken into account, as Hong Kong was built mostly from foreign and local capital. China would have nothing to lose even if the Hong Kong economy collapsed. The first bargaining point Deng held was that an economically recessed Hong Kong would hurt Britain and Hong Kong investors more, as there was little investment from China. Thus, while the British strategy was using the “economic card,” China ignored the “economic card” and considered it as a “sunk cost” from the very beginning. Secondly, while Prime Minister Margaret Thatcher insisted on the legitimacy of the two treaties that ceded Hong Kong and Kowloon to Great Britain in 1842 and 1860, respectively, Deng ignored that fact completely and emphasis was put on the “unequal” nature of the two treaties made by the Qing government. China’s decision to take over Hong Kong’s sovereignty was surely selective, even though other imperial powers had taken over land from the Qing government before 1911. The logic was what would be the legitimate argument for the post-1949 China regime to undo what had been done before 1949. Deng’s move could have targeted the weakness of the United Kingdom, as it would probably not send military support to Hong Kong. As Hong Kong had been an international economy, China’s decision to take back Hong Kong would have a high degree of political and ideological significance and recognition in the international community. Furthermore, the United Kingdom had previously made it known to China on two occasions that Britain would be prepared to return Hong Kong to China.

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The end of the 99-year lease of the New Territories in 1997 was just the “appropriate time.” It was thought that the return of Hong Kong would serve as a blueprint to the unification of Macau and Taiwan. There were various observable features of Chinese communism that had troubled the people in Hong Kong. For example, words and actions could be very different. The “goal switching” attitude in policy implementation produced a low degree of trust of the Chinese government. Confidence in the future of Hong Kong under communist rule was low. Despite Deng’s attempt to pacify the people of Hong Kong and the business community, the reality was that the Hong Kong economy was extremely vulnerable within a short time when foreign investment withdrew, people were emigrating, capital switched to foreign currencies, and the downfall of the Hong Kong currency occurred. The potential collapse of the Hong Kong economy would be a loss on all three sides, though Deng insisted that China would take back Hong Kong regardless of its economic outcome, as politics was the ultimate goal of the takeover. Deng’s dilemma was that China’s strategy had to be pragmatic, and the capitalist aspects of life and ways of conducting affairs had to be kept, including a market system, existence of a separate currency, rule of law, monetary and press freedom, and so on. The former Hong Kong Governor Sir Murray MacLehose in 1971 raised the idea of turning Hong Kong into a “special administrative district,” Deng came up with a similar idea of “one country, two systems,” but such provision of autonomy would last only for 50 years until 2047. Hong Kong would become the “special administrative region” of China after 1997, and the “two systems” were meant to preserve the capitalist way of life and autonomy for 50 years. Deng’s bottom line was that Hong Kong could only retain whatever the British government had given or provided to the people of Hong Kong, and nothing else. There were numerous observed differences in the various rounds of negotiation. For example, the British team preferred to be more precise, exact, and detailed, so that there would be no room for manipulation and abuse in future. On the contrary, the Chinese side preferred broad principles only, with a loose choice of words and vagueness in the interpretation of terms, as that would allow variations and differences in future implementation of the terms in the agreement. While the reversion of sovereignty would take place in 1997, the change in system, if at all, would take place in 2047. The 50 years became the transition period, and the entire 1997 issue actually turned into a “two-stage” tactic. The uncertainty then would be the situation in post-2047 Hong Kong. If post2047 Hong Kong were to be ruled by a communist regime, there would no longer be “two systems.” The uncertainty over 1997 was effectively extended to 2047, and such an extension would generate various turbulences which had spillover effects to other aspects of life in Hong Kong. The Chinese involvement in Hong Kong took place through various channels of infiltration since 1949 with the activities of the “united front,” which is in charge of communist propaganda work. Hong Kong had been a place where mainland China could take advantage, and at the same time exercise its influence. Before 1978, the official institution that represented the mainland regime was the New China News Agency, and probably the Bank of China, the few leftwing newspapers, and the various retail outlets for Chinese consumer goods. Much work, however, had been conducted below the surface through infiltration, connections, persuasion, and provision of monetary gains. Youth associations, schools, local organizations, welfare units, and labor unions were the targets where leftwing propaganda materials were disseminated. There were also channels through which intelligence and information were gathered. There was the underground operation of the Communist Party in Hong Kong, and Leung (2012) documented in detail the various channels and activities of how the communist regime established their influence. Leung (2012) went further to point out the communist party members in Hong Kong, including many in the leadership echelon. With geographical proximity, China could easily indoctrinate people from Hong Kong on their visits and travels to China. The entire state machinery and financial resources were mobilized to support the indoctrination activities. Basically, China needed support from Hong Kong, and by nurturing a group of Hong Kong people with a “communist mindset, capitalist living” mentality, China could hold an invisible but tangible key in the control of Hong Kong, including the need to select future leaders from this “reliable” group of businesses, professionals, individuals, and grassroots organizations. Other than the use of the monetary instrument, the psychological front included the use of political patriotic jargon. In other words, the ideological battle in Hong Kong started after 1949, and political infiltration had been conducted continuously through various invisible channels. At a deeper, more subtle and intuitive level, one should not consider the issue of Hong Kong as only a Hong Kong issue. The Hong Kong issue can very much be considered as a China issue when the two factions of hardliners and reformists are taken into account within the one-party state. The discussion on the return to Hong Kong had indeed become a new political instrument in the ideological battle between the two factions. Typically, the reformists would prefer to take back Hong Kong so that the market economy of Hong Kong could be used as a reference point for further reform in the Chinese economy. Hence, the attitude of the reformists had been one of complement between the mainland and Hong Kong, and development could produce “positive-sum” outcomes

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of mutual benefit. On the other side of the ideological battle, the hardliners looked to the return of Hong Kong as an extension of communism, that post-1997 Hong Kong would have to be “decolonized,” Hong Kong would have to return to become a city similar to other cities in China, and Hong Kong would probably come under the jurisdiction of Shenzhen after 2047. The idea was to erase the colonial history of Hong Kong through political absolutism. Hong Kong had to start with a brand new chapter of development in Chinese communism. The sovereignty reversion of Hong Kong had become an added topic in China’s political and economic circles where party leaders, party potentials, ambitious officials, and scholars could show their loyalty to their preferred party leaders by involving, engaging, and commenting on Hong Kong affairs. The ideological battle could occur both in action and in words, especially in relation to the discussion and interpretation of “one country, two systems.” Typically, the hardliners would insist on the importance and priority of “one country,” and that the “two systems” was provided by the “country.” The reformists, on the contrary, would allow the “two systems” to function pragmatically more to the advantage of Hong Kong. Hence, when speeches or remarks were made by the hardline officials, one observed that other reformist officials would make a more accommodating remark after a few days. One wondered if this type of “negative, positive” approach in their remarks was a play of “cat and mouse” with the Hong Kong people, or whether it reflected factional conflict within the party. The ideological divide on Hong Kong affairs could subtly be observed through the speeches made by leaders in both pre- and post-1997 years. For example, there were politically sensitive times in China every year, such as June 4, July 1, and October 1. And there had always been peaceful demonstrations in Hong Kong around these days for various reasons. However, reformist leaders in Beijing would make some politically repressive remarks on Hong Kong’s political activities in the days before, say June 4. These remarks would then resonate into the political nerves of Hong Kong people, resulting in more people turning out on demonstrations. (Readers can easily examine statements made by Chinese leaders on Hong Kong SAR in the days before the politically sensitive days.) The question was whether these remarks made by Beijing leaders were just untimely, or were made in order to use Hong Kong’s demonstrations as a political tool. The hardliners, on the contrary, would not allow political changes or democratic movements in Hong Kong, because they believed that would radiate back to the mainland and might lead to more political demands in mainland China that could eventually challenge their political power and authority. There were various social and economic unpleasant incidents in mainland China, such as manufacture of fake products, use of toxic chemicals and environmental decay, and cases of social discontent and unethical behavior. These incidents could have been covered up in the mainland’s media, but when they were leaked to the media in Hong Kong, the news in Hong Kong would again radiate back to the mainland and government action would then be taken. Hence, one would need to have a “clear head” in reading remarks and speeches by mainland officials and scholars on Hong Kong affairs, whether they were made in Beijing or in Hong Kong, because one would never know if these remarks on Hong Kong were made as a show of their loyalty, an intention to seek for higher posts, or a reflection of their political stand. The same could be true for those “Beijing-loyal” Hong Kong people when they remarked on the political situation in Hong Kong. Again, one would never know if their remarks were addressed to people in Hong Kong, or served as a “kowtow” to leaders in Beijing. In other words, there could be a lot of “noise” in the affairs of Hong Kong, as the politics of Hong Kong sovereignty reversion were intertwined with the political complexity in mainland China. Indeed, there would be various problems. One could be the problem of “revealed preference,” as people remarking on Hong Kong affairs could have different and hidden intentions. The other could be the “agency” problem, where officials dealing with Hong Kong affairs could have other interests in mind. For example, the children, or the “princelings” (fuerdai, wealthy children and offspring of officials and party members) and relatives of many Beijing leaders had business connections and activities in Hong Kong, and their business behavior and activities were no different from other capitalists in advanced countries. Thus, while they were insisting on the “one country,” their princelings were exploiting the “two systems” to their own advantages. Again, political inconsistency was found between deeds and words. The Chinese strategy can be summarized into a few features. Firstly, the Sino British Negotiation was dominated largely by Deng. As a reformist, Deng’s approach was socialist and looked to the realities and reactions from the international community. However, Deng’s solution would last only for 50 years till 2047. The “two stage” decisions in the 1997 sovereignty reversion and the 2047 system change could produce new uncertainties within the 50 years. With the passing of Deng, there would not be any guarantee whether the incumbent leaders would interpret the Hong Kong situation differently from that of Deng. The possibility of personality change in leadership would add uncertain scenarios in Hong Kong affairs, thereby raising and extending the risk factor in the transition years to 2047.

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V INTERPRETING “ONE COUNTRY, TWO SYSTEMS” The Basic Law of the Hong Kong SAR states that “. . . upon China’s resumption of the exercise of sovereignty over Hong Kong, a Hong Kong Special Administrative Region will be established . . . and that under the principles of ‘one country, two systems,’ the socialist system and policies will not be practiced in Hong Kong . . ..” Article 2 of the Basic Law states “The National People’s Congress authorizes the Hong Kong Special Administrative Region to exercise a high degree of autonomy and enjoy executive, legislative and independent judicial power . . . in accordance with the provisions of this Law.” Article 5 of the Basic Law says “The socialist system and policies shall not be practiced in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years.” Deng’s original idea on unification would allow Hong Kong to retain its own established capitalist economic, legal, and political systems. However, Deng’s “principle” of “one country, two systems” can raise a number of conceptual arguments. There has been a lack of clarity in stating the exact details in terms of coverage, depth, and implementation of the “one country, two systems.” For example, was it meant to be temporary and would it last only for 50 years? The “principle” involved two aspects: country and system. If it was implemented as a whole or in its entirety, it would mean both “country and system” would last for 50 years. Would the “country” and “system” be considered on a parallel and equal basis? What if there were conflicts between the two systems? Or to be exact, the two “what” systems: political system, education system, medical system, cultural system, traffic system, immigration system, fiscal and monetary system? Indeed, would the “two systems” be confined narrowly to the difference in “political system” only? Similarly, the “autonomy” in Article 2 could be subject to various magnitudes. Article 2 stated that autonomy would have to be “authorized” by the National People’s Congress, which could mean that it could also be “deauthorized.” The “high degree” of autonomy would be enjoyed by the executive, legislative, and judiciary power. Conceptually, how extensive and intensive would be given by the “high degree?” Similarly, if autonomy were to be granted only to these three aspects of the government, did that mean that other aspects of autonomy might not be covered? Autonomy is an “absolute” term in that there is either autonomy or no autonomy. Autonomy could not be measured in proportions, say 51% or 99%. Indeed, it would be difficult to argue whether the “one country, two systems” could be regarded as a “principle”; it could only be considered as a framework through which Beijing would rule Hong Kong after 1997. “One country, two systems” has never been adopted, imposed, used, or implemented anywhere in the world. Such a lack of reference would further impose vagueness in the term. Such terms as autonomy and system could be qualified either in time, in coverage, in magnitude, and probably in implementation. The result was that there could be a large margin for interpretation, depending on the particular incident, personality, and time that might not work favorably to Hong Kong. Since 1997, incidents that appeared and emerged in Hong Kong had challenged the different ways of interpreting the “one country, two (what) systems.” Other interpretations would include that the “one country” would have to come before the “two systems,” insisting that people in Hong Kong would have to consider the “country” first. A considerable amount of political discussions that were somewhat nonsensical had been made. For example, on the issue of patriotism, propaganda-like discussions included “should one love one’s country also love the party?” Could one just love Hong Kong and not the country? Or would loving Hong Kong naturally mean loving the country? There were variations in the “two systems.” Strictly speaking, if Article 5 was interpreted literally, it would only be that the “socialist system” would not be practiced in Hong Kong, what about other systems? In language, e.g., what about insisting people in Hong Kong use simplified Chinese, or reduce the use of Cantonese, or incorporate socialist studies in history classes in schools? In the category of immigration on “family reunion,” it would be the mainland authority that would decide and screen the incoming immigrants from the mainland. Over the years, “goal shifting” seemed to have intervened in the various interpretations of the “two systems.” Equally, how would one define the “socialist system” and “socialist practices,” other than the obvious political aspects? Other Beijing officials argued that the “principle” was provided to Hong Kong by the central government in Beijing, and as such, the central government could also take it back and Hong Kong would have no say. And the ultimate authority was vested in the central government, implying anything Hong Kong suggested would need to have consent from Beijing. That effectively meant that the provision of the “two systems” would be phenomenal, depending on the issue, timing, and personality, but could be taken away at any time. Intuitively, what would Hong Kong have if “one country, two systems” were taken away? Would Hong Kong be returned to Britain or have its own system?

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In a way, the “one country, two systems” framework was not meant to allow Hong Kong to move forward, but was an instrument that would “freeze” Hong Kong at the time of the handover. Namely, whatever Hong Kong enjoyed before 1997 would be guaranteed, but anything else, especially sensitive issues, would have to seek permission and consent. Indeed, from day one in the Sino British Negotiation, both countries knew that Hong Kong was way ahead of mainland China, and the systemic differences were too vast. But Hong Kong people were not represented in the negotiation. To return Hong Kong to China without the participation of the Hong Kong people was really a “sell out.” Although the British colonial government did not allow full political democracy in Hong Kong, political parties have been active. While political parties are meant to promote political freedom, Hong Kong has gained a high degree of freedom in very many areas. The alternative to full political democracy was the establishment of a civic model, in that political parties as well as other institutions have been established to serve Hong Kong people. The successful implementation of a civic model provides a large “security belt” between the individuals and the government, as various civic institutions set their standards and practices that would gain the trustworthiness of people in Hong Kong. Li (2012a) illustrated the Hong Kong civic system, as shown in Fig. 16.1, where what stands between the government and the people included a large number of established institutions. The government consisted of all government departments, law enforcement bodies, and related organizations, and the people represent the general public. In Hong Kong, although there is no full political democracy, a large number of civic institutions have been established so as to protect the various aspects of life in Hong Kong. Individuals are protected through the activities and presence of civic institutions. In the civic model, political parties can influence and monitor the government and participate in political elections. But, the general public does not need to rely solely on political parties for their survival. Different types of institutions would serve the same purpose of ensuring equity and transparency, thereby eradicating victimization, discrimination, and cronyism. Choice is what the civic model provides, as individuals can rely on multiple channels and means of protection. Similarly, the government can dispense its influence through multiple channels. This ensures balance in the society. One can contrast the Hong Kong system with the socialist system in China. Fig. 16.2 shows two similar and simplified pictures of the Chinese system. The party in a one-party state is the ultimate power and authority, and control would be absolute. In reality, the party and government are closely related and connected, while the people would be positioned within the authority of the party and the government. The left hand side of Fig. 16.2 reflects the ultimate authority of the party, which would then send instructions to the government, and the government would exercise control over the people. The right hand side of Fig. 16.2 reflects the top down nature of authority and power from the party to the government, and to the people. The “one country, two systems” is neither a principle nor a theory, but a framework that enabled the reversion of Hong Kong’s sovereignty to China, bearing in mind the vast systemic differences between the two economies. Within the framework, however, detailed elaborations had not been given, and the vagueness of the framework did lead to contrasting interpretations that worked in favor of mainland China. However, since the “one country, two systems” were applied to Hong Kong and Macau, and not elsewhere on the Chinese mainland, the framework must be intended to work in favor of Hong Kong. What should be the true spirit in the “one country’ two systems” and “high degree of autonomy?” Given in the Basic Law that China would be responsible for Hong Kong’s military defense and foreign diplomatic affairs, anything and everything that were related to the internal matters in Hong Kong should be seen within the “autonomy” and the “two systems” framework. Whether the issues were educational, cultural, media and publication, immigration and rule of law, or political elections, Hong Kong would have autonomy in executing and deciding on these domestic and internal issues. The “one country, two systems” framework would have given the consent to post-1997 Hong Kong for 50 years that these systemic issues would be dealt with internally within the autonomous authority of the Hong Kong SAR. It is certainly true that the “one country, two systems” was a novelty in politics. The irony would be that China was still largely ruled by the party and the personality of the leaders, and was still in the process of developing a well-defined, transparent, open, and equitable system. It is still the control of the majority by a minority. Indeed, the 50 years from 1997 to 2047 would see the grinding of the two political systems. It would be a battle between the “growing economic strength and politics-oriented” China versus the “economically free and civic-oriented” Hong Kong. On the contrary, if the “one country, two systems” were given unequal weight between “country and system,” the “two systems” would be redundant and become a fallacy, because the “country” would be interpreted to take precedence. If so, it will effectively be reduced to “one country, one system.”

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VI INTERNATIONAL IMPLICATIONS

The Government

Civic Institutions Media, political parties; professional bodies; pressure groups; chambers of commerce; religious bodies; voluntary bodies; district and neighborhood organizationss; labor unions; anticorruption; education and training; foreign consulates; ethic groups; international institutions; monitoring agents; etc.

The People

FIGURE 16.1

The Hong Kong civic system.

The Party The Government The People

The Party

The Government

The People

FIGURE 16.2

The China system.

VI INTERNATIONAL IMPLICATIONS With the Joint Declaration signed between the United Kingdom and the People’s Republic of China having been deposited in the United Nations, and even though Hong Kong’s sovereignty had reverted to China without the participation of the Hong Kong people, the United Kingdom as well as the international community at large have the responsibility to see to the development as agreed in the Joint Declaration. On numerous occasions and incidents, China insisted that Hong Kong belonged to its internal affairs, and foreign countries should not have any say in the Hong Kong affairs. However, this could not deter foreign governments and international institutions from observing developments in Hong Kong in such areas as human rights and media freedom. Indeed, the fact that China agreed to the registration of the Joint Declaration with the United Nations already meant that post-1997 Hong Kong would be scrutinized by members in the United Nations. Hong Kong’s economic advancement has been made possible because of its economic openness and extensive foreign involvement in investment and connectivity. However, the economy of Hong Kong could be vulnerable to shocks and crises originating from foreign markets. Finance could be a shaky sector, as capital resources could come and go within a short time if foreign investors lost confidence in Hong Kong. Although the economy of China would be “rich” enough to “rescue” Hong Kong, foreign investors would think otherwise. Leaning more toward the Chinese market without making efforts to attract foreign investors might not be a good alternative. The more worrying problem would be the spillover from political incidents and shocks to economic performance in Hong Kong. Although the Basic Law specified that Hong Kong would have its own currency, the Hong Kong currency is linked to the US dollar. Every Hong Kong dollar is backed by an equivalent value in the US dollar. Indeed, the Hong Kong currency is actually the US currency in disguise. However, there have been calls for the Hong Kong currency to delink, especially because of the appreciating Chinese currency, and part of the discussion has been politically oriented. However, instability and shocks could be generated should the Hong Kong currency become unstable. Indeed, as the 50 years period approaches 2047, there will be pressure on the Hong Kong currency, if there is no solution well in advance.

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Hence, because of its extensive openness and the established connectivity with the international community and engagement by both foreign and mainland investors, the different economic aspects in Hong Kong could become political instruments in one form or another. As ideology is often of prime importance in China, economic performance would possibly have to be sacrificed. In the past, foreign investments tended to become rooted in Hong Kong. However, the international community has become more globalized and open, and there is severe competition for foreign investments and capital resources, there are plenty of new investment destinations in other parts of the world, if foreign investment departed from Hong Kong it would be unlikely to come back. Similarly, as foreign investments departed, it would be an “uphill battle” for Hong Kong to attract new investors. At the worst, foreign investors would consider Hong Kong as a sacrifice should the political situation between China and Hong Kong became unsteady, as there are always alternative investment destinations in Asia and other world regions. Hong Kong’s economic performance would become the “thermometer” for China’s political performance in Hong Kong, and possibly China’s behavior in the international arena. Since the turn of the century as Chinese individuals and enterprises are gaining economic strength, a major source of investment would come from mainland China. Increasingly, mainland individuals are buying properties, while mainland businesses are establishing their business empire in Hong Kong. For example, mainland businesses have bought up news media and television stations in Hong Kong, and local businesses have been keen to sell to mainland buyers as they can afford to pay a high price. For example, even The Center, the 73storey landmark office building in Central Hong Kong owned by Cheung Kong has been put up for sale (South China Morning Post, August 23, 2016). Would one foresee that by 2047, mainland investors could be the majority of property owners and business corporations in Hong Kong? Deng was prepared to take back Hong Kong during the Sino British Negotiation without regard to the economy as foreign and local investors were the majority. However, as 2047 approaches, could Beijing disregard the economic situation in Hong Kong if the bulk of business capital in Hong Kong was owned by mainland investors? Or, would mainland investors sell off the assets in Hong Kong before 2047, and the 50 years was basically a period for speculation?

VII CONCLUSION Despite the fact that China has been rising and showing various nominal strengths, such as a prolonged rise in growth rate, the number one in such and such, the most of this and that, and so on, increasingly the hardware and the various numbers do not seem to match with the software and substance. Can China’s quantitative picture stand up to its qualitative performance? China’s rise has been due to the great leniency the international community has shown to China, especially after 1978. The “Nixon 2 Kissinger initiative” in the early 1970s had lifted China to the international community within a short time. The economic reform in the 1980s attracted loads of foreign investment to boost up the Chinese economy. The accession to the World Trade Organization resulted in rapid expansion of exports and trade. One should ask if the world has given too much resources and attention to the Chinese economy, especially when one considers that the same socialistic and communistic approach remained. Or it was too much resource for China to absorb within such a short time, and the country is suffering from “indigestion,” suggesting that the quantity increased but the ingredients remain weak. China probably needed the “bringing in” policy as domestic improvements could only be brought about by pressures, rules, conditions and requirements imposed by or derived from the world community. While China was ready to show off its economic muscles, it still tried to seek and learn from foreign practices. For example, China had been aiming to make the Shanghai stock market bigger than the Hong Kong stock market, but after China’s stock market crashed in summer 2015, China sought advice from London on how to establish a sound financial regulator (Reuters, May 14, 2016). China would have thought that recovering Hong Kong was a symbol of unification, but Hong Kong was an extraordinary economy. It was small, but had strong exposure to the international community, and the capitalist system and ideology had become rooted in Hong Kong. For the largest socialist country to swallow the freest capitalist economy would not be a “piece of cake.” The Joint Declaration and the Basic Law effectively divided the Hong Kong issue into two issues of sovereignty change in 1997 and the systemic change, if any, in 2047. The 50 years of 1997 2 2047 became the transition years in which mainland China and Hong Kong had to find a way out. While Hong Kong was the weaker side, Hong Kong’s advantage rested with the maintenance of a reliable system and infrastructure that could stand against turbulence from personality changes, though there was still the need for perfecting various systemic elements.

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On the contrary, ruling Hong Kong would not be a smooth task. To the ruler, having the right mentality to rule Hong Kong would be the first task. To govern Hong Kong with high-handed policies could be costly and ineffective. In many ways, the ball would be in China’s court. Hong Kong could not, should not, and would not be treated similar to another city in China. Indeed, China’s increasing involvement in Hong Kong affairs could backfire, as other China regions would start to make comparisons. To leave Hong Kong to handle its domestic affairs should be the true spirit in the “one country, two systems” framework. But party opportunists in China would not lose the chance, as becoming involved in Hong Kong affairs could be a strong ticket in the party hierarchy. Hong Kong did not have full political democracy, but the degree of freedom far exceeded that existing in China. Thus, the vast difference between mainland China and Hong Kong would lead to an administrative dilemma when freedom-lacking officials engaged in the affairs of the freest economy. To exercise control of Hong Kong would arouse uproar in Hong Kong and the international community, even though Beijing would like to see less of it. To relax control on Hong Kong would invite similar requests from other regions in China. Thus, Beijing faces a bigger dilemma among the different provinces and localities than the dilemma between Hong Kong and the central government. The history of the Sino British Negotiation will unfold in 50 years (1997 2 2047), and the outcome cannot be easily and precisely predicted, as there could be several scenarios. There will be multiple factors that could influence the outcome. Officials in Beijing obviously thought they were on the leading side of the relationship, and as such, unilateral decisions would adhere to the “one country” goal, but unstructured and one-sided responses to changes in the Hong Kong situation would fail, as one would feel confused in the “cause 2 consequence” relationship. Holding a communist mentality to govern the freest economy would simply result in more friction.

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