One-horse race A special report on l June 30th 2007

Republication, copying or redistribution by any means is expressly prohibited without the prior written permission of The Economist The Economist June 30th 2007 A special report on Hong Kong 1

The resilience of freedom Also in this section

Democracy deferred Ten years on, the same old arguments and the same old excuses are trotted out. Page 2

Eternal vigilance A respected system and a free press are proving competent watchdogs. Page 5

Rather them than us Taiwan is not convinced by the Hong Kong experiment. Page 5

Light on its feet The economy has been blowing hot and cold since the handover, but is now ourishing. Page 6

Richer than all his tribe After ten years of Chinese sovereignty, Hong Kong’s economy is The workshop to Hong Kong’s front oce. thriving. But politics, says Simon Long, remains a one-horse race Page 7 HE torrential rain that fell on Britain’s Kong Special Administrative Region Tend-of-empire parade on the night of (SAR) of is more obvious than what Smog gets in your eyes June 30th 1997 conjured up apocalyptic vi- has. The city streets still hum to the rhythm There is doubt about the government’s sions of the future of Hong Kong. Prince of commerce. The skyline remains one of commitment to protecting the environment. Charles bequeathed a sodden city to Jiang the glories of urban ambition. Even the Page 8 Zemin, China’s president, and left on grumbles are unchanged. The harbour board his yacht with Chris (now Lord) Pat- the reason this barren rock became a ten, the last British governor. That very metropoliscontinues to shrink as Hong Life on the margin night the city’s new masters swore in a Kong island reverts to the mainland To secure its future as a world city, Hong Kong new provisional legislature appointed through reclamation. needs . Page 9 to replace one elected under British rule. The red ag of China utters over Gov- Television cameramen ocked to the terri- ernment House, Lord Patten’s former A tale of two hongs tory’s borders with China to lm the ar- home, and government oces are rival of the People’s Liberation Army. It adorned with China’s state insignia. But And two ways of handling a handover. Page 10 proved to be almost the last chance to see the street names still celebrate former colo- those soldiers in Hong Kong: they disap- nial governorsDes Voeux, Robinson, Na- peared into their barracks. There were no than, Bonham (though, for the foreseeable round-ups of degenerates, dissidents or future, a Patten Boulevard seems unlikely). democrats, and no newspaper closures. And servants of the colonial regime still It is tempting to argue that Hong Kong play important roles under the new dis- has changed China more than the other pensation. , Hong Kong’s way round, as this newspaper and others chief executive, the successor to the gover- forecast in 1997. Certainly China has nor, was formerly a senior member of changed the more, though Hong Kong’s Lord Patten’s administration. role in thiscompared with, for example, Drastic changes, however, were never the dynamic momentum of China’s inter- likely. The 1997 handover was part of a nal reforms, and the country’s accession to process rather than a life-changing event. A list of acknowledgments and sources is at the World Trade Organisationis debata- The largest part of Hong Kong’s land area, www.economist.com/specialreports ble. Yet as Hong Kong and China celebrate the New Territories, had been Britain’s un- the tenth anniversary of their reunion, der a 99-year lease granted in 1898. China An audio interview with the author is at their self-congratulation seems justied. never recognised that agreement, nor in- www.economist.com/audio An experiment without historic prece- deed the treaties ceding Hong Kong island dent, the transfer of Hong Kong’s sover- and Kowloon in perpetuity. But the expiry eignty while keeping its unique way of life, of the lease presented practical diculties, A country brieng on Hong Kong is at has come oso far. such as over land tenure, so China agreed www.economist.com/hongkong What has not changed in the Hong to negotiations with Britain that led to the1 2 A special report on Hong Kong The Economist June 30th 2007

2 two countries’ 1984 Joint Declaration, Even so, there were reasonable doubts conrming Hong Kong’s reversion to about whether one country, two sys- China at the end of the lease. tems could work. The whole point of Unusually, then, the change of sover- Hong Kong, both for the people living eignty was preceded by a long planning there and the foreigners doing business period. Unprecedentedly, China also with it, was that it was not quite China. It agreed that the transfer would happen on was a place of refugees, a Chinese colony the basis of one country, two systems. that happen[ed] to be run by Britain, ac- Until 2047 Hong Kong would keep its own cording to its historian, Frank Welsh. By economic and political system and enjoy 1997 it had become a prosperous, service- economy has just enjoyed its best three autonomy in everything except foreign af- oriented economy and a sophisticated, years for two decades. As open and free as fairs, defence and national security. This cosmopolitan society. China was a poor any in the world, it has proved its exibil- was an extraordinary concession for a agricultural nation in the throes of the ity and resilience. proud, resurgent nation. It reected the vi- world’s fastest industrial revolution. This report will argue that, with some sion of Deng Xiaoping, who was in the Hong Kong had been a colony with important lapses, China has kept its prom- process of opening China up from the au- only limited self-rule. But Lord Patten and ises, and one country, two systems is tarkic blind alley of Mao Zedong’s Cultural others like to point to the observation of working better than many expected. But Revolution. No Chinese leader since has the late Samuel Finer, a famous historian its continued success is jeopardised by the enjoyed the popularity of Deng in those of government, that Hong Kong’s was a failure to tackle the big unresolved issue early years. Many in Hong Kong say that unique political system: undemocratic but left at the handover: the establishment of the anniversary the island should be cele- free. China was, and remains, undemo- an accountable government checked and brating is not this year’s but the one com- cratic and unfree. Optimism in the late balanced by a representative legislature. ing up in December next year: the 30th 1980s that its opening-up might include Hong Kong will never sit comfortably in anniversary of the Communist Party ple- political liberalisation was crushed by the China as long as its politics is a battle be- num that marked the Deng restoration. Tiananmen Square massacre in Beijing on tween two camps, one labelled pro-Beij- June 3rd-4th 1989. For a generation in Hong ing and the other pro-democracy. Kong, that was a dening moment. But 18 To the relief of Britain and China, Hong The basics 1 years have passed, and for today’s bright, Kong has been largely absent from world Hong Kong’s: otherwise well-informed and sophisti- headlines in the past turbulent decade. But cated 17-year-olds mention of it rings only it has not been without its drama. Besides Population, 2006 6.9m distant bells. the unforeseen nancial and health crises, GDP per person, 2006 $27,500 That is not surprising. The biggest chal- there was, in eect, a mass uprising four Exports, 2006 $316.8bn lenges Hong Kong has faced in those 17- years ago, in protest at an anti-subversion Imports, 2006 $334.7bn year-olds’ lifetime have stemmed not from law that China wanted Hong Kong’s gov- Reserves, May 2007 $136.2bn Chinese repression but from Asia’s 1997 - ernment to introduce. Seeing their civil lib- $ exchange rate, June 18th 2007 7.82 nancial crisis, the bursting of the dotcom erties threatened, Hong Kong’s people Inflation, April 2007 1.3% bubble, and epidemics of bird u and se- took to the streets and won a deferral of vere acute respiratory syndrome (SARS). the law. Their political freedoms, too, are Sources: IMF; Economist Intelligence Unit; Thomson Datastream Hong Kong weathered those storms. The proving resilient. 7 Democracy deferred

Ten years on, the same old arguments and the same old excuses are trotted out

HERE are countless ways to rig an elec- sen according to Byzantine rules designed these days) compares favourably with his Ttion, some crude, some more sophisti- to make certain that the candidate sup- predecessor, the SAR’s rst chief executive, cated. But seldom in the history of elec- ported by the Chinese government in Beij- Tung Chee-hwa. Mr Tung had to cope with toral democracy has so much brainpower ing will win. Unexpectedly, an opposition a series of unforeseen disasters. Even so, been devoted to ensuring that a poll is a candidate, of the , his leadership was in most estimations foregone conclusion as in Hong Kong over secured the necessary nominations from disastrous. China forced him out in 2005 the past three decades. The result is that the more than 100 committee members to and picked Mr Tsang as his successor. people of Hong Kong still do not directly stand against Mr Tsang. So the election was Mr Tung was a shipping tycoon from a elect by a simple majority either their leg- watched with interest, but not suspense: Shanghai family who owed his business’s islature or the top ocial in the executive Mr Tsang’s victory was never in doubt. survival to the government in Beijing. Mr branch, the chief executive. In fact he would have won a fair elec- Tsang has worked his way up from fairly Donald Tsang, the present incumbent, tion. Opinion polls show him enjoying ap- humble origins and is seen as a local boy was re-elected in March by an election proval ratings of 70% or more. Mr Tsang (or made good and a competent adminis- committee of just under 800 people, cho- Sir Donald, as he prefers not to be known trator. Critics accuse him of being a chame-1 The Economist June 30th 2007 A special report on Hong Kong 3

2 leon. He still sports the bow-ties he wore ercise of sovereignty over Hong Kong, its the demands for more representative de- as a colonial civil servant, but has recently starting-point was that the territory should mocracy into the restrictive framework he been seen in a Chinese-collared jacket. be handed over intact. Ocials sometimes had inherited. Yet Mr Tsang himself has said that the used the analogy of a fragile ornament a China cried foul, alleging a serious debate about electoral democracy tor- Ming vase. A better simile might have breach of the spirit of the Joint Declara- tures Hong Kong. This seems an exaggera- been an intricate piece of machinery tion. But the election went ahead in 1995, tion. When, as now, the economy is thriv- whose workings no one fully understood. and pro-democracy candidates ing, the place hardly seems preoccupied At the time, Hong Kong’s administrative trounced the pro-Beijing camp. The with its democratic decit. But Mr Tsang is and economic system had little in com- through train, however, was derailed. right that naturally this is a burning con- mon with the newly reforming one-party Fresh elections under China’s rules were cern for everybody who cares about poli- rule of Communist China, but it worked held in 1998, and changes in the compo- tics. Increasingly, it also bothers those who well. By then Hong Kong had spent some sition of LegCo resumed the gradual and want strong executive-led government. 140 years as a British colony without en- orderly progress promised in the Basic Mr Tsang has promised to resolve the joying the right to choose its own leaders. Law. The number of directly elected mem- problem during his present term of oce, So agitation in Hong Kong for Britain to bers rose from 20 in 1998 to 30 in 2004, which ends in 2012. According to polls by allow a democratic system was greeted whereas those picked by the election com- the Hong Kong Transition Project at the with suspicion. Yet Hong Kong’s leaders mittee went from ten to nothing. The func- Baptist University, 86% of Hong Kong’s and legislators had to be chosen some- tional constitutencies remained at 30. people saw him engage in televised de- how, and China stated in the Joint Declara- bates with Mr Leong and 69% heard him tion that the chief executive would be ap- A problem left over from history make this promise. That makes it another pointed by the central government after In the September 2004 elections pro- important reason for his popularity. A gov- elections or consultations held locally. democrats as usual won about 60% of the ernment green paper is to be produced LegCo would be constituted by elec- votes, despite concerted opposition co-or- later this year, listing three routes to the tions. The complex system that was de- dinated by mainland-aliated groups in ultimate aim promised in the Basic vised allowed some direct elections and Hong Kong. This gave them just 25 of the Lawthe mini-constitution for Hong Kong some indirect ones, via a carefully selected 60 seats. China’s parliament, the Na- promulgated in 1990of universal suf- election committee (the mechanism also tional People’s Congress (NPC), the ulti- frage for both Legislative Council (LegCo) used to choose the chief executive), and mate arbiter of the Basic Law, had already and chief-executive elections. some functional constituencies, the ma- ruled in April 2004 that the time was not The sooner the argument is settled in fa- jority of which would do what China told right for universal surage in the LegCo vour of representative democracy the bet- them. Those elected to LegCo in 1995, un- elections in 2008, nor for the chief-execu- ter. Since political-party platforms are still der British rule, were meant to be on a tive elections in 2007. The ultimate aim dened around when and how universal through train to Chinese sovereignty. is receding into the distant future. surage is to be achieved, the constitu- After the Beijing massacre in 1989 a Donald Tsang may be popular, but not tional debate distorts and stunts the de- stronger democratic mandate for future nearly as popular as competitive politics. velopment of normal, policy-based politi- Hong Kong governments seemed even For those seats on the committee to re-elect cal competition. Since LegCo is a mixture more important. The last British governor, him where individual voting was allowed of popularly elected delegates and repre- then plain Mr Patten, a Conservative politi- in December 2006, pro-democrats tri- sentatives of functional constituencies cian rather than, as usual, a senior dip- umphed: 114 of 137 candidates who fa- (professional, commercial and other inter- lomat, seemed to agree. He tried to squeeze voured a contested election got in. est groups), its powersalready weakare Even Jasper Tsang, of the Democratic attenuated further by questions over its le- Alliance for the Betterment and Progress of gitimacy. And since Mr Tsang’s own popu- Hong Kong (DAB), the biggest single party lar mandate is even more tenuous, the sys- in LegCo, would welcome universal suf- tem is biased towards inaction. frage. The DAB, which developed from the The lack of democracy seems incom- clandestine local communist party of colo- prehensible. On the World Bank’s gures, nial days, is the main grassroots pro-Bei- Hong Kong in 2005 was the world’s tenth- jing party. Yet Mr Tsang argues real elec- richest country by gross national income tions could free the DAB of an association per person at purchasing-power parity. that puts o many voters, and allow it to One study published this year suggests exploit its formidable local network and that its people have the world’s highest av- strength on bread-and-butter issues. erage net worth (more than $200,000 per Even if most of Mr Tsang’s colleagues person). It is cosmopolitan, modern and agreed with him, which they do not, the open. Its people have proved themselves DAB would be constrained by what he orderly, moderate and pragmaticas in calls its 20-80 problem. The party’s core their support for Mr Tsang, Beijing’s man. supporters, he says, are among the 20% of They have at times taken to the streets in the population who toe the Beijing line, their hundreds of thousands, but they and would be alienated by any attempt to have done so without violence. stray from it. But a cautious proposal for When China agreed in the early 1980s minor electoral reforms ahead of this to negotiate with Britain to resume the ex- Tsang and Leong: not similar enough year’s green paper would not win over1 4 A special report on Hong Kong The Economist June 30th 2007

lobbyists in parliament, he explains. The delay in introducing full democ- racy is damaging, for several reasons be- yond the aront to natural justice. A repre- sentative government in Hong Kong would be the best monitor and guarantor of continued autonomy. And, as Mr Lee puts it, the future of the rule of law in the long run depends on popular control of the legislature. But there is also a growing feeling that the present arrangements sim- ply do not work. The lack of a constitu- The people’s ag is deepest red tional link between the legislature on the one hand and the chief executive, his advi- 2 many of the other 80%. 1987. This was a shameful episode in Brit- sory executive council (ExCo) and the Much of the time the DAB nds itself in ain’s late colonial history. Designed to civil service on the other inhibits both poli- a de facto alliance with another pro-gov- quell enthusiasm for brisker democratisa- cymaking and implementation. Critics ernment party, the Liberals, dominated tion, it failed to admit the reason: that point to the government’s inability to by businessmen. Its chairman, James Tien, China would not allow it. Instead it buried reach consensus on issues as diverse as agrees with Mr Tsang that universal suf- the demand for direct elections to plans for a cultural district in West Kow- frage is unlikely to arrive in 2012. Unlike Mr LegCoas the fth sub-option of the loon in 2004 and a Goods and Services Tax Tsang, however, he does not think it desir- fourth main option in chapter four. to diversify its revenue base last year. able, regarding it as too major a change. Twenty years completely wasted, con- Mr Tung tried to tackle the problem in The Liberals’ biggest proposed reform for cludes Mr Lee. 2002 by lling some of the top civil-service 2012 is to give everybody a vote in the Well, not quite. Hong Kong has ac- posts with political appointees from busi- chief-executive elections, but to raise the quired a more vigorous and vigilant legis- ness, the professions and academia. Legis- number of nominations a candidate lature. But Mr Lee recalls that ten years ago lators from like-minded parties and needs to run; this hurdle would then be nobody was arguing that 2007the earli- groups were appointed to ExCo to make it lowered in 2017 and removed in 2022. As est date for the introduction of full democ- more like a cabinet in a democracy. Mr Mr Tien engagingly suggests, voters could racy allowed under the Basic Lawwas Tsang now proposes to extend the experi- choose between Donald Tsang A, Donald too early. Now few expect it even in 2012. ment with a new tier of political appoint- Tsang B and Donald Tsang C. Others also Under the Basic Law, LegCo electoral ments to the civil service. see the election committee as a useful arrangements after 2007 are for Hong mechanism for restricting the choice to Kong to decide alone, to be notied to Beij- A basic contradiction candidates Beijing supports. ing for the record. Yet they may be harder Tinkering with the existing structure in The pro-democrat camp is also di- to reform than those for the chief-execu- this way ignores the basic contradiction: verse and divided. Its leading lights range tive elections, which require the NPC’s that 60% of the electorate consistently from free-market liberals to left-wing la- approval. The functional constituencies votes for pro-democrats who are not like- bour activists to the former head of the that occupy half of LegCo at present have minded. Yet their candidates are con- civil service under Lord Patten and Tung become powerful vested interests, un- demned to a minority of LegCo seats and Chee-hwa, Anson Chan. Mrs Chan (the likely to vote themselves out of existence. exclusion from these political appoint- best civil servant I have ever worked with, Already there is talk of their becoming a ments. This is unlikely to change until the by a street, says Lord Patten) would have second chamber to a popularly elected government in Beijing has a rethink, of made an excellent chief executive. China LegCo. Mr Tien, directly elected himself, which there is no sign. The DAB’s Mr Tsang may have rejected her as somehow tainted says the system works better than the sort thinks that this year’s contested chief-exec- by her experience under British rule, and where legislatures are full of directly utive election will have reinforced its op- may feel vindicated by her conversion to elected generalists who become easy prey position to faster democratisation, despite an explicitly pro-democracy stance. But to professional lobbyists. We have the Donald Tsang’s strong popular support. that conversion has added to her already China had hoped to have him re- considerable popularity. elected without a contest. It is still not The biggest pro-democracy party, the The big divide 2 ready to accept an alternation of ruling Democrats, has seen its dominance eroded Legislative Council election results, Sep 2004 parties, fearing that some leading demo- since the handover. Some of its younger crats are disloyal to China and want to leading lights joined more radical groups. Pro-democracy Pro-Beijing topple Communist rule on the mainland The Civic Party, formed in 2006, has at- Democratic Party DAB as well. Popularly elected politicians, it 9 12 tracted some support, notably from mid- reckons, might resort to populist measures dle-class professionals. Some of the de- Liberal (for example, bringing in a minimum Civic Party* Party mocracy movement’s longest-serving 6 10 wage). The world’s biggest Communist leaders have become wearily pessimistic. Other party is afraid of democracy in Hong Kong 10 Other Martin Lee, founder and former chairman Total: 60 13 lest it introduce an element of socialism of the Democrats, compares this year’s there; and, perhaps, lest it inspire China *Founded in 2006 by members of the Article 45 Concern Group green-paper exercise to an earlier one, in politically, as it has economically. 7 The Economist June 30th 2007 A special report on Hong Kong 5

Eternal vigilance

A respected legal system and a free press are proving competent watchdogs

HE rule of law and a free press: gov- arrangement put in place in 1995, such as universal surage in 2007-08; and in 2005 Ternment ocials and businessmen Martin Lee, concede that the CFA has to decree that Donald Tsang’s rst term as repeat the phrase like a mantra that can proved very strong. Where the law has chief executive would last only until 2007. ward o evil. They are not wrong. An im- looked in trouble it has been because of ac- Nevertheless, the judicial system still partial, trusted legal system and the free tual or perceived interference from either enjoys respect at home and abroad. The ow of information remain vital elements the Hong Kong or Chinese governments. solicitor-general, Ian Wingeld, is a Briton. of Hong Kong’s magic: two essential ways In 1999 the government refused to ac- He points out that Hong Kong does not in which it is still not quite China. There cept a ruling by the CFA on the rights of even have an extradition treaty with the were fears for both in 1997; both have sur- abode in Hong Kong of the mainland-born mainland. And the CFA, closer at hand vived, if not unscathed. children of Hong Kong parents. It sought and less prohibitively expensive to invoke Worries about the legal system centred an interpretation of the relevant pas- than the Privy Council, has been much on the composition of the Court of Final sages of the Basic Law from the National better used. Between July 1997 and the end Appeal (CFA) set up to replace Britain’s People’s Congress, which duly overturned of 2006 it received nearly 800 applications Privy Council at the apex of the court the CFA’s ruling. On two other occasions to appeal and nearly 300 substantive ap- structure. In fact, even strong critics of the the NPC has intervened: in 2004 to rule out peals, compared with just 103 appeals to1

Taiwan is not convinced by the Rather them than us Hong Kong experiment

ONG KONG is China’s third attempt by the minority on the island who had whose leaders lean towards a formal dec- Hat implementing the idea of one ed from China’s Communists at the end laration of Taiwanese independence country, two systems. Although the lan- of the mainland’s civil war in 1949. The from the mainland. In that, few Taiwan- guage was dierent, a similar promiseof KMT spurned the oer, maintaining the ese back them. China has never dropped a high degree of autonomy in everything ction that it was the legitimate ruler of its threat to reunify Taiwan by force if except foreign aairs and defencewas all of China. With Hong Kong, China had peaceful means fail. But opinion polls oered to Tibet in 1951 and Taiwan in the chance to demonstrate to Taiwan that show that even fewer Taiwanese favour 1981. In neither place did it work. it could respect autonomy, preserve pros- reunication along the lines of one coun- In Tibet the autonomy soon proved il- perity and make two systems work. try, two systems (see chart 3). They see lit- lusory. In 1959 Tibetan resentment In the meantime Taiwan has become a tle reason to swap de facto independence erupted in a revolt against Chinese rule, democracy and the KMT has lost power for a promise of autonomy, though some soon suppressed. Tibet’s spiritual leader, to the Democratic Progressive Party (DPP), are ready to give China credit for keeping the Dalai Lama, ed into exile with some most of its promises in Hong Kong. 100,000 followers. Nowadays he is will- In Taiwan, as in Hong Kong, political ing to accept Chinese sovereignty in re- Happy as we are 3 development has been distorted by the turn for genuine autonomy, but China Preferred relationship with mainland China relationship with China. The DPP’s Chiou will barely talk to his representatives. % of Taiwanese adults I-jen, secretary-general to the president, Taiwan is a dierent matter. Bringing 60 Chen Shui-bian, suggests that, in time, an- its 23m people back into the embrace of Status quo* other similarity may become evident: the motherland has always been more that partial elections do not work. When 40 important to the Chinese even than re- Independence† Taiwan liberalised in the late 1980s, the claiming little Hong Kong from Britain opposition had no hope of winning elec- and, in 1999, tiny Macau from Portugal. In Unification† 20 tions because a majority of seats were re- 1981 China oered Taiwan even greater served for delegates notionally Don’t know freedoms than those later promised to 0 representing seats in mainland China. Hong Kong and Macau, including the 1996 98 2000 02 04 06 07‡ The combination of relatively free elec- right to maintain its own army. Taiwan at *Includes preference for future decision †Includes preference tions and predetermined outcomes the time was ruled by the Nationalist for current status quo but eventual change ‡April proved unsustainable in Taiwan, just as Source: Mainland Affairs Council Party, the Kuomintang (KMT), dominated democrats hope it will in Hong Kong. 6 A special report on Hong Kong The Economist June 30th 2007

2 the Privy Council in the previous decade. service broadcasting. It advised against Some businessmen are worried about turning Radio Television Hong Kong a slow chipping away at legal standards. (RTHK), a government-owned but inde- Newer judges, they say, are not of the pendent station, into Hong Kong’s future same calibre as the older ones and may be public-service broadcaster. more susceptible to political pressures. But But most journalists concur that a big- many leading members of the opposition, ger problem than direct pressure is self- such as Mr Lee and Mr Leong, are them- censorship. In a survey this year by the selves lawyers, and neither shares that Hong Kong Journalists Association, 30% of concern. Mr Leong, however, complains journalists admitted to censoring them- about a lack of commitment to the rule of selves and 40% thought their colleagues law, citing examples where adminis- did. One newspaper journalist recalls an trative convenience and expediency took editor’s initial rejection of a column by a precedence. Lai holds the fort well-known Taiwanese independence ac- Whatever the worries about the judi- tivist. The column was published a week cial system, the police force, transformed self pleasantly surprised by what has later, after the editor had reconsidered. from a byword for corruption in the 1970s turned out, especially in his own busi- In other ways, too, freedom is still there to one of Asia’s nest, is deemed to have ness. Press freedom exists, he declares. for those who dare to exercise it. Falun managed the transition well. One of the There is, however, a sting in the tail: Gong, a religious sect banned as subver- 200-odd Britons still serving in the force la- We are the only ones holding the fort. It sive on the mainland, continues to prose- ments the passing of its mess culture and is true that Mr Lai’s Apple Daily newspaper lytise in Hong Kong. And Han Dongfang, a the arrival of a more autocratic Chinese and his weekly Next magazine are among labour activist who was a leading gure in management style. But he sees no serious the most outspokenly critical media, and the 1989 Tiananmen protest movement, contamination from increased contacts that many other newspapers and their lives and works there unmolested. with policemen from the mainland, where proprietors are, broadly, pro-government Every June 4th tens of thousands corruption is rife. and pro-China. The Next group is suering gather in Hong Kong’s Victoria Park to an advertising boycott from tycoons who commemorate the Beijing massacre. And, Keeping spin-doctors away do not want to upset China. as mentioned earlier, on July 1st 2003 hun- I’ve been wrong, is the rare and refresh- There are other, less subtle pressures. In dreds of thousands protested against ing admission of Jimmy Lai, a clothing ty- May 2004 three popular radio talk-show planned anti-subversion legislation. They coon turned media mogul, about his hosts resigned, citing political pressure forced the government rst into three big pre-1997 gloom. In the 1990s sorrow over from mainland ocials. A Hong Kong concessions in the bill and then into its de- the Beijing massacre and trepidation journalist, Ching Cheong, is in jail in China ferral. It still has not been tabled and is not about Hong Kong’s future would some- as a suspected spy. There are also fears of a priority for Mr Tsang’s administration. times reduce him to tears in interviews political motives behind a government- Hong Kong knows the price of liberty and, with the foreign press. Now he nds him- commissioned report this year on public- inspiringly, seems prepared to pay it. 7 Light on its feet

The economy has been blowing hot and cold since the handover, but is now ourishing

EALISTS always knew precisely what worst recession in a generation, with GDP omy grew by 7.5% in 2005 and 6.9% last Rwould follow July 1st 1997: July 2nd contracting by 5.5% that year. Prices fell for year. Trade has increased by two-thirds 1997. Nor were those who watched nan- ve years until modest ination returned since 1997. More visitors are coming to cial markets all that surprised when that in 2004. A strong recovery in 1999-2000 Hong Kong than ever beforemore than day brought a sharp devaluation in Thai- was stalled by the slowdown in America 25m a year. It is the world’s third-biggest land’s currency, the baht, which had been after the bursting of the dotcom bubble. In air-cargo hub and second-biggest con- under speculative attack for some months. late 2001 and early 2002 Hong Kong suf- tainer port by throughput. Hong Kong con- But hardly anybody at all predicted that fered another recession. Again, recovery tinues to top lists of the world’s freest this event would, over the following few was interrupted: this time by the outbreak economies. months, lead to the most severe regional - of SARS in China in 2003, which caused That last attribute helps explain the nancial turmoil for decades. Hong Kong, as some 300 deaths in Hong Kong and, for a exibility and impressive strength Hong a regional hub, was inevitably drawn into while, crippled the economy. Kong has shown since 1997 to withstand it. In comparison, the events of July 1st After three years of recovery, the tenth- the battering from so many unforeseen as- seemed almost irrelevant. anniversary celebrations are held against sailants. So, too, does the good shape it It took some time for the shock-waves the more familiar backdrop of thronged was in at the time of the handover, and from South-East Asia to reach Hong Kong. shopping malls, packed restaurants and a particularly its extraordinarily strong scal By the time they did, in 1998, it led to the welter of impressive statistics. The econ- position. This was in part a defence against1 The Economist June 30th 2007 A special report on Hong Kong 7

The workshop to Hong Kong’s Richer than all his tribe front oce

NE fear about Hong Kong’s future is around 17% for the past quarter-century. No other country in the world has in- Othat the rise of Shanghai might con- Hong Kong rms employ more than 11m dustrialised as rapidly as China; and demn it to becoming the nancial hub for people in the region and have provided within China no region has matched the just the Pearl River Delta (PRD), as some two-thirds of the foreign direct in- sustained growth of the PRD. To the out- Shanghai deals with the booming Yangzi vestment there. The mainland part of the side observer it looks hideous: a prolifer- delta region. The worries are premature, region has attracted about 22% of all the ation of ugly building sites, cramped such is Hong Kong’s lead over Shanghai. FDI that has gone into China and ac- factories, poisoned waters and lthy But even if they were realised, such a fate counts for about one-third of its exports smokestacks. Yet there are signs that the might not be the end of Hong Kong. and imports. Two-thirds of the world’s region is ready to move upmarket. The PRD is, with the Yangzi delta and toys, 45% of its wristwatches and one- Air pollution is now causing a grow- the Bohai rim around Beijing and Tianjin third of its consumer electronics, gar- ing clamour and land turns out to have a in northern China, one of the three most ments and footwear are made there. myriad valuable uses. Wages have gone important economic regions of China. up, so the number of sweatshops has The PRD Economic Zone, rst ocially gone down. K.C. Kwok, the Hong Kong dened in China in 1984, includes the government’s economist, says some local special economic zones of Shenzhen, governments in the Pearl River Delta are next to Hong Kong, and Zhuhai, border- establishing links with ocials in Viet- ing Macau, and the neighbouring parts of nam and Bangladesh to refer potential in- Guangdong province. vestors on to them. There is also a According to a study in 2005 by Mi- Pan-PRD initiative, covering the nine chael Enright, Edith Scott and Ka-mun southern provinces of China, to help Chang, if the area, including Hong Kong spread development from the congested and Macau, were a separate country, it coast to the poorer inland regions. This, would be the world’s 18th-largest econ- says the Hong Kong government, will po- omy and its 11th-biggest exporter, ahead sition Hong Kong as the hub of a region of of South Korea and India. It has a popula- 474m people, with a GDP much the same tion of about 65m and the mainland part as that of the ten members of the Associa- of it has enjoyed an astonishing average tion of South-East Asian Nations com- annual rate of economic growth of bined. Eat your heart out, Lee Kuan Yew.

2 the political uncertainties of the handover, and crashing asset prices. Property prices Hong Kong tycoons. And the decision to and in part a reection of China’s abiding fell by 60-70% from their 1997 peak. put government money into Hong Kong’s fear that Britain would empty the safes Having intervened in the market own Disneyland, which opened in 2005, and cupboards before departing. Al- rightly or wronglyMr Tsang gained credit remains controversial. though Hong Kong’s nancial autonomy for holding his nerve as the scale of the in- Spending taxpayers’ money on such is guaranteed under the Basic Law, China tervention mounted. Alarm about a more projects lays the government open to at- demanded consultation on the nal bud- active role for the government in the econ- tack from critics who say its safety net for get of British rule, prepared by Donald omy turned out to be partly justied. Gov- the poor remains inadequate, despite an Tsang, the nancial secretary at the time. ernment ocials dropped the rhetoric of increase in social-welfare spending from non-intervention and adopted slogans 1.6% of GDP in 1997 to 2.4% last year. Such The all-too-visible hand such as proactive market enabler. But the criticism has grown louder in two reces- The war-chest built up for one campaign practical impact of this should not be exag- sions since 1997. Unemployment before proved useful for a dierent one alto- gerated. The government ran scal decits the handover, at about 2% of the work- gether. In August 1998 the Hong Kong gov- for a number of years from 1998, and ex- force, was almost negligible. It climbed to ernment spent HK$118 billion buying penditure as a percentage of GDP rose as 6.2% in 1999 and 7.9% in 2003. Since then it shares on the local stockmarket in re- the recession bit. But by 2006 it was back in has fallen every year, but at 4.8% in 2006 sponse to speculative attacks from hedge surplus and its spending ran to only about was still much higher than pre-handover funds. Since October 1983 the Hong Kong 17% of GDP, compared with an average for levels. Over the same period median earn- dollar has been pegged to the US dollar. the OECD countries of over 40%. ingsabout HK$10,000 a monthhave The peg is backed by a currency board (ie, Even so, critics have accused the gov- not changed at all. every Hong Kong dollar is backed by ernmentespecially under Mr Tungof Inequality, as measured by the Gini co- equivalent holdings of US dollars). Attacks being more partial than its colonial prede- ecient, has been rising since 1981 and on the peg automatically lead to a rise in cessor to three sorts of distorting govern- now compares badly with other devel- interest rates, which depresses the stock- ment activity: picking winners; investing oped economies, being roughly on a par market. So speculators against the HK dol- in what should be private-sector projects; with Argentina. The government’s nan- lar would also short the stockmarket, and backing favourites. These strands cial secretary, Henry Tang, argues that this making money as the market lost value. came together in 1999 in the Cyberport is a global trend which a small, open econ- Because of the peg, the exchange rate re- project, a property development disguised omy such as Hong Kong’s can hardly resist. mained immune from the contagious de- as an information-technology initiative, Even Alasdair Morrison, former chairman valuations that swept Asia in 1997-98. But negotiated with the Pacic Century Group in Asia of Morgan Stanley, a leading invest- the price was paid in ve years of deation of Li Ka-shing, the most redoubtable of ment bank, frets that the ordinary citizen is1 8 A special report on Hong Kong The Economist June 30th 2007

made moving to China an obvious choice. Rock ‘n’ roll 4 The transformation of the mainland A thoroughly modern economy 5 GDP, % change on a year earlier Chinese economy in the past three de- Composition of Hong Kong’s GDP, by sector, % cades is well-documented. But on a Wholesale & retail trade Other services 16 smaller scale, Hong Kong’s own evolution Financial services Manufacturing China 12 from a low-cost manufacturing base to a Logistics Other hub for services with ever more value 100 8 added (see chart 5) is almost as remark- 80 4 able. It has been achieved in symbiosis + 60 0 with the mainland. This gives rise to two Hong Kong – common but diametrically opposed prog- 40 4 noses for Hong Kong’s economic future. 20 8 Pessimists still see Hong Kong as 1987 90 95 2000 05 07* doomed, despite the present rosy outlook. 0 1986 91 96 2002 05 Sources: National statistics; Its fate is now tied inextricably to China’s. Economist Intelligence Unit *Forecast There are already signs that the mainland Source: Census and Statistics Department economy is overheating. Should it crash, it 2 not getting enough out of Hong Kong’s will drag Hong Kong down with it. But the mainland, say the optimists, it will try huge success as a global nancial centre. should the mainland boom continue, to spare Hong Kong the worst. And since That success is ever more linked to Hong Kong’s importance will steadily di- the city is still integrated into world mar- China’s soaring economic growth. Hong minish compared with other Chinese cit- kets as well as China’s, it is somewhat insu- Kong is still the largest investor in China. Its ies, notably Shanghai. Once China’s cur- lated from a downturn in China alone. If rms employ an estimated 12m people rency, the yuan, is fully convertible, Hong Chinese growth continues at its present there. The share of China’s trade interme- Kong will be just another Chinese port. astonishing rates, however, Hong Kong diated by Hong Kong has fallen from about Optimists point to the big helping hand will continue to share in the feast. 60% in the 1980s to about 20% now, but the China extended to Hong Kong in the sec- The truth lies somewhere between absolute amount has more than doubled ond half of 2003. In the depths of the post- these extremes: neither success nor failure since 1996, to $300 billion last year, despite SARS gloom, China came to the rescue in is inevitable. Hong Kong is too much part a loss of market share to mainland ports. two ways. The Closer Economic Partner- of China’s economic region not to be de- Integration with the mainland Chinese ship Arrangement (CEPA) signed at the pendent on growth there. And it is likely economy began in the early 1980s and in time is a free-trade agreement giving Hong that Shanghai will take away some of many respects has developed indepen- Kong rms preferential access to the main- Hong Kong’s business. Still, even a declin- dently of the political relationship. Hong land market. More important, China al- ing market share in China can mean huge Kong remains a separate customs area, lowed individual Chinese travellers to absolute increases, and Hong Kong is with its own fully convertible currency. In visit Hong Kong without joining group uniquely placed to gain from continued the early 1980s Hong Kong still had a toursa big boost to the local tourist and growth in its own backyard (see box on the manufacturing industry. Rising costs retail industries. Even if things go badly on previous page). 7 Smog gets in your eyes

There is doubt about the government’s commitment to protecting the environment

UCH of the border between the New common view in a ten-year review of tion at 2,000. A commonly used current es- MTerritories and China is a stark di- Hong Kong’s environment: Environmen- timate comes from Anthony Hedley of the vide. On one side are tower-blocks and the tal quality is failing to improve, or even de- , who calculates frenetic building of a modern city; on the teriorating in many areas...There is a lack that bad air causes 1,600 deaths a year. other rugged, deserted hillsides inter- of leadership from the highest level of the Besides such grim numbers, there are spersed with farmland. Hong Kong’s coun- government on environmental issues, and two other reasons why air pollution has tryside is one of its lesser-known glories. a continuing reliance on an infrastructure- become such a huge concern. The rst is its Some 37% of its territory is protected in led economic model that is exacerbating visibilityin the form of smog, which has country parksa remarkable proportion in environmental problems. become steadily more common (see chart one of the world’s most densely popu- The problem that gets the most atten- 6 on the next page). The magnicent views lated places. The corollary is that most tion, and that most shocks returning visi- from those soaring skyscrapers in Hong Hong Kongers live in small, high-rise apart- tors, is the deterioration of the air quality. Kong’s Central District are often shrouded ments arranged along deep canyons. And This started well before 1997. Civic Ex- in haze. The second is that this is starting to their natural environment, they believe, is change cites an estimate based on 1996 sta- deter people who have a choice from liv- worsening steadily. tistics which put the additional premature ing in Hong Kong. Civic Exchange, a think-tank, sums up a deaths per year resulting from air pollu- The air is as bad as in any rich-world1 The Economist June 30th 2007 A special report on Hong Kong 9

2 city. Sarah Liao, the government’s environ- main cause of pollution on 192 days and ment secretary, says the sea breeze often A dim view 6 mainland emissions on 132. Only 41 days used to save Hong Kong from the eects of Number of hours of reduced visibility* per year were fairly low on pollution. lling the atmosphere with so many poi- Many of the polluting factories on the sons. But now we have got to the stage 3,000 mainland are owned by Hong Kong busi- Hong Kong International Airport where nature says ‘no-can-do’...We are 2,500 nesses. It seems that local authorities in swimming in a constant chemical soup. China are getting tougher on the worst of- 2,000 A government handout insists that im- fenders. But environmentalists believe proving air quality tops the government’s 1,500 that Hong Kong’s government is not doing agenda. And Ms Liao gives an impressive 1,000 enough to persuade mainland local au- list of initiatives, including trying to thorities to help: it is self-intimidated, ac- change individual behaviour. She has 500 cording to Eric Bohm, who heads the local been urging building managers to turn up 0 oce of WWF, a conservation body. the thermostats on their air-conditioning, 1968 75 80 85 90 95 2000 06 Mr Bohm says the government has de- and drivers to turn o idling car engines. *Less than 8km excluding cided green groups are anti-develop- Now she is contemplating legislation. Source: Hong Kong Observatory fog, mist and rain ment. Despite its denials, it is also widely Emission caps have been imposed on believed to see air pollution as an expatri- power companies, and Ms Liao says that in on less polluting LPG. ate’s concern, at odds with the hunger of the negotiations to set new electricity ta- Much pollution, of course, comes from local people for growth. And Donald ris from next year, pollution control will mainland China. The same handout sug- Tsang’s legitimacy decit lays him open be as important as volume generated (al- gests that the Pearl River Delta is the source to the charge that he is more concerned most the sole criterion in the present ar- of roughly four-fths of the pollution. But about the interests of the local business- rangements). Already, all taxis and half another study by Civic Exchange found men who helped to elect him than those of the minibuses have been converted to run that last year local emissions were the the average breather. 7 Life on the margin

To secure its future as a world city, Hong Kong needs democracy

AVING grown up to the ticking of a the stockmarket’s capitalisation and 60% global nancial centre. Already it is taking Hcountdown clock, many Hong Kong- of its turnover. steps to improve corporate governance, ers have been worrying most of their lives. They also help explain the burgeoning disclosure and accounting standards. It But Liu Kin-ming, a former head of the operations of the big global investment needs to. According to a ranking of Asian Hong Kong Journalists Association, points banks that are competing for a slice of this companies in 2005 by the Asian Corporate out that their worries now are the exact lucrative market, and their worries that the Governance Association, a private-sector mirror image of their fears in 1997. Then ow of big mainland IPOs might dry up. watchdog, China came ninth out of ten, the concern was that China would meddle There are two concerns. The rst is that whereas Hong Kong came second, behind in Hong Kong too much, destroying a cher- many of the very biggest deals have al- Singapore. Nevertheless, Goldman Sachs, ished way of life and a purringly ecient ready been done. The second is that the in an assessment of Hong Kong Ex- economy. Now the fear is that Hong Kong Chinese authorities might start forcing changes, the listed company running the will be marginalised: that China will not more companies to list shares in Shanghai stockmarket, fretted about the perception meddle enough. rather thanor as well asin Hong Kong. of its eroding pre-eminence compared Nowhere is this feeling more acute than In the short term, some of this is a re- with Shanghai. But Paul Chow, chief exec- in the nancial markets. As nancial ser- sponse to the spectacular bubble on the utive of Hong Kong Exchanges, says that vices have steadily grown in relative econ- Shanghai exchange this year. As millions battle has not started because the yuan omic importance, so has exposure to any of Chinese citizens have discovered the is not fully convertible. ckleness in Beijing’s policies. This is par- thrill of gambling on the stockmarket, ticularly true of the stockmarket. Last year share prices there have soared. By May, the Open for business the amount of capital raised in initial pub- 40-odd shares listed in both Shanghai and Mr Chow may well be right that Hong lic oerings (IPOs) in Hong Kong was sec- Hong Kong were trading in Hong Kong at Kong need not worry yet. It is so far ahead ond only to that in London. Some 73% of an average discount of 43% to those on the of Shanghai in terms of institutions, laws, the Hong Kong total, or HK$369 billion, mainland. Besides the attractions to share connections and English-speakers that was raised by mainland enterprises. By issuers of such high prices in Shanghai, the catching up will take decades. As China’s the end of 2006, 367 mainland companies clear signs that too much cash was chasing prime minister, Wen Jiabao, put it himself had listed shares in Hong Kong. They ac- too few shares have encouraged regulators this year, Hong Kong’s position as a nan- count for 55% of the capital raised in Hong to increase the supply of listed companies. cial centre, shipping centre and trade cen- Kong in that period and now make up In the longer term, China may indeed tre is irreplaceable. nearly one-third of listed companies, half want to see Shanghai become a truly Even if the IPO bonanza were to peter 1 10 A special report on Hong Kong The Economist June 30th 2007

And two ways of handling a A tale of two hongs handover

HE rivalry between the old colonial compound annual growth rate of 21.3%. early to celebrate reconciliation. And if Ttrading housesthe hongsthat used One subsidiary, Hongkong Land, owns Jardine can claim vindication for its strat- to dominate business in Hong Kong is the much of the territory’s best oce space. egy, so can Swire. It is similarly diversi- stu of legend. As Hong Kong’s reversion Others are big in construction, engineer- ed. But an airline deal it struck last year to China loomed, two of the crustiest ing and supermarkets. One-quarter of its symbolises the interlocking business in- adopted opposite strategies. Jardine revenues derive from Hong Kong and terests of Hong Kong and China. Swire Matheson, founded in 1832 and still com- China, and most of the rest from South- gained 100% ownership of Dragonair, a memorated in a number of Hong Kong East Asia. This, says Mr Keswick, is one of mainly domestic Chinese airline, and place names, confronted the Chinese au- Hong Kong’s wonders often overlooked doubled its shareholding in Air China, thorities and became, say its bosses, a in the euphoria about China: it is the cen- the national ag-carrier, to 20%. Swire whipping boy to beat up the British. In tre of an overseas Chinese commercial and CITIC both reduced their holdings in contrast, Swire, heir to Buttereld & Swire, diaspora spanning the region. Cathay and Air China bought 17.5% of it. in business in China since 1861, seemed As Jardine has found before, however, The arrangement prompted some to ask, eager to please. In 1996 it sold 25% of Ca- Chinese leaders bear long grudges. De- as they do of Hong Kong and China, thay Pacic, Hong Kong’s ag-carrier spite the present boom, it may be too who took over whom? airlineto CITIC, a Chinese investment rm, and other mainland investors. Jardine’s fall into disfavour followed its decision in 1984 to shift its legal dom- icile to Bermuda, and then, a decade later, to delist its shares from the Hong Kong market. Both moves dented commercial condence at sensitive moments. It did not help when Henry Keswick, Jardine’s chairman, told a British parliamentary committee in 1989 that Britain was hand- ing Hong Kong over to a Marxist-Lenin- ist, thuggish, oppressive regime. Chinese polemicists have long historical memo- ries and linked the eet-footedness and insults to Jardine’s role in the 19th-century opium trade. Chinese pique was such that, for much of the 1990s, it would have no truck with Jardine. But ten years on, Mr Keswick says, business has never thrived better. There is no post-colonial kickback. The group remains Hong Kong’s biggest em- ployer outside the government. In the past ten years its shares have shown a When Jardine was a baby

2 out, there would be other opportunities. of these are regional headquarters, number of Western expatriates fell by For example, China says it wants to invest drawn not just by Hong Kong’s reliable le- about one-third between 2001 and last $300 billion of its foreign-exchange re- gal system and free ow of information year, to just over 70,000. Among the fac- serves. And if China were to open up fur- but by its ecient, well-connected airport. tors blamed are air pollution, a shortage of ther and liberalise its exchange rate, Hong It is hard, for example, to cover Taiwan, the places in international schools and the Kong would benet so much that a loss of world’s 16th-largest exporter and im- sky-high price of top-quality accommoda- market share might be almost irrelevant. porter, out of mainland China, because tion. But the growing role of China in the The same factors that make Hong Kong there are no direct scheduled ights. local economy, generating more jobs that an appealing Asian foothold for nancial However, there are signs that Hong can be lled by local people, may also have institutions attract other businesses too. Kong is becoming less appealing as a base something to do with it. And some West- Hong Kong still has 6,300 oces of Chi- for Westerners. Estimates from Hong ern expatriates who have stayed say that nese and foreign companies. Nearly 4,000 Kong’s immigration department of the far more of them are buying property and1 The Economist June 30th 2007 A special report on Hong Kong 11

2 investing in Hong Kong for the long term candidates it favours in Hong Kong’s par- laration in 1984; after the massacre in Beij- than before 1997. tial elections and through its interpreta- ing in 1989; and in the years around the It is certainly not that foreigners are ee- tions of the Basic Law to make sure those handover in 1997. Ten years on China has ing because the darkest forebodings have elections remain partial. The response managed to make Hong Kong’s political come true and China has made Hong Kong from the present Hong Kong government demands seem an almost parochial con- a bad place to do business. When the Chi- mimics the pre-emptive cringe of pre- cern. Britain’s Foreign Oce produces a re- nese government has intervened directly Patten British colonial regimes. Rather strained six-monthly report on the terri- in Hong Kong’s business aairs, it has met than stand up for the rights of Hong Kong’s tory, and American politicians occasion- with vigorous opposition. Last year, for ex- people, it is inclined to second-guess the ally raise the issue with China. But nobody ample, there was a row over Hong Kong’s views of the government in Beijing. pretends that foreign governments have largest telecoms rm, PCCW, whose chair- much leverage. man and main shareholder, Richard Li (Li Asia’s world city China clearly has an interest in Hong Ka-shing’s son), tried to sell the rm’s main Such a puppet government will nd it hard Kong’s success, but cares even more about assets to a foreign consortium. The deal be- to deliver decisive leadership, and will re- its stability. That is especially true as China gan to crumble when a Chinese rm, main vulnerable to attacks on its legiti- readies itself for the 2008 Olympics, to be China Netcom, which owned 20% of macy. With their big demonstration on held in Beijingexcept for the equestrian PCCW, objected to the sale. An agreement July 1st 2003, Hong Kong’s people not only events, which will be staged in Hong Kong reached when China Netcom acquired its achieved the indenite delay of an objec- because of the prevalence of equine dis- stake in PCCW in 2005 had in eect given it tionable piece of legislation; they also, in eases in Beijing and other mainland cities. a veto over any large share sales. The com- eect, brought down the government of Is this a metaphor for what Hong Kong has pany was reported to have been acting un- Tung Chee-hwa. But the conclusion the become: a useful adjunct to the mainland, der instruction from Liao Hui, the head of Chinese government seems to have drawn with better quarantine arrangements? China’s Hong Kong and Macau Aairs Of- from the episode is depressing: that full de- It is still much more than that; still, in ce. China is not alone in discriminating mocracy should be deferred further, per- the slogan trumpeted by its government, against foreign would-be purchasers of haps for ever. That may be unwise. Accord- Asia’s world city. Hong Kong remains strategic assets. Its own attempted take- ing to Lord Patten, Hong Kong is a China’s pre-eminent international city, over of Unocal, a Californian oil rm, in moderate place and no threat to China, but competing with London and New York as 2005 was scuppered by American con- if there is one thing that could make Hong much as with Shanghai and Singapore. cerns about ceding ownership to China. Kong immoderate, it is blocking attempts The biggest risk to this status remains Even so, the aair was a serious breach of to introduce more accountability into the China’s bizarre idea that it can be an econ- Hong Kong’s commercial autonomy. political system. omic city without being a political one. Such incidents, despite dire warnings, At times in Hong Kong’s recent history And its best defence remains the extraordi- have not so far done any fundamental its political system has been a matter of nary resourcefulness, common sense and damage to Hong Kong. Even before the global interest: at the time of the Joint Dec- vigilance of its people. 7 handover, China’s commercial clout was felt in the inuence of its big enterprises in Future special reports Hong Kong and the belief of both Hong Oer to readers Reprints of this special report are available at a Countries and regions Kong and foreign businesses that it made price of £3.50 plus postage and packing. Iran July 21st sense to cultivate them. Those business- A minimum order of ve copies is required. men that displeased China, such as Jar- Business, nance, economics and ideas dine’s bosses (see box, previous page), or Corporate oer Financial centres September 15th Jimmy Lai, who was hounded out of his Customisation options on corporate orders of 100 Innovation October 13th successful clothing chain, Giordano, suf- or more are available. Please contact us to discuss The world economy October 20th fered the short-term consequences. your requirements. The Editor’s survey November 3rd Yet in most respects China has hon- Send all orders to: oured the promise of Hong Kong people The Rights and Syndication Department ruling Hong Kong with a high degree of 26 Red Lion Square autonomy. The exception, however, London WC1r 4HQ makes a mockery of the other promises: Tel +44 (0)20 7576 8000 Hong Kong’s continued inability to choose Fax +44 (0)20 7576 8492 its own political representatives and lead- e-mail: [email protected] Previous special reports and a list of ers. China utterly refuses to yield that kind forthcoming ones can be found online of autonomy to Hong Kong; indeed it is prepared to intervene egregiously in Hong www.economist.com/specialreports Kong’s aairs through its support for the