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David Newman Alvin Rabushka $25.00 Red Flag Over Hong Kong Bruce Bueno De Mesquita, David Newman, and Alvin Rabushka

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David Newman Alvin Rabushka $25.00 Red Flag Over Hong Kong Bruce Bueno De Mesquita, David Newman, and Alvin Rabushka Red Flag Over Hong Kong Bruce Bueno de Mesguita David Newman Alvin Rabushka $25.00 Red Flag over Hong Kong Bruce Bueno de Mesquita, David Newman, and Alvin Rabushka O n 1 July 1997 the red flag with five yellow stars of the People's Republic of China will be hoisted over Government House in Hong Kong, replacing the Union Jack and symbolizing the culmination of a profound political transition. The United Kingdom, which has governed the colony since 1841, will have transferred sovereignty and administrative responsibility over Hong Kong to mainland China's Communist party. Hong Kong is in for a rocky road in the years ahead. Future treatment of Hong Kong will be caught up in the political competition for control of China. Victims of that competition will include the free press, academic freedom, open and fair elections, and some portion of market freedom. Hong Kong will not be as tightly controlled as the rest of China, but neither will it be the free and vivacious place it has been for the past half century. The political and economic landscape will be filled with uncertainty, cronyism, lost freedoms, and more corruption than has been known in the recent past. It is a bleak picture indeed. Such is the dire prophecy of Bruce Bueno de Mesquita, David Newman, and Alvin Rabushka, whose Red Flag over Hong Kong casts a cold eye on the future pros­ pects of "the world's best example of the free-market economy, working as textbooks say it should." Apply­ ing to that unknown future a dynamic model of de­ cision making that rests on the collection of data from a wide range of expert observers, the authors boldly seek to quantify human behavior and so derive a pre­ cise and reliable early forecast of Hong Kong's destiny at the hands of its communist masters. Lucid and persuasive in its argument, yet sophisticated and brilliantly derailed in its scientific method, Red Flag over Hong Kong will serve as an essential handbook both to the turbulent future of Hong Kong and to the equally uncertain and unsettled future of China. Recall­ ing that a red fl ag is after all a general warning signal of imminent danger, its authors caution that, in Hong Kong's unique geographical setting, the red flag of China signals severe typhoon danger. RED FLAG OVER HONG KONG RED FLAG OVER HONG KONG Bruce Bueno de Mesquita David Newman Alvin Rabushka CHATHAM HOUSE PUBLISHERS, INC. CHATHAM, NEW JERSEY RED FLAG OVER HONG KONG Chatham House Publishers, Inc. Box One, Chatham, New Jersey, 07928 Copyright© 1996 by Chatham House Publishers, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher. Publisher: Edward Artinian Production supervisor: David Morris Jacket and cover design: Lawrence Ratzkin Composition: Bang, Motley, Olufsen Printing and binding: R.R. Donnelley & Sons, Co. LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Bueno de Mesquita, Bruce, 1946- Red flag over Hong Kong I Bruce Bueno de Mesquita, David Newman, Alvin Rabushka. p. cm. Includes bibliographical references (p. ) and index. ISBN l-56643-041-0 (cloth). - ISBN 1-56643-040-2 (pbk.) r. Hong Kong-Politics and government-Forecasting. 2. China­ Politics and government-1976- -Forecasting. I. Newman, David, 1956- . IL Rabushka, Alvin. III. Title. DS796.H757B85 1996 303.495125-dc20 95-50248 CIP MANUFACTURED IN THE UNITED STATES OF AMERICA IO 9 8 7 6 5 4 3 2 l Contents Preface, ix PART ONE BACKGROUND TO HONG KONG r. To Go or Stay? 3 The Last Fifteen Years, 6 Mass Emigration, 7 A Preview-China after Deng. 8 Coming Attraction-Hong Kong after Deng, ro The Economy, II; Political Freedom, II; Other Concerns, 13 2. An Overview of Hong Kong 17 Demography, 17 Economic Policies, 1 8 Private Enterprise, 20 The Rule of Law, 21 Prosperity, 24 In the Context of History, 26 Ensuring the Future, 3 o 3. The Sweet and Sour of China 3 5 A Transformed Economy, 37 Political Reforms in Hong Kong, 40 Summary, 44 In the Context of History, 4 5 4. Words Have Meaning-or Do They? 49 Mao's Legacy, 50 "Economics Takes Command," 54 The Legal Issues, 5 5 The Future of Hong Kong Government, 59 The Executive, 59; The Legislature, 61; The Judiciary, 62; The Civil Service, 64; Human Rights, 6 5 v Vl RED FLAG OVER HONG KONG PART Two FORECASTING THE FUTURE 5. China after Deng 69 Method of Analysis, 70 Policy Satisfaction vs. Political Satisfaction, 72 Practical Applications, 8I Modern China, 8 2 The Military, 93; Economic Reform, 96 Hong Kong's Autonomy, 98 6. The Future of Hong Kong IOI Freedom in the New Hong Kong, IOI Freedom of the Press, I 02; Judicial Freedom, Io 5; Academic Freedom, Io9; Free Elections, In; A Free Market, n4 The Level of Autonomy, n7 7. Fortune Cookies I2I General Warning Signals, I 2 3 Economic Flashpoints, I 29 The Hong Kong Dollar, I29; Pensions, I33; Property, I33; Unemployment, 13 6; Antiques, 13 6; Corruption, Cronyism, and Favoritism, 13 7 Political Reforms, I 3 8 APPENDIXES A. Joint Declaration of the Government of the United Kingdom 143 of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong Annex I. Elaboration by the Government of the People's Republic of China of Its Basic Policies Regarding Hong Kong, 147 Annex II. The Sino-British Joint Liaison Group, I58 Annex III. Land Leases, 1 60 Memoranda (To Be Exchanged Between the Two Sides), 163 B. The Forecasting Model and Its Track Record I65 The Logic of the Model, I 6 5 Perceptual Analysis, 170 Contents vu Estimating the Model, 173 How Can the Model Be Estimated? r 8 r Model Output, r 82 Table B.r. Data Inputs, 183 Sample of Published Predictions, 187 Index Figures 5.1 The tradeoff between policy satisfaction and political 76 satisfaction 5.2 The indifference curve 77 5.3 Different values along the indifference curve 78 5.4 The shape of the indifference curve 79 5.5 Regionalist-centrist competition in China 87 5.6 Regionalization of China. Indifference curves: Jiang 89 Zemin, Li Peng 5.7 Political polarization in China 90 5.8 Political polarization in the United States 90 5.9 Regionalism or centrism in China? A dynastic transition 92 5.ro Future role of the PLA 95 5.II Future of economic reform 97 5.12 Turmoil and Hong Kong's autonomy 99 6.l Press freedom without foreign pressure 104 6.2 Press freedom with foreign pressure 104 6.3 Judicial independence without foreign pressure ro6 6.4 Judicial independence with foreign pressure 106 6.5 Will elections be free? ll2 6.6 Autonomy for Hong Kong rr8 B.1 Expectations and predicted relations between players 177 Vlll Preface On l July 1997 two red flags will fly over Hong Kong. One is the red flag with five yellow stars of the People's Republic of China. The other is the red flag with a single bauhinia flower of the Hong Kong Special Ad­ ministrative Region, the new political entity that will supplant the British Crown Colony of Hong Kong. As those two flags are hoisted, and as the Union Jack is lowered for the last time at Government House, a pro­ found political transition will occur. The United Kingdom, which has governed Hong Kong since 1841, will transfer sovereignty and adminis­ trative responsibility over Hong Kong to the government of mainland China. The Chinese Communist Party will replace Her Majesty's govern­ ment as the ultimate font of power and authority. Six million Hong Kong residents wait with growing apprehension. Although China has promised to preserve Hong Kong's capitalistic sys­ tem for fifty years and to allow Hong Kong's people a high degree of au­ tonomy, the Chinese Communist Party and the Central People's Govern­ ment in Beijing are better known for their disregard of human rights; the Tiananmen Square incident of 4 June 1989, in which tanks and soldiers opened fire on unarmed civilians; systemic corruption in economic life; and intolerance of individual freedom. "To Go or Stay" is the title of chapter l because that is the choice that faces upward of a million middle-class, English-educated Hong Kong residents. Will they stay because they believe China's promises? Or will they go because they do not trust China? Red Flag over Hong Kong is a handbook about the future of Hong Kong. It seeks to inform the colony's articulate, prosperous middle class, the international business community that has a stake in Hong Kong and East Asia, and the overseas Chinese who have dispersed to every part of the globe from Hong Kong. Since events in China will ultimately deter­ mine Hong Kong's future, it is also a guide to the future of China. Red Flag over Hong Kong will be one of many guides published in the re­ maining months before l July 1997· But Red Flag is unique because our lX x RED FLAG OVER HONG KONG forecasts on future developments in China and Hong Kong rest on an explicit model of decision making (see appendix B), not on access to in­ siders or the divination of tea leaves. This model has established a re­ markable record of real-time predictive accuracy over a wide range of political issues in many parts of the world.
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