Capitalist Development and Economism in East Asia: The Rise of Hong Kong, Singapore, Taiwan, and South Korea

By Kui-Wai Li | Go to book overview

9

A challenge to economism

Hong Kong's sovereignty reversion

9.1Introduction

The negotiations on the reversion of Hong Kong's sovereignty from the UK to the People's Republic of China in 1982-84 changed Hong Kong's political path. Hong Kong, a British colony since the end of the Opium War and the subsequent declaration of an unequal treaty in 1842, became the Special Administrative Region (SAR) of the People's Republic of China, under the “one country, two systems” framework, in July 1997.

It is a rare occurrence in history for two sovereign nations to agree on the political reversion of a region some thirteen to fourteen years in advance. The Sino-British negotiations ended with the Joint Declaration in December 1984, and the subsequent establishment of the Basic Law in Hong Kong in 1990 was unprecedented. Like a business contract, which includes the delivery arrangements for a sale, it specified the kind of Hong Kong that the Chinese government would take over in 1997. This included not only the territory and its people, but also the existing social, political, economic, and cultural fabrics. The Basic Law literally mapped out the constitution for the post-1997 Hong Kong.

While economic stability and prosperity were highly preserved in the transitional years from December 1984 until July 1997, they were faced with severe challenges soon after the handover. The fall in property prices in late 1997 triggered the bursting of the economic bubble, while the outbreak of the Asian financial crisis in July 1997 resulted in a massive withdrawal of funds in the first half of 1998, the decision to stop the sale of land, and the unprecedented intervention in the stock market by the monetary authority. The Hong Kong economy suffered a big blow; deflation accompanied rising unemployment, a budget deficit in 1998, and asset depreciation. Various political, social, and legal phenomena, such as the “bird flu” epidemic in 1998, created a number of social grievances for the new SAR regime. The sudden economic downturn deepened the difficulties, and it was not until 1999 that there were signs of the economy stabilizing with inflows of foreign capital.

The post-1997 economy suddenly looked very different from the pre-1997 situation. Would the post-1997 difficulties erode Hong Kong's traditional

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