China's Golden Goose: The Economic Integration of Hong Kong

By Chui, Charlotte | Harvard International Review, Summer 1996 | Go to article overview
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China's Golden Goose: The Economic Integration of Hong Kong

Chui, Charlotte, Harvard International Review

AT MIDNIGHT ON JULY 1, 1997, GREAT Britain's 99-year lease on Hong Kong will expire, and jurisdiction over one of the most modern capitalist cities in the world will officially pass into the hands of the People's Republic of China (PRC). Hong Kong presents China with a great economic opportunity. Hong Kong is the world's eighth largest trading entity and the sixth busiest foreign exchange market. Its growth has been exceptional. In the 1990s, Hong Kong's real GDP has grown by approximately five percent per year. With a 1993 per capita GDP of US$18,800, Hong Kong ranks alongside Great Britain and Australia in income--an impressive accomplishment for an island only 75 square kilometers in size.

This spectacular growth has occured despite the fact that, since 1984, Hong Kong's economy has been shadowed by the impending change in government. In 1984, China denied Great Britain's efforts to renew its lease on the colony. The only agreement that Britain could attain was the Sino-British Joint Declaration. In this statement, Britain agreed to give up its colony on July 1, 1997, on the conditions that Hong Kong would maintain a high degree of autonomy and that its lifestyle would continue unchanged for the next 50 years. After July 1, 1997, Hong Kong would become a special administrative region (SAR) within the PRC. This policy is known as "one nation, two systems."

At the time, this news was greeted with great enthusiasm by the residents of Hong Kong. They were thrilled at finally throwing off the yoke of British colonialism. However, the Tiananmen Square massacre of 1989 turned their joy to apprehension. People wondered how the Beijing government, willing to treat its own people so brutally, would treat its new province.

The Hong Kong Dilemma

China has two alternatives concerning the treatment of Hong Kong. It can destroy Hong Kong's civil liberties, or it can adhere to its promise to leave the island alone for 50 years and allow Hong Kong's economy to grow freely. There is a precedent for the latter approach in Beijing's policies toward five other largely autonomous regions within China. In fact, two of these regions, Guangdong and Shenzhen, are Hong Kong's nearest mainland neighbors. Guangdong is largely self-financing, sets its own economic policy, pays little of its tax revenue to Beijing, and generally ignores central power. Hong Kong could wind up in a similar situation.

Such a hands-off approach is in the PRC's interest. China needs an economically strong Hong Kong to help finance badly-needed infrastructure projects. Shortages of power and poor transportation continue to plague the PRC; China must build more dams, power plants, highways, and railways. Its antiquated telecommunications systems also needs an overhaul. All of these projects are projected to cost over US$1 trillion by the year 2000. Investment from Hong Kong would facilitate China's modernization.

Hong Kong has a number of other economic advantages as well. It occupies a key geographic location; it has often been called the gateway to China. It has the largest container port in the world, handling 70 percent of the mainland's export shipments. Furthermore, 91 percent of Hong Kong's re-exports either originate from or are bound for China, and it currently acts as a trade buffer between the estranged nations China and Taiwan. In 1993, US$8.7 billion worth of trade passed between the the PRC and Taiwan through Hong Kong. Thus, Hong Kong plays a crucial role in linking Chinese trade with the rest of the globe.

However, from China's perspective, the Hong Kong issue is not merely economic. If China were to take a completely hands-off approach, it would have to leave in place all the legal structures created by Great Britain, including a popularly elected legislature and a Bill of Rights that was implemented just last year. Such an arrangement would make Hong Kong a hotbed of democracy in China. Beijing cannot afford this situation.

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