Academic journal article China Perspectives

Made in China, Financed in Hong Kong

Academic journal article China Perspectives

Made in China, Financed in Hong Kong

Article excerpt

Later, I saw the outside world, and I began to wonder how it could be that the English, who were foreigners, were able to achieve what they had achieved over 70 or 80 years with the sterile rock of Hong Kong, while China had produced nothing to equal it in 4,000 years We must draw inspiration from the English and transpose their ex- ample of good government into every region of China. Sun Yat-sen, addressing students of the University of Hong Kong, 1923

Where are we in economic terms ten years after Hong Kong returned to China? This article aims to show that since 1997 economic integra- tion between the Hong Kong SAR and the People's Repub- lic of China has entered a new phase. Despite fundamental differences, the two economies are more closely linked than ever. The SAR has sought to affirm its identity by seeking to adapt itself in the best possible way to the needs of the Chi- nese economy. All the same, this relationship, with clearly understood interests, involves macroeconomic risks for both parties.

It was no accident that negotiations for the transfer of Hong Kong's sovereignty to China were undertaken in 1982 under Deng Xiaoping, the father of economic reform. True, the last treaty of 1898 provided for a 99-year lease over the New Territories; but the various treaties ceding Hong Kong to the British were never recognised by the nationalists or the Chi- nese Communists. For the Chinese authorities, 1997 was not therefore an absolutely decisive date in any sense: in their view, sovereignty would be regained quite legitimately "in due course", as they put it((1). The opportune moment presented itself when China moved towards a market econ- omy in 1978: Deng Xiaoping had seen that Hong Kong could provide the logistical support, the skills base, and the liberal capitalist environment that would help him bring about reform. Thus, of the four special economic zones set up in 1980, three were established in Guangdong, a province neighbouring Hong Kong. Exchanges between Hong Kong and Guangdong intensified from 1985 onwards: Hong Kong factories were firstly relocated in the special economic zones and then progressively the Pearl River Delta area. In 1990, total Hong Kong investments repre- sented 80% of all foreign investment in the Chinese province. The Hong Kong economy experienced an accel- erated transformation-instead of an Asian dragon specialis- ing in electronics, it became a service economy (90% of GDP) dedicated to the Chinese economy. Henceforth, the port of Victoria became the entry point for secondary re- sources imported from Southeast Asia to be transformed into consumer goods in the factories of Guangdong, before being sent back to Hong Kong for export to the rest of the world.

The transformation of Kowloon into a Chinese warehouse and the transfer of Hong Kong capital to the Pearl River Delta had therefore taken place before 1997. This is why there were those who said that the handover facilitated what was already happening but would not involve any major change. The terms of the negotiations between the British and Chinese authorities confirmed this view: Hong Kong kept its economic, monetary and financial autonomy, in other words its capitalist system, its currency, its own eco- nomic regime, and outlawed any transfer of fiscal responsi- bility to China. For Hong Kong residents the fear was rather that, with the opening of the border, corruption might find its way in through Chinese cadres and industry barons look- ing to make a killing in Hong Kong.

Where are we ten years on? This article seeks to show that economic integration between Hong Kong and the PRC has entered a new phase since 1997. Despite differences in currencies, regulations, institutions and control mechanisms, the two economies have never been so closely linked. This new transformation has been brought about by the financial sector. In short, the SAR has sought to affirm its identity not by pursuing financial and monetary autonomy, guaranteed in any case by the Basic Law, but by seeking to adapt itself as best it can to the needs of the Chinese economy. …

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