Magazine article The American (Washington, DC)

Still the One: At the Stroke of Midnight on July 1, 1997, China Took over Hong Kong from the British, and Fears of Economic and Political Decline Were Rife. Today, Hong Kong Remains Number One in the Global Rankings, and, by Some Measures, It's a Better Place to Do Business Than Ever

Magazine article The American (Washington, DC)

Still the One: At the Stroke of Midnight on July 1, 1997, China Took over Hong Kong from the British, and Fears of Economic and Political Decline Were Rife. Today, Hong Kong Remains Number One in the Global Rankings, and, by Some Measures, It's a Better Place to Do Business Than Ever

Article excerpt

A DECADE AGO this summer, as Britain transferred its prize colony to Chinese control, the gloom about Hong Kong's future was thick and pervasive. Robert Burns, a trade consultant with McKeon-Burns International Associates, was a typical mourner. "I don't think the Chinese bureaucracy can resist the impulse to screw it up," he said at the time. "In a few years you'll have an isolated Vatican City on the island of Victoria."

Journalists were also full of gloom and doom. Fortune magazine proclaimed in 1995 that Hong Kong was dying: the "world's best city for business" was "destined to become a global backwater," the magazine predicted. Polls of Asian executives taken by the Far Eastern Economic Review found a majority believing that that the shift to Chinese control would hurt international confidence in Hong Kong's legal system--and thus damage business.

But fears of Hong Kong's decline have turned out to be wildly exaggerated. Yes, within weeks of the July 1, 1997, handover, the city--which China terms a "special autonomous region"--suffered a setback from a broad Asian financial crisis. The global slowdown after 9/11, coupled with the severe acute respiratory syndrome (SARS) scare in 2002 and 2003, hurt the economy. But China has largely left its hands off what one of its officials once called "the economic goose that keeps laying eggs," and British traditions of jurisprudence are still in place. As a result, the economy has rebounded--gross domestic product grew nearly 7 percent last year, with unemployment at just over 4 percent and inflation a minuscule 1.3 percent. Per capita income is $33,500 in U.S. currency, a figure exceeded by only seven nations. Rating services continue to rank Hong Kong number one in the world in economic terms.

Hong Kong has been immune to major meddling because Chinese officials realize it's the engine for much of Chinas explosive growth. But Hong Kong is also expanding into a world financial center in its own right. In 2006, it was the number-one market for stock offerings worldwide. While enthusiasm for Shanghai--the apple of the Beijing regime's eye--is high among foreign business leaders, it is still Hong Kong that's leading China.

Hong Kong is Chinas largest urban economy and, in comparison with the rest of the People's Republic, an oasis of political and media freedom. While Hong Kong's seven million people represent only one two-hundredths of Chinas population, they account for one-eighth of Chinas economic output. Hong Kong companies also employ 11 million people in neighboring Guangdong Province. The Pearl River Delta region, as the two areas are called, comprise one-fourth of the Chinese economy and one-third of its foreign trade.

"The story of modern China is being written here," says Hugo Restall, editor of the Far Eastern Economic Review. Hong Kong provides the international connections that smooth trade and generate the capital investment that fuels the Chinese economy. Hundreds of Chinese firms are lining up to list their shares on Hong Kong exchanges. At the same time, thousands of foreign businesses are using Hong Kong as a safe launching pad into the Chinese market.

The secret of Hong Kong's success isn't hard to find. It's economic freedom, and everywhere a visitor is struck by how much of it there is. Red tape is almost unknown; registering a company requires only a one-page form. "A businessman can walk off a plane in the morning and start operating a firm in the afternoon," reports The Economist. As it has every year since the ratings system began, Hong Kong ranks first, by a wide margin, on the 2007 Index of Economic Freedom compiled by the Heritage Foundation and The Wall Street Journal. The United States is fourth; Canada, tenth; France, 45th; China, 119th. Since the 1997 handover, Hong Kong's score has stayed steady. "Hong Kong remains a model of economic freedom," said the 2006 Index. "It is a free port with no barriers to trade; has simple procedures for starting enterprises, free entry of foreign capital and repatriation of earnings, and transparency; and operates under the rule of law. …

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