|HONG KONG: RETURNING TO THE FOLD|
January 10, 1997
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in this forum:
What will happen to religious freedom in Hong Kong after the transfer ? Are the restrictions on China enforceable? What will life be like in Hong Kong in the year 2000? What's the prognosis for the future of the independent media in Hong Kong? Will China phase out the HK dollar and replace it with the Yuan? What will be China's attitude towards the Eurocurrency market ? Has China made any specific commitment to hold free elections to parliament after the transition? What will the U.N. do if it refuses? Viewer comments
Online NewsHour Links
December 17, 1996: As the Chinese defense minister tours the U.S., the NewsHour looks at human rights abuses in China.
November 21, 1996: A NewsHour report on the Asia Pacific Economic Cooperation and Asia's economy, the fastest growing, most dynamic region in the world. .
The NewsHour Asia Index.
Jonathan C. Scott of Pittsburgh, PA, asks:
My question concerns the economic reports that come from Hong Kong now. Since Hong Kong is technically an entity within the British system, finding accurate economic data regarding Hong Kong is rather difficult. My question is whether the reporting of these matters will be hindered even more when the transition occurs. Also, China ships a lot of products through Hong Kong to the United States. These products do not show up the current accounts deficit the U.S. has with China. When the transition happens, do you expect there to be a large increase in the current account deficit numbers that the U.S. has with China? If so, in what range do you expect these numbers to be?
Dr. DeGolyer reponds:
Already Hong Kong has had some rather notorious cases of fiscal impropriety, the latest being only a few months ago when a Jardine's investment manager was caught manipulating stock purchases and sales. Despite vehement denials by Hong Kong authorities (some made personally to me), suspicions remain that some of the princelings (see above) and other business firms with very strong connections to the government or People's Liberation Army in China are simply not as subject to either anti-corruption or reportage measures as other Hong Kong firms. It's important to remember that many government departments, including universities and even the army in China are expected to raise much of their own running costs. So the army is one of the major businesses and traders in China, a real problem when it comes to piracy control since the military is untouchable by ordinary anti-corruption or government regulartory measures. The military is not supposed to conduct such businesses in Hong Kong, but already that was fudged with the Cathay Pacific/Dragonaire deal in which Dragonaire was acquired by a reputedly PLA affiliated organization after pressure on Swire's and CITIC.
Of course, Hong Kong has never been as clean and clear as American exchanges; the frontier ethos is very much alive in Hong Kong, though it is a very long sight cleaner than China, at least for the present. But fears are growing that that will not remain the case. (See above on corruption.) We cannot know for sure how matters will be until we see who is appointed as Attorney General, as Head of the Independent Commission Against Corruption, as Chief Justice of the Court of Final Appeal, as Hong Kong Monetary Authority head and as heads in other crucial economic posts, including that of securities regulation.
Of even more crucial significance will be who will be appointed to replace Lu Ping as head ofthe Hong Kong and Macau Affairs Office, since that is the central government organization which has been charged by the central government to keep the many greedy hands on the mainland from coming in and plucking the goose completely featherless (thus killing the golden goose). If that person is sufficiently senior and plugged in to do his job, and he does that job without stepping all over the Hong Kong Government (in other words, they work together honestly and to the same ends), then the present situation, though unsatisfactory to some extent, will not deteriorate. But there are currently some businessmen (no women) who are under investigation for sharp dealing who confidently expect that their "persecution" will cease as soon as the SAR takes over.
There are many possibilities for wrong steps here and overseas investors had better be particularly wary or particularly able to accept losses on Hong Kong/China investments. You owe it to yourself to subscribe to one of the business information services which has a special publication on Hong Kong and China.
As far as trade figures are concerned, Hong Kong will remain technically separate and a member of the WTO while China is not. U.S. officials have said that as long as Hong Kong functions effectively like it does now, as a separate entity, it will not be treated as a province of China. I don't know how this will affect, if at all, trade accounts. Hong Kong currently varies between a small surplus and a small deficit with the U.S. I suspect that matters will remain as at present unless and until there arises some political or economic reason, and more likely a conjunction of both, to use a change in status or accounting as a means of pressure on China to enforce or make an agreement more favorable to the U.S. in some area, including piracy enforcement, an area in which Hong Kong investors have played more than a little role in helping groups in China circumvent the rules. When China joins the WTO, then there may be some adjustment of accounting rules.
For entirely separate reasons I expect the trade deficit with China to widen considerably in years ahead and for conflicts between China and all its trade partners to rise considerably. China seems to have adopted the model of modernization by aggressive trade and market skewing practices pioneered by Japan, South Korea and Taiwan. However, these countries are mere pips on the chart in terms of population and potential as trade rivals compared to China. If China proportionately achieves a trade deficit with the U.S. as that in Japan in terms of its overall economy, then in 20 years we will see an absolutely enormous deficit as China passes Japan significantly in GNP. Already China is just behind and sometimes ahead of Japan in its deficits with the U.S., so proportionately it is already "worse" than Japan. On the other hand, as a continental power with an enormous internal market, it does not need to pursue such aggressive policies beyond the point of developing its own productive capabilities to a competititive level. But as we have seen with Japan, changing practices which even turn out to be damaging to the country is very difficult once left in place for any considerable length of time. There will be trouble on this point ahead.