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Why Hong Kong is in crisis
By Henry C K Liu

While the government of the Hong Kong Special Administrative Region has proved helpless in saving the SAR from a downward spiral of economic stagnation since its establishment on July 1, 1997, it has been unwittingly successful in uniting critical public opposition to its governance. The massive demonstration this past Tuesday, July 1, of an estimated half-million people from all walks of life clearly illustrates the serious disconnect between the government and the governed.

Popular discontent in Hong Kong appears not to be directed toward the central government in Beijing, which has meticulously kept its promise of non-interference in the autonomy of the SAR. Both the general public and the local press enthusiastically received Chinese Premier Wen Jaibao on his three-day visit to Hong Kong that ended on Tuesday, his afternoon departure being followed by the massive demonstration. The warm reception the people of Hong Kong gave the new "citizen premier" testifies to the SAR's increasing awareness that the solution to its economic difficulties lies in close integration with the motherland.

The demonstration was billed as a protest against the proposed security law for Hong Kong, in accordance with Article 23 of the Basic Law (the SAR's mini-constitution). The new law makes illegal "any act of treason, secession, sedition, subversion against the Central People's Government, or theft of state secrets, to prohibit political organizations or bodies of the Region from establishing ties with foreign political organizations or bodies".

The New York Times in a front-page report on the demonstration acknowledged on Wednesday: "Parts of the pending security legislation are less draconian than British colonial regulations still on the books for offenses like sedition."

Local polls on popular concerns repeatedly show democracy and civil liberty trailing by wide margins major livelihood issues, such as rising unemployment, small-business bankruptcies, home-mortgage foreclosures, home ownership with negative equity, education reform, crime, and public health.

The peaceful march was organized by the Civil Human Rights Front (CHRF), a group of non-governmental organizations (NGOs) opposed to the SAR government's decision to enact laws under Article 23. The make-up of CHRF is diverse, ranging from a feminist group that calls itself Queer Sisters; an NGO called Zi Teng that promotes the interest and basic rights of female and male "sex workers"; and the 590-member polity that calls itself the Democratic Party, to foreign-directed groups such as the Justice and Peace Commission of the Hong Kong Catholic diocese; Amnesty International Hong Kong Section; and Human Rights in China Hong Kong Office.

Since no law-abiding resident in Hong Kong would be directly affected by the pending security law, the issue was in essence a lightning rod for what the Wall Street Journal described in a Wednesday report as "much broader dissatisfaction with the administration of Hong Kong Chief Executive Tung Chee-hwa".

Much of Hong Kong's malaise is economic, resulting from an abrupt change in the territory's geopolitical status in 1997 under Chinese sovereignty that the Tung administration, operating under the "one country, two systems" policy, has been slow to recognize. The new SAR government was born with genetic dysfunctionality, hampered by inexperience in political leadership, ideological fixation on neo-liberal market fundamentalism in direct contradiction with paternalistic Chinese culture, and a civil service that values tradition more than innovation. The currency peg condemns Hong Kong's bubble economy to continuous deflation and contraction. Since July 2, 1997, Hong Kong has been hit with crisis after crisis, starting with the Asian financial crisis, and the subsequent speculative attacks on the overvalued Hong Kong dollar through manipulation of the Hong Kong equity and futures markets by hedge funds. Then came the bird-flu epidemic, the new airport opening pains, and most recently the SARS (severe acute respiratory syndrome) epidemic, all along with a declining economy that has practically no social safety net.

The Tung administration followed the British colonial tradition of being a government of business, subscribing to a mean and lean trickling-down doctrine of economic development. The general perception is that big business has continued to co-opt government policymaking for the benefit of big business while the government proclaims itself as a neo-liberal institution.

Over a period of six years, the public increasingly looks to strong political leadership and decisive government action to alleviate economic hardship while the government sings the praises of market fundamentalism and small government. While both corporate and personal incomes fall drastically, the government boasts of its low and simple tax regime.

While presenting itself as a guardian of free markets, the government openly supports the property market to help the overextended big developers, using the negative equity of the middle class as an excuse. When property value is high, price competitiveness falls. In a free market, the best way to revive a declining economy is to allow prices to fall. Propping up land cost to help big developers in distress is to bleed the economy to help a few privileged citizens.

Unemployment continues to rise, yet the government's position is that unemployment is inevitable while the Hong Kong economy restructures and, worse still, that restructuring will be a long process. Unemployment is doubly devastating in Hong Kong because there is no unemployment insurance or other social safety net. Hong Kong companies can lay off workers as easily as closing a window.

While Hong Kong's future lies clearly with close integration with the motherland, the Tung administration look to the West for guidance with an international advisory panel whose members know less about Hong Kong than the average local tour guide. It took six years before a Closer Economic Partnership Arrangement (CEPA) was reached with the mainland.

The list goes on. Under such conditions, is there any wonder why public dissatisfaction with the government is widespread?

There is a tendency to substitute problem-solving economic measures with public relations fluff, such as "Brand Hong Kong" and "Invest Hong Kong", as if an economy can be marketed like toothpaste. Billions are wasted to bring a Disneyland to Hong Kong on false hopes while it is well documented by now that the opening of a Disneyland theme park contributes little economically to the host community. Hong Kong cannot expect to depend on foreign investment and foreign-company regional headquarters to make it competitive. Hong Kong must first become competitive in order to attract them. Investment managers and corporate executive are a hard-nosed breed not easily persuaded by fancy brochures and official sales delegations. They look at cost fundamentals such as rent levels, wages, market potential and above all political and social stability. US transnationals are not particularly concerned with civil liberty beyond basic decency. They look to a host government to deliver security and social order with minimum disruption to business.

Hong Kong is in crisis not because its law-binding residents are about to lose any civil liberty, but because outside forces are trying to deny basic Chinese sovereignty over Hong Kong. These forces want to continue to use Hong Kong as an anti-China base in the name of freedom and to exploit dissatisfaction with the ineffective governance of the Tung administration toward that devious purpose.

What Tung needs to do is to begin to act like a populist leader, adopting measures that will take care of the people of Hong Kong by providing full employment, affordable health care, decent housing, quality education, humane retirement and a clean environment. Tung needs to project himself as a firm, confident and benevolent political leader in the context of Chinese paternalistic political culture and stop acting like a permissive and vacillating father figure who looks to foreigners for useless advice and dubious guidance. He must face local conditions truthfully to devise original local solutions courageously.

It's time for Hong Kong to drop its fantasy of British colonialism as a path of salvation. For most people in Hong Kong, the crisis is loss of employment, not loss of civil liberty.

Henry C K Liu is chairman of the New York-based Liu Investment Group.

(Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)
Jul 4, 2003

An ATol series by Henry C K Liu (May, '03)
- PART 1: From colonialism to confusion
- PART 2: Missing the boat to renewal

US on Hong Kong: Calling the kettle black (Jan 3, '03)

Sedition law protest rocks Hong Kong (Dec 17, '02)
Click here to be one)

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