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Hong Kong's China-view: dusk or dawn?

By Staff writer of The Christian Science Monitor / June 16, 1986

Hong Kong

Cradling a bone-china teacup, banker David K. P. Li talks assuredly about the future of this island of anything-goes capitalism. ``Because China is developing, Hong Kong will be for Asia the entry into China,'' predicts the director and chief manager of the Bank of East Asia. ``There is no other major financial center on the [Asian] continent.''

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Mr. Li is also vice-chairman of the 59-member Drafting Committee of the Basic Law determining Hong Kong's future. He says, ``I can tell you that China is very sincere in its commitment to Hong Kong and to accommodate Hong Kong people. . . . China needs so much capital. It needs Hong Kong.''

It is, of course, in the interest of a banker (and, most probably, a man who will be a leader of the future Chinese city of Hong Kong) to spread the news of Peking's accommodativeness. For, at the moment, most observers here agree, it would take only one word -- spoken carelessly, negatively, and by a high-level official in Peking -- to shatter confidence.

That is what bankers and businessmen say about the financial atmosphere in this colorful jewel of a city as it enters the twilight of 150 years of British rule. They are cautiously optimistic, however, that Peking is now showing abundant good faith and backing up that faith with financial commitments in Hong Kong. The 1997 factor overshadows all

``Things are very calm now, although there are still uncertainties with the PRC [the People's Republic of China],'' says Peter Wrangham, general manager of the gigantic Hong Kong & Shanghai Bank -- the private bank that actually issues most of the currency for this curious economic entity.

Almost all banking, investing, construction, and commerce in Hong Kong is defined by one word: 1997.

That is the year that China replaces Britain as ruler of this haven of laissez faire capitalism.

Chinese leaders have said repeatedly that they will honor their agreement to leave Hong Kong's economy untouched for 50 years beyond '97. But, skeptics wonder, isn't it in the nature of even nominally communist central planners to want to ``direct'' the economy?

It is not clear that there is enough confidence in the future for developers to invest today in, say, a new high-rise office complex, knowing that the leases will go past 1997 and it may take that long or longer for a decent payback.

Putting to rest such questions is what was behind British Prime Minister Margaret Thatcher's expeditious negotiations and agreement with China in 1984 on the future of Hong Kong. For at that time the Hong Kong property market was collapsing, confidence was eroding, the Hong Kong dollar was deteriorating, and inflation was soaring -- all because of mounting uncertainties over 1997.

After the Sino-British agreement, and after the Hong Kong dollar was pegged to the United States dollar, confidence began to return.

What has kept the investment and business climate relatively stable since then, bankers and businessmen here say, has been Peking's confidence-building measures, along with Peking's apparent realization that casual statements about Hong Kong are not helpful.

The continuing need for good-faith gestures is one big reason for all the ceremony attached to Chinese Communist Party chief Hu Yaobang's visit to Britain last week. It is a way of showing that the two powers that signed the accords on Hong Kong's future are improving their relations and thus ensuring a smooth transition. Why China and Hong Kong need each other

``China represents opportunity,'' says Verne McKay, general manager for Asia-Pacific of the Royal Bank of Canada. ``But those who think Hong Kong will continue as it is are betting one way. Those who do not are betting the other way. Whoever calls it right is going to win a lot of money.''

Mr. McKay's own prediction is that ``by 2007, Hong Kong will be the economic center of China.''

Mr. Wrangham of the Hong Kong & Shanghai Bank says that ``people feel they have to have a reasonable presence here to reach the China market.''

With his close ties to Peking, Mr. Li of the Bank of East Asia sees the situation this way: China needs investment capital, which flows into Hong Kong mostly from the overseas Chinese communities in Indonesia, Singapore, Thailand, and Malaysia.