The colony's dynamic business arena could be compromised when China regains control in June 1997
HONG KONG — LIKE an eager salesman, Patrick Leung ticks off some of Hong Kong's pluses: ideal geography, solid infrastructure, and a deep reserve of skilled manpower and management.
''All the factors that worked for Hong Kong in the past are still there,'' enthuses Mr. Leung, who runs investment and fertilizer businesses here in his native city.
''The change in sovereignty will not make too much difference to Hong Kong,'' he says. ''China is very pragmatic. It wants Hong Kong to succeed.''
Or does it? With less than two years remaining before this British-ruled cluster of islands and mountains comes under Chinese Communist control, the question dominates, divides, and disquiets Hong Kong's 6.5 million people.
Come midnight on June 30, 1997, the red Chinese flag with five yellow stars will fly where the Union Jack has fluttered for 99 years of British colonial rule. What happens thereafter is anyone's guess.
Under its 1984 agreement with Britain to resume control over the colony, China has pledged to safeguard Hong Kong's prosperity and autonomy and govern the dynamic entrepot and financial center on its southern coast as ''one country, two systems.''
''What will China's attitude be in 1997?'' asks a Western diplomat in Hong Kong. ''Hong Kong is valuable to China for one reason: It isn't China.''
Yet, despite Hong Kong's enormous economic importance to China, the transition toward Chinese rule has been disturbingly mixed. Some crucial agreements have been hammered out. But the rockier moments have worried both the business community and Hong Kong's middle class.
Beijing has bickered with London over infrastructure projects and political reforms pushed by the last British governor, Chris Patten. Rampant corruption and lawlessness in China threaten to muddle Hong Kong's Western legal system and free-wheeling capitalism and drive foreign firms to other havens, such as Singapore. And mainland political repression clouds fledgling democracy and open debate. The Chinese vow to disband a recently elected Hong Kong legislature, due to serve until 1999.
The uncertainty threatens to undermine the colony's business arena. Although business leaders maintain the future is bright, they admit conditions may slip. Already the territory is facing more competition internationally from centers like Singapore and from within China, particularly from Shanghai.
Consider the contrast between now and the heady days of 1992 and 1993. Then, firms were rushing into the mainland pell-mell. Today, a host of factors have cooled investor fervor: sensational business disputes, government anti-inflation efforts that cut capital investment, crime and extortion against businessmen, and political uncertainty surrounding who will succeed China's paramount leader Deng Xiaoping.
Hong Kong's economy plunged into a tailspin as manufacturers moved production to the mainland, high costs forced service industries to tighten their belts and retail spending plummeted after stock and property prices collapsed last year. The economy is running at its lowest growth rate in four years, and unemployment among workers who enjoy no jobless benefits is at an 11-year high.
In October, a group of 20 Hong Kong tycoons, many with close ties to senior Chinese leaders, launched the Better Hong Kong Foundation to promote the territory's image. Still, many of the colony's big magnates are believed to have only about 5 percent of their assets invested in China, business observers say.
''People are very concerned about crony capitalism and the prospect of corruption,'' says John Frankenstein, a business professor at the University of Hong Kong who does political-risk analysis for foreign companies. ''They are hoping against hope that things will not change too much.''
Some business leaders, including Mary Wong, assistant executive director of the Hong Kong Trade Development Council, are getting vocal with their concerns.
''We just don't want to let things die. Whatever we think is best for Hong Kong, we should voice it,'' the trade executive says. ''Hong Kong will not be pulled down. But we should help China correspond to international standards. It's a challenge. It's not something that will necessarily be smooth.''
All the worries, economic and political, that Hong Kong residents harbor are tempered by one overarching fact: China sees the city as a sparkplug for its own economic growth.
Beijing will be compelled by its own financial woes to maintain Hong Kong's status quo, analysts argue. China faces mounting debt from decrepit state-owned factories. So protecting investment and trade flows from Hong Kong is a top priority for the government.
Hong Kong, with more than $52 billion in reserves (almost all in foreign currency) has become an investment cornerstone of the fast-growing provinces of southeastern China.
And the colony is a vital cog in China's export machine. The world's fifth-largest trader, Hong Kong handles more than half of China's exports and provides more than 60 percent of the mainland's foreign investment. Two-thirds of the more than 200,000 foreign-funded companies in China are from Hong Kong.
''The [Chinese] government has gone broke and is going broker. Public finances are a mess,'' says a Western analyst who asked not to be named. ''Those in power in the future will have almost no option over what to do. China has to maintain foreign exchange.''
The intertwining of the Hong Kong and mainland economies is symbolized by the towering Bank of China building, which dominates Hong Kong's central business-district skyline.
Chinese companies account for $26 billion in investment in the colony. Officially, these state-owned and private firms from China total 2,000, though some analysts say the actual number is more than twice that. Many of them are involved in property dealings and are affiliated with the People's Liberation Army, the Chinese military.
The arrival of companies from China promises to make Hong Kong an international intermediary for the mainland. ''The state-owned companies and entrepreneurs want to use Hong Kong the same way as every other national group has in the past: as a free-wheeling port with low tax rates,'' says Ian Perkin, chief economist at the Hong Kong General Chamber of Commerce.
Meanwhile, the city hopes to retain its array of non-Chinese foreign companies - one of the largest any city in the world can boast of. Much will depend on how firms view prospects on the mainland, analysts say.
As of June, the colony had 415,000 expatriates or 6 percent of the population compared with 150,000 or 2.8 percent of the population in 1983, according to chamber figures. About 80 new regional headquarters and offices arrive yearly, Mr. Perkin says. As a result, Hong Kong's expatriate population is at an all-time high. The growth is being offset somewhat as foreign expatriates give way to Chinese counterparts because of rising costs and the need for Chinese-speaking executives.
Signs of the growing Chinese presence are everywhere and point to a relatively smooth turnover, many businessmen and pro-China analysts insist.
Moreover, China and Britain are patching up old feuds. In a controversial pact last June, the two sides struck a deal on the nature of a Hong Kong supreme court to take over in 1997.
In October, Britain and China pledged to step up efforts to break a deadlock over a new shipping container-port facility. A new $20 billion airport, one of the world's largest infrastructure projects, and once a sore point between London and Beijing, is on its way to being completed by mid-1998.
Touchy over its colonial past, China has viewed its recent battles with the British administration of Hong Kong as a reenactment of the 19th century Opium Wars, analysts say. Once the British are gone, Hong Kong's relations with Beijing will be on more even footing, they predict.
''China's deep-seated anxiety was rooted in fears over British intentions during the transition. They thought the British would screw the place up and take all the money,'' says Richard Margolis, a former British government adviser and now managing director of the Hong Kong office of Smith New Court, an investment house.
''China dealing directly with Hong Kong has shown a different sort of attitude,'' he says. ''The problem-solving capability will actually rise when Britain leaves.''
Perkin predicts Hong Kong's business image will suffer some erosion but stay viable. The territory, he says, will remain attractive because of its setting, infrastructure, low taxation, stable currency, and financial and professional services.
On the downside he sees: rising costs, a declining lifestyle, reduced international profile, tighter regulations, weak rule of law, corruption, problems with skilled labor, and likely restrictions on the free flow of financial information. Political openness will suffer, but stability will prevail because of public apathy, Perkin maintains.
''Hong Kong's future will be as a Chinese financial city,'' he says. ''So Shanghai will be the main competition. But as China keeps opening up, the market will be so big there will be room enough for both.''
Perkin predicts Hong Kong will be an international market in commodities and financial instruments, while Shanghai will be the Chinese-currency-based equity market. ''It will be a bit like Chicago and New York: Shanghai will be more Chicago, Hong Kong will be more New York,'' he says.
Hong Kong needs to diversify the scope of its activity. It has invested and traded largely in China's booming eastern coastal provinces. Now the city is scrambling to defend and broaden trade ties internationally and in the Chinese hinterland.
''It's a matter of survival. In [Chinese] coastal cities, there is more competition and labor costs are more expensive. So, if we want to stay competitive, we have to spread it around,'' says Ms. Wong of the Hong Kong Trade Development Council.
The cautious optimism among many business leaders doesn't mean Beijing has succeeded in winning over all the colony's people. Hong Kong could face the potential loss of skilled professionals if Chinese rule is too harsh.
Polls by Michael DeGolyer, head of the Hong Kong Transition Project at Hong Kong Baptist University, show a split populace with more than half desiring independence or continued British control and 42 percent favoring Chinese rule.
Up to 1 million Hong Kong Chinese, either holding the right of abode overseas or in the process of applying for the status, could decide to leave, the surveys show. London has rejected a proposal from Patten, the Hong Kong governor, to grant British passports to 3.3 million more colony residents.
Beijing has hardly inspired confidence among Hong Kong's uneasy middle class. China has rejected calls for human rights protections for the territory. The Chinese government is also embroiled in new disputes with Britain over retaining Hong Kong's Bill of Rights after 1997 and establishing a so-called shadow Chinese government before the turnover.
''Beijing is very worried that Hong Kong will become a hotbed of dissent,'' says one human rights activist. ''To counter that, they will let Shanghai develop more quickly.''
As for Hong Kong, Martin Lee, one of the colony's most outspoken democrats, says: ''If Beijing has the choice between business and sovereignty, they will always choose sovereignty.''