6/11/97

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Scholars express cautious optimism about Hong Kong transition

It's been billed as the biggest fireworks show Asia has ever seen. Hotel rooms have been sold out for years, and worldwide television coverage is expected.

When the Union Jack is lowered in Hong Kong on July 1 and replaced by two Chinese flags, "one of the great cities of the modern world will be ruled for the first time by Chinese, so let's not lose sight of the historical moment," says Michel Oksenberg of Stanford's Asia/Pacific Research Center. "When the Portuguese flag is also lowered over Macao in 1999," the political scientist notes, "no Western flag will fly supreme east of the Suez Canal for the first time in 400 years."

Cautious optimism is the prevailing mood among campus scholars knowledgeable about some of the conditions surrounding the transition of Hong Kong from a colony of Britain to a special district of the People's Republic of China.

"With all the changes we have seen in China over the last 20 years, I have much more hope and optimism for it than Russia," says Ramon Myers, an economist who is curator of the East Asia collection at the Hoover Institution. "You have this huge diaspora of Chinese overseas, which works on behalf of the country. They go back and invest there. It's a great force."

"Hong Kong's basic legal structure and civil services are going to stay intact," says Hoover Senior Fellow Tom Metzger, a historian of China. "It's not going to be kosher capitalism. There is going to be a little pork mixed in, but the Chinese like pork."

Under the "one-country, two systems" plan, laid out by the late Deng Xiaoping, Hong Kong has become a critical component of China's modernization drive. It will have its own flag, which will fly alongside the Chinese flag, and it will retain its own currency, the Hong Kong dollar.

The "basic law," or mini-constitution that the Chinese government enacted for Hong Kong, calls for the chief executive of the territory to have resided in Hong Kong for at least 20 years. Tung Chee-hwa, a shipping magnate who is the first chief executive chosen by Beijing leaders, is a good choice because of his deep knowledge of both the East and the West, Metzger says.

Tung, who is a former member of the Hoover Institution's Board of Overseers, already has caused some human rights advocates to wince, however, by announcing that public demonstrations will be restricted. He also has warned political parties that they could be accused of treason if they maintain links with organizations outside of China. He cited an article on treason in the basic law that was added in 1990 after the honeymoon phase of negotiations on Hong Kong's fate broke down when the Beijing government used deadly force to end the Tiananmen Square pro-democracy demonstrations, said Yves Tiberghien, a graduate student in political science who is researching the history of negotiations between Britain, Beijing and representatives of the Hong Kong people. Last week, about 55,000 of Hong Kong's 6 million residents attended what may be the last candlelight vigil there to mark the eighth anniversary of the Tiananmen killings.

Oksenberg, Myers and Metzger are among those Stanford and Hoover scholars of China who believe it is in China's strong self-interest to maintain Hong Kong as one of the world's most important free market economic centers. Their optimism is guarded, however, because unanticipated events, political competition, ambiguities and uncertainties can sometimes prevent leaders from behaving in their country's best interest.

"Beijing is not the authoritarian system that it once was," said Lyman VanSlyke, professor emeritus of Chinese history. "There are more players in the game and it's harder to control from a single center than a decade ago."

"Can China 'tie its hands' so that it in fact leaves Hong Kong alone? This is not obvious," says economist and Hoover Senior Fellow Barry Weingast. He and Yingyi Qian, assistant professor of economics, wrote a paper about how China successfully devised a form of federalism to tie the hands of central party leadership in order to spur economic growth in the provinces. Yet historically, Weingast said, "this has been one of the hardest problems for governments." Now that Chinese provinces are stronger politically and economically, they may turn out to be Hong Kong's strongest enemies in internal Chinese politics, he and others say.

"It's very important to see how much power and authority will be conferred on the Hong Kong administrator," VanSlyke said. "If he has a direct link to Beijing and outranks the provincial governors and other key people in the hierarchy, he doesn't have to jostle with them. . . . The provincial governors see Hong Kong as providing opportunities for their provinces and perhaps for themselves personally."

Adds Oksenberg: "The mainland presence has grown tremendously in Hong Kong. You have the foreign ministry, the New China News Agency, the underground Hong Kong subdivision of the Communist Party, the Bank of China, the People's Liberation Army. Among the many questions is whether the special administrative regional government will carve out a sufficient area of autonomy as promised in the one-country, two-systems formula."

Hoover scholars Alvin Rabushka and Bruce Bueno de Mesquita are not optimistic. In their 1996 book with David Newman, Red Flag Over Hong Kong, they write that "future treatment of Hong Kong will be caught up in the political competition for control of China. Victims of that competition will include the free press, academic freedom, open and fair elections and some portion of market freedom." They base their arguments on a computer model that also has been used by the CIA to analyze how various political actors will respond to issues and to each other's reactions.

Economic freedoms

Hong Kong represents 20 percent of the gross national product of China, says Stanford economist Lawrence Lau, whose positive economic forecasts for China have received much attention there and elsewhere. Lau also thinks that the political transition itself is not a major factor in the economy.

"I don't think it makes too much difference because Hong Kong people already invest heavily in South China. One estimate of the number of people working for Hong Kong firms in China is about 8 million, which is more than the number of people in Hong Kong itself," Lau said.

Investors in the Hong Kong stock market have shown their confidence in the future of Hong Kong's commercial law, said finance Professor John McDonald of the Graduate School of Business. "Stock prices are quite high, which indicates pretty good confidence, but nobody knows."

Hong Kong has the world's ninth largest stock market with roughly half of its value in 10 "world class" Hong Kong companies, McDonald said.

In their book, Rabushka and Bueno de Mesquita question whether the Chinese government will be able to maintain investor confidence. "The Chinese are widely speculated to have repeatedly manipulated the Hong Kong stock market and to have suspended trading on several of their [mainland] markets just because they did not like the situation at the moment," they wrote.

According to the authors, the Beijing government is likely to give favored treatment to mainland companies or those controlled by "princelings" ­ the children of China's political leaders. "The most fundamental difference between Hong Kong and China is that Hong Kong is governed by the rule of law, whereas China is subject to the rule of man," they wrote.

There are investors who agree with the Hoover scholars. The prices of so-called "red chips," or mainland government-controlled companies, have risen faster than the prices of Hong Kong-owned companies in recent months, according to the New York Times. Investors lined up in droves the last week in May for a chance to buy stock in a newly listed company owned by the Beijing city government.

"Stock and real estate prices have soared in part because the mainland has been helping keep those indicators of the economy high," Oksenberg said. "Let's say there are qualities of the Hong Kong economy that are bubble-like."

Myers believes that the biggest challenge for the Hong Kong and Chinese economies has more to do with global competition than with their formal integration. "Chinese products, such as manufactured clothing, are in danger of losing market share because of competition from Latin America," he said. "All those Chinese products come through the service sector of Hong Kong, which is under pressure to speed up deliveries to the United States, and Hong Kong's container shipping costs are the highest in the world."

A dual currency should be no problem for China as long as leaders can manage the People's Republic currency, the renminbi, to keep its exchange rate stable, said economics Professor Ronald McKinnon, an international monetary expert. Hong Kong has no capital controls, which makes the Hong Kong dollar potentially attractive to mainland Chinese if the renminbi becomes as unstable as it was between 1978 and 1994, McKinnon said. The Hong Kong dollar already circulates widely in southern China. "You have to be really careful about the ebb and flow of capital into a developing economy. Look what happened to Mexico."

Freedom of expression, rule of law

Stanford and Hoover scholars are less sanguine about the prospects for retaining academic and press freedoms in Hong Kong. Rabushka and Bueno de Mesquita predict both will be relatively early casualties of internal Chinese political wrangling.

On the other hand, Lau predicts that Hong Kong business will operate under the same laws as now and law Professor William Simon says the judicial system may actually be an improvement for Hong Kong residents.

Said Lau: "The only people to be hurt would be British firms that relied on their commonwealth privileges. As people in the American Chamber of Commerce in Hong Kong would say, 'Well, great, now American firms can compete better.' "

The judicial system, Simon said, may prove to be "more accessible with more capacity for people to participate as jurors and for litigants to participate in trials they understand."

"There is a tendency to glamorize retrospectively the old system," said Simon, who co-authors articles for Chinese law journals on the American legal system and profession. "It was basically a colonial system dominated by a foreign power. Courts were conducted in a language which 98 percent of the people were not fluent in and it was not a democracy. It was a fairly benign colonial system, but still a colonial system. The judges were mostly white people from Britain. That's changing now and for the first time procedures are bilingual, so I think it is not naive to think one will see an opening up of the judicial system."

Opinions on campus differ also about how important press and academic freedom are to Hong Kong people and their economic well-being. Metzger predicts "some slippage" on political freedoms but contends that "the vast majority of Chinese in Hong Kong and elsewhere aren't interested even in the right to discuss politics publicly. . . . The only people who insist on democracy are a small group of intellectuals who are fixated and totally incoherent in their approach."

While the democrats won big in the last elections for the Hong Kong legislative council, he said, only 30 percent of the city's 6 million residents voted. "Hong Kong is going to thrive economically and socially, and the vast majority of people there are going to find the restrictions imposed by China acceptable," Metzger said.

Others emphasized that political activity increased in Hong Kong after the Tiananmen Square crackdown. About 20 percent of the population took to the streets to protest. "Hong Kong suddenly feared China and China became suspicious about Hong Kong," Tiberghien said.

"Under the British there was no democracy," VanSlyke said. "People just went ahead and lived their lives, trying to make money. Then Tiananmen Square awakened the population, who said, this may be in store for us. People in a certain strata, including students, did become more politically awakened. Then the British began their last-minute democracy and the Chinese said this wasn't part of the deal. It created a more volatile situation for the transition than was expected before that."

The destruction of Hong Kong's more democratic institutions wouldn't be a popular action even in mainland cities, said Steven Chaffee, Stanford professor of communication. Chaffee collaborated in the mid-1980s with researchers at Shanghai's Fudan University and Hawaii's East-West Center on a comparative study of values in China, Korea, Taiwan and the United States.

"There was already support [for Western values such as press freedoms] at the level of individual opinion more than a dozen years ago," Chaffee said. The support was greatest among younger, well educated urban people with above- average exposure to Western media.

"After Tiananmen Square the authorities [in China] put the screws on my colleagues at Fudan and prohibited any publication of our survey results for some years," he said. "Anyone working with an American scholar was in danger of losing his job, or worse, so we had to sit on the study, and when we did publish it, we left out all the measures of support for democracy in the Western sense." As a result, Chaffee said, he is not optimistic about Hong Kong professors retaining academic freedom.

U.S. politics

Outside scrutiny of China may actually lead to a crackdown on the press and scholars by making political and business interests more sensitive about the country's image in the rest of the world, say Rabushka and Bueno de Mesquita in their book. That scrutiny from the United States is unavoidable in VanSlyke's view because of partisan politics here.

Among those who will be watching for flaws in the "one country-two systems" policy are human rights advocates, including those who think China's rule over Tibet is unconscionable; labor advocates, who see heavy imports of low-cost products as costing American jobs; anti-communists; and religious opponents to China's abortion policies or its crackdown on unregistered evangelical groups.

On the other side are powerful business interests lobbying for opening China's markets to American products and many foreign policy experts in government and universities who argue that the best way to encourage China toward democracy is to have a foreign policy of engagement and cooperation rather than the Cold War policy of containment and confrontation with the Soviet Union.

Conservative journalist Robert Kagan, writing in the April 7 New Republic, lamented that "serious people" are repeating a prediction last fall by Stanford and Hoover's Henry Rowen that China will be a democracy by 2015. [See on the world wide web http://wwwleland.stanford.edu/dept/news/relaged/961115china.html.] Kagan contends that Rowen encourages Americans to "sit back and enjoy the show, and by all means make as much money as possible in the meantime, especially since making some Americans rich is part of the chain reaction that will make many millions of Chinese free."

Rowen is not alone ­ most U.S. academics tend to agree that engagement is the best policy, a consensus that contrasts with the polarized field of China studies during the Cold War.

"I was in the group that took the tough, sober view that China should be contained," said Hoover's Myers. "But there have been big changes in China's leadership and now many of us don't want to take them on and demonize them."

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By Kathleen O'Toole