Hong Kong - Towards the handover

Apr/May 1996

Earlier this year, the old scare story about the threat of a flood of Chinese immigration from Hong Kong into Britain re-appeared in the media. This time, what triggered the tabloid hysteria - which was duly relayed by the Tory right-wing - was the announcement made by Major during a visit to Hong Kong, that after the colony's handover to China on 1 July 1997, 2.2 million of its citizens would retain the right to enter Britain and stay for six months without a visa. Whatever prejudices the tabloids might choose to whip up, Major was obviously not offering a free ride on Britain's welfare state to Hong Kong's boat people!

This media nonsense is all the more ironical as Hong Kong citizens have every reason to protest - and many do - that they are being sold lock, stock and barrel by "democratic" Britain to the Chinese rulers in return for guarantees of continuing profits for shareholders in London's City. Indeed, after 155 years of British direct rule over Hong Kong, only a small elite of the colony's inhabitants will have the option of resettling in Britain. Most of them will be officials of the colonial civil service and there will be a small number of private businessmen, provided they comply with the cynical conditions laid out by Thatcher in the 80s, namely that they bring enough millions with them to buy their right to live in Britain...

In fact, even Major's latest announcement is not actually meant to be a concession to the Hong Kong population. Behind it is simply the fear that if the government blocked too many Hong Kong people from travelling to Britain, China might stop the much larger traffic of British people travelling to Hong Kong. And, obviously, any action restricting British access to China would be a big problem for British business...

The majority of Hong Kong's 6.4m inhabitants will be left, therefore, without anything in return for the profits they have produced over the decades for the British bourgeoisie. What is more, after the handover, Hong Kong will carry on sweating and making others sweat for British capital.

The "democratic" farce

Despite the recurring noises made by British ministers about the absence of democracy in China, it is significant that, since 1984, British negotiators have spent a lot more time bickering over who was going to win the construction contracts for the new Hong Kong Chep Lap Tok airport, and pay the £13bn bill, than over the democratic rights which will be recognised in Hong Kong after 1997.

But this does not only reflect the greed of the British bourgeoisie. It also reflects the reality in Hong Kong - the fact that under British rule the Hong Kong population always had very few rights anyway. Indeed, the only freedom that has ever really existed in Hong Kong under British rule is the freedom of capitalist exploitation.

The colony's government is still today more or less what it was in the 19th century. A governor appointed by London - currently former Tory Party chairman Chris Patten - retains virtually all powers, with an Executive Council which he selects himself. The legislative body, Legco, remains purely consultative. Up until 1985, its members were all appointed by the governor. Eventually it became "fully elected" in September 1995. But this only means that 20 of its members are elected by the 2.45m registered voters, 30 are elected by professional bodies representing about 100,000 people from the well-off middle-class and 10 are elected indirectly by municipal councils. There is an additional twist in this strange "democracy": civil rights campaigners in Hong Kong explain that the electoral register includes between 300,000 and 500,000 names of people who have emigrated and do not take part in the vote. In other words, at least half of the actual adult population of the colony is disenfranchised, including the whole working class. Some democracy!

Even the minimum changes of the past few years did not come by themselves. It took a long campaign by a host of pro-democracy groups for the colony's authorities to loosen the grip of the governor over Legco. Most of these groups merged eventually to form the Democratic Party, who won an overwhelming majority in the 1995 election. This party, however, represents mostly the less-established professionals and intellectuals whose situation after the handover of the colony remains rather uncertain at this stage - in other words it still represents a section of the privileged layers.

No wonder the only big issue in the negotiations with China concerning the future social organisation of Hong Kong has been that of the various business and professional associations which regulate, among other things, the acceptance of newcomers into the wealthy circles.

In this ultra-rich elitist society, not only have working people never had any civil rights, but they do not even get a share of the crumbs like the working class of the old Western countries. There is no unemployment benefit for the 110,000 unemployed and no statutory pension support for the elderly. The only form of welfare is made of miserly means-tested payments which are enough to pay the subsidised rent of a small flat in a public housing estate but not to buy food as well. The consequence of this is massive poverty at the bottom of the social heap so that, for instance, after a recent cold snap, 24 homeless people were found dead on the streets due to hypothermia.

Social dereliction is getting so bad that the Hong Kong-based Far Eastern Economic Review, a conservative business paper comparable to the British Economist, issued this warning in an article published in November 1995: ""People are very angry with the government. In certain groups there is a real danger of social unrest", contends Michael Degolyer, a politics professor at Hong Kong Baptist University. The rising tension is hard to quantify. Demonstrations are held daily outside government offices, and local protests are getting more fierce - as the governor learned on a late-September visit to a temporary-housing area. As some 1,000 residents protested against their flooded, rodent-infested living conditions, one threw a dead rat towards Patten." And commentators recall with some fear the 1981 Boxing Day riots when crowds of unemployed youth attacked cars and Europeans in central Hong Kong.

Behind the economic "miracle"

Milton Friedman, the American monetarist guru of Thatcherism in the eighties held up Hong Kong as the epitome of capitalist enterprise, saying that "if you want to see capitalism at work, go to Hong Kong". But there is nothing miraculous, or even special about Hong Kong's economy, except a story of fierce capitalist exploitation, not just of Hong Kong itself but of mainland China.

Indeed, Hong Kong's prosperity is based entirely on its very special relationship with China, consolidated over the past forty-five years. When Mao's nationalist regime took power in China in 1949, refugees - mostly from middle-class backgrounds - decamped to Hong Kong from Shanghai and the nearby Guangdong province, in most cases bringing all their valuables with them. When the USA got the United Nations to impose a full blockade on the new regime, more businessmen flooded into Hong Kong, so that by 1950 the colony's population had nearly tripled to 2.2m compared to its 1946 level. Backed by British enterprise, financed by British banks and protected by British colonial rule, the Hong Kong entrepreneurs set up export manufacturing businesses which effectively bypassed the UN blockade.

In the ensuing years, through the sixties and seventies, the continuous flow of refugees from China as well as the local peasant population provided cheap labour in Hong Kong itself. British capitalists shifted textile industries and other manufacturing operations from Britain to the region. In the regional division into spheres of influence, Hong Kong played for Britain the role that the Philippines, Taiwan and South Korea played for the USA and Japan. With this major difference, however, that Hong Kong provided British capital with a natural channel into the Chinese economy - the only one that existed at this stage and still the main one today - which the other imperialist bourgeoisies were soon forced to use, at a price, of course.

By 1978, when the Chinese regime responded to American overtures by initiating a shift back to the world market and an "open-door" policy, Hong Kong became the sole intermediary of the flow of exports from China. The lure of even cheaper labour (manual workers still only get £1/day in the nearby Guangdong province compared with £3/day in Hong Kong) resulted in the shift of almost the entire Hong Kong industrial base into China's neighbouring territories. Hong Kong became merely a gigantic storehouse for the commodity trade between China and the rest of the world. Today, the gross value of the re-export of manufactured goods from China constitutes 90% of Hong Kong's GDP.

Another consequence of the quasi-monopoly position of Hong Kong with regard to the Chinese market, was an enormous flow of funds towards the colony. Companies which wanted to invest in China or to tap its economy in any other way, but felt that China was still too unsafe, set up headquarters in Hong Kong where they could rely on the protection of British imperialism. This led to the present enormous inflation of the Hong Kong service sector, in particular in the sphere of finance. For instance, Beijing generates over a third of all its foreign exchange through Hong Kong while Hong Kong-based capital (but owned by companies across the world) has accounted for over 60% of inward investment into China over the past 16 years, mainly to the Special Economic zones, like Shenzhen just outside Hong Kong, set up by Beijing for this purpose!

The Milton Friedmans of this world argue that the fast growth of Hong Kong's GDP was the result of a "true" liberal economy in which businesses were not "tied up" by high taxation and mountains of regulation. Yet, the "low tax" reputation of Hong Kong deserves some qualification here. In fact since the Hong Kong government owned all the land, they have always been able to raise enormous sums at regular land auctions, which has compensated for the low tax bill. One wonders why the free-marketeers do not advocate the nationalisation of all the land in Britain, so that taxes can be drastically reduced... As to the low regulation environment, what it really means is a much extended version of what the bourgeoisie is trying to implement today in Britain, an environment in which there is virtually no limit to the exploitation of the working class!

But above all, without Hong Kong's unique situation as a frontier post for the world market's entry into the Chinese economy, without the resulting phenomenal but totally artificial flow of business and capital to the tiny colony, and without the possibility it has had to exploit not just the local working class but also a sizeable section of the Chinese working class, there would never have been any economic "miracle" in Hong Kong.

International capital gears up for the handover

To make the final and formal wedding of China and Hong Kong go as smoothly as possible, the pre-nuptial contract was drawn up well in advance to ensure that all the economic institutions of Hong Kong remain untouched. The Joint Declaration, agreed in 1984, provides Hong Kong with a separate status after 1997 - as a "special administrative region" - with its own mini-constitution which commits a new Chinese administration to the existing free enterprise, free trade and low tax environment.

Hong Kong will also retain, under Chinese rule, its so-called "minimum regulation environment", with its own Currency Board, as well as the Hong Kong dollar, which will stay pegged to the US dollar and will protect, or so it is hoped, companies operating through Hong Kong from the unreliability of the Chinese currency. Likewise, Hong Kong will retain its Stock Exchange, the second most important in the region after Tokyo, and its foreign exchange, which is the world's sixth largest in terms of turnover.

Over 180 banks exist in the Wan Chai business district, including the world's top one hundred institutions. Do they feel threatened by the move of China into Hong Kong? Are they moving out? Quite the contrary. The Hong Kong and Shangai Banking Corporation, which is controlled by British and American capital and owns the Midland Bank in Britain as well as Hong Kong Bank, the colony's largest bank, sees China's 1.2 billion strong population as a "plum" worth picking, as one of its top executives so delicately put it. HSBC was among the first four international banks given a licence to operate in Beijing. In fact, all the main banking players have been increasing their presence in Hong Kong over the past three years. And the fact that the colony's Stock Exchange has just introduced new rules and technology which will allow London-based shareholders to deal more directly on the Hong Kong Stock Market is hardly a sign of cold feet as handover day approaches!

If virtually all of Hong Kong's shipping companies are now registered in Liberia or Panama, it is only for the same reason as many British ones are - taxes. Likewise in the case of Jardine Matheson, the oldest British conglomerate in the colony. Almost 130 years after it was set up and started developing thanks to the opium trade, the group remains controlled by its original founders, the Keswick family, which is today among the top 100 richest in Britain. Jardine Matheson did move its headquarters to the Bermudas in 1993, but this was only because the Bermudan authorities, which are under total British control, were prepared to issue a special law designed to protect four of Jardine's companies from a hostile take-over threat which would have undermined the Keswick's control over the group. But Jardine is still and intends to remain, Hong Kong's largest private employer.

If anyone is afraid of the handover, it is certainly not big business. That they should be taking precautionary measures in order to protect their assets from possible temporary economic spasms around the time of the handover is only logical. On the whole, they have had enough time by now to gauge the Chinese regime's respect for capital - and they believe in it.

The Chinese privileged: a love story with Hong Kong

The role of the Chinese privileged in Hong Kong's economy has been growing steadily for many years now. Many Chinese companies are now listed on the Hong Kong stock market and raise foreign currency through its foreign exchange. By the end of 1994, they represented 7% of total capitalisation in the colony's stock exchange, while Chinese state-owned companies controlled over 1,000 Hong Kong companies.

A lot of these dealings, of course, have had to be done on the side because Chinese businessmen had no legal way of exporting profits and therefore of setting up companies abroad. They found a helping hand from among the top spheres of Hong Kong business. Everyone knows in China that it is done and how, and Beijing turns a blind eye. All the more so as state- owned companies have been first to show the way, thereby providing their managers in China with a mechanism through which they could use state assets (illegally) to establish perfectly legal private companies in Hong Kong, usually under the name of a relative. It is certainly not a coincidence if many of China's entrepreneurs operating in Hong Kong "happen" to be part of, or linked to the family of Deng Xiaoping.

Some of these Chinese operations have grown to a size comparable to the largest Hong Kong-based companies. For instance Citic (the China International Trust and Investment Corporation) was set up in 1979 to import technology and skills and build up investmments in China. It soon moved into Hong Kong and throughout the 1980's began acquiring stakes in various other industries, like Cathay Pacific and Hong Kong Telecom, the local subsidiary of Cable and Wireless. By 1991, Citic Pacific, the Hong Kong branch of Citic, was quoted on the Stock Exchange. Its current chairman "happens" to be Larry Yung, who is also the son of Ron Yiren, the vice president of China and founder of Citic. Chinese businessmen call it a "red chip" company. With 43% of its shares still held by the parent Chinese state company, it offers an obstacle-free way to invest in China for partners in Hong Kong and further afield, guaranteed by the chairman and his connections all the way to the top of the Chinese state apparatus.

There are other prosperous examples operating the other way round. For instance, the investment firm, New China Hong Kong group, was set up in 1993 by a local tycoon, T.T. Tsui, who has never concealed his ambitions to become Hong Kong's strong man after 1997. And it is obviously not a coincidence if among the 54 shareholders of New China Hong Kong, 13 are Chinese state-controlled companies, most of which are under direct control of Beijing's State Council. The Chinese army, the People's Liberation Army also has a shareholding in Tsui's company. Which such friends, no doubt Tsui can expect a political career in Hong Kong after the handover.

The post-1997 prospects

It is clear that the links created between the Chinese state and bourgeoisie on the one hand, and the local and international capitalists operating in Hong Kong on the other, are now so extensive that they may easily consider co-existing and merging further within the framework established by the British and Chinese governments.

Of course this partnership will not be equal in any way. Rich as they may be, the Chinese privileged and their companies still remain small players compared to the big imperialist multinationals. Thus the relative weakness of the China State Bank's subsidiary in Hong Kong, despite its new flash premises, was revealed recently, when it had to abort a multi-billion dollar fund-raising bond issue because its credit rating was too low. It had already over-lent on property assets which meant that it could be stuck with bad debts if property values plummeted.

Given the overwhelming concentration of financial, business and transport facilities in Hong Kong, the future "Special Administrative Region" is likely to retain its past role, and source of wealth, as the gateway of China to the world market, for the foreseeable future in any case. But this will be a relationship of dependency. Just as, so far, the boot has never been on the foot of the Chinese regime, but firmly fitted on to the tiny foot of Hong Kong - which is just as firmly attached to the ankle of imperialism. And while the Chinese bourgeoisie's profits will certainly benefit from the integration of Hong Kong into China, the main beneficiaries, in the final analysis, will be the imperialist sharks who have been converging on Hong Kong over the past decade in order to make sure that they are in a good position to seize the new opportunities opened up by the handover.

As to the Hong Kong working class, it certainly has reason to worry over the consequences of the handover. As Lee Cheuk Yan, a Hong Kong trade union leader puts it: "Things will be much worse then. The Chinese Communist Party can't wait to get into bed with the big capitalists." The beginnings may turn out to be difficult because of the heavy hand of the Beijing state which, undoubtedly, the Western multinationals operating locally will be only too willing to use in order to crush any resistance.

But on the other hand, for the first time since the Chinese proletarian revolution of the 1920s, the working class of Hong Kong will be in a position to unite its forces with those of the Chinese working class. By developing their cheap labour-based operations in China, the imperialist bourgeoisies are creating a new, young working class, which is swelling the ranks of the old, highly-concentrated working class in the state-owned industries. The working class of Hong Kong could bring to the hundreds of millions who make up the Chinese working class its own political and militant traditions. In the face of the growing profit drive led by the allied greed of Western imperialism and Chinese capitalists, this mixture could well prove explosive.