International Herald Tribune
One country or two systems?
Wednesday, October 17, 2007

HONG KONG: This territory's separate status under the "one country-two systems" concept is supposed to be good for 50 years from 1997. But recent events suggest that Hong Kong could, for all practical purposes, be re-absorbed long before 2047.

Last week's annual policy address by Hong Kong's recently re-appointed chief executive, Donald Tsang, suggested in numerous ways that his role - as defined by Beijing - was to give priority to the process of integration.

The speech, setting out goals for his five-year term, was full of phrases intended to make local people think less of the differences that provide Hong Kong with its raison d'ĂȘtre and be more patriotic - focusing on "one country," not "two systems."

Schools should "put more emphasis on national education so that [students] grow to love our motherland." Tsang would "encourage more schools to form flag-guard teams and to stage more national flag-raising ceremonies." Much effort would also go into Hong Kong's role in implementing the action agenda of the 11th National Five Year Plan and preparing for the 12th.

All this came from the mouth of a man who thrived under the British, accepted a knighthood from Queen Elizabeth, and once made much of his Catholic faith and allegiance to the pope. All this from the head of a government that is supposed to eschew central economic planning.

Tsang's integration efforts go beyond the rhetorical and pedagogic. He announced, in good Chinese Communist Party fashion, "Ten Major Infrastructure Projects," costing $30 billion. Some appeared motivated less by economics than by speedy integration with the mainland

Tsang, a lifelong bureaucrat, followed his policy address with an interview in which he claimed that the Cultural Revolution showed the dangers of democracy. He subsequently retracted this extraordinary remark, but it left behind an impression of his suspicions of local democratic aspirations and his eagerness to show off to Beijing his own undemocratic colors.

In reality, Beijing was embarrassed. The Communist Party does not like to be reminded of the Cultural Revolution, least of all on the eve of its party congress. But Tsang's sentiments were in tune with lingering mainland paranoia about supposed "foreign interference" in Hong Kong, a point that was raised by President Hu Jintao in his opening address to the congress.

Tsang's government has been keen to profit from the current mainland boom by trying to persuade Beijing to give it priority as China liberalizes capital markets, and to create a so-called "through train" between Hong Kong and mainland stock markets.

But seeking a special position undermines Hong Kong's international role, which has thrived on avoidance of preferences. It will also leave Hong Kong very vulnerable as the Shanghai market matures and becomes more open to foreigners.

So focused has it been on China that Hong Kong's government-controlled stock and futures market has failed to attract any foreign listings or develop any new futures contracts. In his address, Tsang made a pitch for developing an Islamic debt market. But Hong Kong is a decade behind other centers in this regard.

To develop its financial professional services, Hong Kong does not need massive investments in roads and bridges. It does need to clean up its environment to keep business fleeing its polluted air and to safeguard public health. But instead of imposing tight emission rules and targets and spending money on improving the quality of what is claimed to be Asia's World City, Tsang indulged in more highway building and tax cuts for the rich in a society with already alarming income imbalances.

So focused is the administration on quantity over quality that a think-tank close to Tsang recently suggested that Hong Kong should plan for a huge population increase.

Given that it has the lowest birth rate in the world and a rapidly aging population, that could only be achieved by opening the gates to mainland immigration. For sure, Hong Kong would benefit from an inflow of professionals and entrepreneurs from the mainland and elsewhere. But, unlike Singapore, few non-Chinese have been admitted under a scheme to attract talent.

Indeed the official bias against non-Chinese is such that only Chinese nationals are now allowed to join the Hong Kong Olympic squad, which appears to contravene the principal, as applied to other dependent territories with Olympic status, that residence - and not political nationality - determines eligibility.

None of these concerns may matter in the short term and during a boom. But does Hong Kong want to be an international city that happens to be part of China, or just another port city on the China coast?