International Herald Tribune
Bowring: Two threats to Hong Kong
Wednesday, July 16, 2008

HONG KONG: This city is between a rock and a hard place. Its separate identity and unique commercial advantages are in danger of being slowly squeezed between the ambitions of neighboring Shenzhen and Taiwan.

These twin threats are less obvious than the more talked about ones - losing business in China to a rampant Shanghai and business overseas to clean, English-speaking Singapore. But they are more serious because they could strike at the most basic qualities of this former colony, now a Special Administrative Region of China: its geography, unique freedoms and administrative characteristics.

This does not necessarily spell doom, but meeting the threats will require less compromised leadership than that which is provided by Hong Kong's chief executive, the lifelong civil servant and former British favorite Donald Tsang, who often appears to be focused on proving his patriotism by emphasizing ever-closer ties with the mainland. As a recent visit by the Chinese vice president, Xi Jinping, demonstrated, Tsang appears like a scolded schoolboy in front of Beijing leaders. He is not helped by a business elite that has limited international involvement, closely guards its entrenched interests in local real estate and construction, and looks to curry favor on the mainland.

Meanwhile, Shenzhen is showing a knack of exploiting the "integration" rhetoric, pressing for projects for its own benefit and holding back on those that benefit Hong Kong. Shenzhen's leaders may have to listen to Beijing, or the government of Guangdong Province, but they do not have to prove their patriotism or loyalty to the Communist Party. Nor do they have many constraints when it comes to subsidizing local development through cheap loans and infrastructure.

Not content with exceeding Hong Kong in terms of population, and about to overtake it as a container port, Shenzhen has set its sights on becoming an "international city." This is supposed to be achieved by strengthening so-called "cooperation" with Hong Kong in the very areas where Hong Kong now excels, finance and logistics. Given the political dynamics, Shenzhen would be more likely to absorb Hong Kong than vice versa.

Shenzhen's ambitions meld with the grand visions of Tsang, who thinks Hong Kong should be a much bigger city than it is. He wants the population to reach at least 10 million, compared to 7 million today, even though natural population growth is near zero. That goal can only be met with massive influxes from the mainland or some sort of merger with Shenzhen into one great metropolis.

The government has become so focused on Hong Kong as the gateway to southern China that its regional and international role has been neglected. Now it is trying to kick-start ideas like making Hong Kong an Islamic finance center, a hub for the wine trade, and subsidizing a cruise ship terminal. But what international business really needs from Hong Kong is less official intervention, cleaner air and more willingness to push Beijing on such issues as China visas. A spineless administration has been mum in the face of China's recent refusal to issue multi-entry visas, a huge problem for foreign businessmen in Hong Kong with clients factories and suppliers in China.

On the Taiwan question, Hong Kong is a bystander. The current improvement in cross-strait relations may well stall. However, if full direct air and shipping links are established, and tourism, banking and investment-flows become as easy as those between Hong Kong and the mainland, Taiwan will have many new opportunities.

The ending of goods and financial transit transactions will not hurt Hong Kong greatly. But if Taiwan - with its strong currency, large financial institutions, excellent port facilities, diversified corporate scene, active stock market and wide range of industrial (especially IT) expertise - liberalizes its services sector and work permits for foreigners, it could become attractive as a "Greater China" headquarters. It is closer to Shanghai, has much cleaner air, good health care, a lively Chinese cultural scene, free media - and democracy. Taiwan lacks English language capability, an internationally respected legal system and trading history, but if more of its factories migrate to the mainland, it will be forced to focus more on services now provided by Hong Kong. Taiwan has the potential to be genuinely autonomous without being a thorn in Beijing's side.

None of this may happen. But just as Macau with its casinos now leads Hong Kong in attracting mainland visitors, so Taiwan's potential attractions and Shenzhen's competitive ambitions should persuade Tsang to stop chanting patriotic slogans and confront the real challenges facing Hong Kong's status as a unique and international location.