Hong Kong in the Balance

Rebalancing is a term much in evidence these days.

The global trading system is going through changes wrought by emerging economic forces, including broad and deep innovation and projected demographic trends that will reshape China’s global role. Regional blocs are experiencing economic and social dislocation as new trends in trade and investment arise. Bilateral ties among nations have become increasingly complex as the lines between national and international blur and a host of initiatives compete with each other in trade, financial, political, social, and religious spheres. Pundits debate whether the United States is in decline even as India, China, and other emerging economies rise. And the U.S. has announced its rebalancing of resources toward Asia as wars wind down and economic and trade objectives regain priority over security concerns that came to the fore after September 11, 2001.

An underlying message of the ongoing process of globalization is a conflicted one: we are truly all in this together but at the same time nations are competing fiercely with one another for resources, investment, jobs, and market share. And that implies the paramount challenge for most economies is to get one’s own house in order so as to realize the population’s greatest potential. We have to work together while we are jockeying for position with each other.

Against this backdrop of change and challenge on a global scale, how much does it matter that C.Y. Leung was selected as the next Chief Executive of Hong Kong, to succeed Donald Tsang on July 1―the fifteenth anniversary of Hong Kong’s reversion to Chinese sovereignty―and to preside over the Special Administrative Region (SAR) from 2012 to 2017?

It might matter a lot. The March 25, 2012 indirect election in Hong Kong, directed by Beijing, featured the novel circumstance of the 1200 members of Hong Kong’s Election Committee facing at least a degree of uncertainty about the ballots they would cast. The genuine competition between two of three candidates for ultimate selection was no more than an incremental step toward the goal of universal suffrage for the Chief Executive in 2017 and the legislature in 2020, but that is significant.

The debate over the relative merits of two of the three candidates did not occur solely in the back rooms or mainland offices of the political and economic elite in Hong Kong and Beijing. To say the media was a lively participant in the process would surely be an understatement, and civil society leaders as well as political party officials had an active voice. There were distinct limits, of course, that made this a selection not an election. To take just one example, Democratic Party candidate Albert Ho had no genuine opportunity to test his party’s agenda for the future against the likes and dislikes of the voters of Hong Kong.

Moreover, it is fair to say that even assuming the ideal outcome for 2017 and 2020, universal suffrage will also be an interim step toward a more conclusive judgment on the success or failure of the “one country, two systems” model by which Hong Kong was incorporated into China on July 1, 1997. The means by which Hong Kong citizens choose their government leaders can and should be made more transparent and more responsive to the people’s will, but that will not change the basic circumstance of the SAR. It will remain, in 2017 or 2020, sovereign Chinese territory beholden to and in many ways dependent upon the mainland. Foreign policy and defense policy will remain in Beijing’s hands.

That said, Hong Kong matters to the mainland, and for very Hong Kong-style pragmatic reasons. Like so many others in the region, Hong Kong seeks to advance its citizens’ prosperity by competing with other economies ranging from cleaner and greener Singapore to well established financial hubs in Tokyo and London. Hong Kong’s experience in that competition to escape the middle income trap and move up the value chain can be a valuable resource to leaders in Beijing in a number of ways.

For example, Mr. Leung is predicting a proactive approach to governance in Hong Kong. He has promised to help the poor and campaigned on pledges of a more equitable distribution of wealth. This is a theme that resonates in Beijing as the leadership ponders the implications of the Guangdong versus the Chongqing model for economic development and political priority (very broadly, the Guangdong model can be defined as a market-oriented development strategy, while the Chongqing model is more state-led). Mr. Leung has promised his detractors that the rule of law will not be diluted in Hong Kong. He affirmed his intention to defend judicial independence and the exercise of fundamental rights such as expression and assembly. That, too, should resonate in Beijing as it is seeking to determine the most effective means of driving domestic economic growth, a debate that necessarily includes discussion of advancing good governance in the political sphere. A question that has been with us since 1997 is this: will Hong Kong lead the way toward gradual establishment of more robust civil society and a greater grounding in the rule of law for the mainland, or will China’s size and complexity overwhelm Hong Kong and pull it backward toward a less free and more authoritarian mode of governance?

The answer depends at least in part on the ongoing effort to define the national identity of the People’s Republic of China and how it relates to Hong Kong. Hong Kong is not Shanghai, it is not Singapore, and it is not Guangzhou. Just as China is struggling to claim its new identity in a new global political and economic landscape, Hong Kong, too, is grappling with its sense of direction and the characteristics that will define it in the decades ahead.

As previewed by Mr. Leung, it seems to me, there are some likely constants in the Hong Kong experience that will dominate the debate about the future of Hong Kong. What makes Hong Kong work today? The rule of law, civil society, a transparent and accountable government, and strong commitment to free market principles is my answer. In my view no Chief Executive of Hong Kong should―or likely will―veer from these foundational elements of Hong Kong’s success. That begs the question, of course, of whether Beijing would do so, given that the Chief Executive is not a sovereign leader. Mr. Leung will be Hong Kong’s chief public servant who ultimately answers to the collective leadership in Beijing.

So the core questions about Hong Kong may be these: what makes Hong Kong valuable to the People’s Republic and what is necessary to sustain or expand that value? If one looks at the record since 1997, the answer that suggests itself is that Hong Kong is valuable to Beijing mainly as a means of engaging the global system in a safe way from a domestic perspective. It is not just initial public offerings that are floated in Hong Kong, which remains a valuable laboratory for the mainland.

A range of ideas for China’s future can be tested in Hong Kong with minimal political risk to the leadership in Beijing. This happens in many ways. Bureaucrats learn that the rule of law in Hong Kong is quite a bit less malleable than it is on the mainland. Experiments with the convertibility of the currency can be conducted without fear of nationwide consequences. And as Chinese try out their new national identity, there can be an “all-in-the-family” series of exchanges in which the Mandarin-speaking assertiveness that goes with pride in past accomplishments can be tempered with a realistic, Cantonese-speaking view of the distance yet to be traveled before China answers satisfactorily the kinds of questions that are being raised in China during the current run-up to the 18^th Party Congress this fall. Such exchanges may be a bit rough and tumble at times, as is the case in the current dispute over mainland mothers giving birth to children in Hong Kong hospitals. But stop for a moment to consider what those Chinese mothers are expressing. Is it anything other than a sense of confidence in the future for their children in Hong Kong? And what is the attraction of Hong Kong’s future? What is the basis for a better chance for one’s children in Hong Kong compared to the mainland? We come full circle, then, to the core of Hong Kong’s success: is it not the rule of law and the free market, recognizable even to the most recent or temporary visitor to the SAR?

One can understand the reticence a Hong Kong citizen might feel comparing life before and after the handover. There have been compromises and twists and turns in the path leading from 1997 to the present, and there almost certainly will not be a straight and clear path from here to 2047, the projected end of the fifty years of autonomy that China promised to the citizens of Hong Kong. There are reasons to be concerned that China might not take the long view. It might seek to circumscribe life in the SAR based on immediate political needs that give priority to politics in Beijing. But the record thus far has been one of Beijing’s identification of the long-term national interest of the mainland in Hong Kong’s success. Beijing has generally had a clear sense of the necessary building blocks of that success, even if it has not always acted on that knowledge.

So to return to the first question: does Mr. Leung’s selection, and by implication his record over the course of his term as Chief Executive, matter to those outside of Hong Kong? Should we who are preoccupied with a return to more balanced global growth and our own nations’ politics of austerity and fiscal discipline sit up and take notice? The answer is yes. As noted at the outset, despite our need to compete with each other for relative position in the global trading system, ultimately we are all in this together. We have to find ways to compete and cooperate at the same time. In short, as participants in the global system, China’s choices matter to us. Hong Kong remains useful and valuable to Beijing, and therefore it, too, matters to the rest of the world.

From a political perspective Hong Kong remains valuable to Beijing, even if not in the way envisaged by those who first conceived “one country, two systems.” If the original intent was for Hong Kong under “one country, two systems” to be a model for reunification of Taiwan and the mainland, it was in this regard an abject failure. The two circumstances are and were fundamentally different and cross-Strait ties have grown organically without direct reference to Hong Kong’s experience. That is not to say Hong Kongers’ experience is without relevance. It is relevant, but the formula for Hong Kong’s return to Chinese sovereignty does not apply to the development of cross-Strait ties since 1997. Moreover, one could argue that the Hong Kong experience was not as direct a precedent for Macau as Beijing might have envisioned. Macau has taken its own very different path based on its quite different colonial history and relationship to China. Beijing has had to become accustomed to things turning out in unexpected ways in its Special Administrative Regions.

As noted briefly in the foregoing, Hong Kong is uniquely positioned to offer valuable economic experience to the mainland across a number of sectors. Primary among these is the financial sector, given Hong Kong’s role as a financial hub and its critical mass of relevant resources. New areas will arise as the global economy develops. Supply chain expertise may give way to biotechnology or medical tourism. There is huge potential, in short, for the mainland to gain from preservation of Hong Kong’s way of doing business. Perhaps the core element of that potential is the growing discussion on the mainland, prompted by outgoing Premier Wen Jiabao, of the necessity for structural change in the political economy of the People’s Republic. This is an area where lessons learned in Hong Kong can be applied on the mainland.

Perhaps the area where China needs the most help and can most effectively learn from experience in Hong Kong is precisely that set of issues that creates the most anxiety among Hong Kong citizens. If good governance grounded in the rule of law is essential to Hong Kong’s continued success, how much more important is it for the mainland economy? After he is inaugurated on July 1, on the fifteenth anniversary of the handover, one of Mr. Leung’s most pressing and important burdens of leadership will be to balance the competing notions of this conundrum: the Hong Kong Special Administrative Region is most useful to the mainland when it is most free from its direct control.