The Asian Wall Street Journal
Op-Ed piece
July 1, 1999

Hong Kong Two Years On

by Bretigne Shaffer

"Tung Chee Hwa's predecessors left 'vision' to entrepreneurs and stuck to creating an environment where others could pursue their vision free of government interference. Mr. Tung has decided he can do better."

A year ago today, all of Hong Kong breathed a collective sigh of relief that the worst of the post-handover gloom and doom scenarios had failed to materialize. No banks or industries had been nationalized, the free press had not been squelched. Even the annual commemoration of the Tiananmen massacre went on undisturbed, and a few of the city's pro-democracy legislators were able to make their way back into the Legislative Council after having been removed by the Beijing-selected administration in 1997.

By all appearances, the Chinese government had lived up to its promise not to interfere in Hong Kong's affairs. Today, another year on, at least one of the reasons for Beijing's apparent restraint is clear: There was no need for it to interfere directly with the underpinnings of the capitalist enclave, when the new Hong Kong government was willing to do so for it.

Hong Kong's outstanding performance over the past 50 years, both in terms of economic prosperity and human liberty, was due in no small part to the colonial British government's policy of "positive non-intervention" and to the solid legal foundation that administration brought to the territory. Unfortunately, it is on these two fronts - the two that have mattered the most to Hong Kong's unique success - that the post-handover government has done the most damage.

Only recently, the Hong Kong government dealt its most severe blow yet to the rule of law, when it asked the Chinese National People's Congress to essentially overrule a decision made by the Hong Kong Court of Final Appeal. Relying on highly questionable survey methods, the government created a bogeyman of 1.67 million immigrants ready to pour into Hong Kong if the Hong Kong court's ruling on a right-of-abode case were upheld.

The government insisted that this could not be allowed. But rather than amending Hong Kong's Basic Law, a solution that would have maintained more integrity for the legal system, the government called upon the NPC to "reinterpret" the sections of the Basic Law in question. In other words, to override the Court of Final Appeal's interpretation, usurping its role as final adjudicator for matters that are within the limits of Hong Kong's autonomy.

The reason for going to the NPC rather than choosing to amend the law? Expediency. The government claims that the amendment process would have simply taken too long.

Even before the Hong Kong court's ruling had been made, though, the local administration had already begun to chip away at Hong Kong's legal foundations - most pointedly by failing to prosecute the politically well-connected.

Last year, Secretary for Justice Elsie Leung refused to prosecute Sally Aw, a prominent businesswoman, friend of Chief Executive Tung Chee Hwa, and member of the Chinese People's Political Consultative Conference, for defrauding her newspapers' advertisers. Ms. Aw had originally been named as a co-conspirator in a case charging that the circulation figures for the newspapers had been inflated; three of her employees were convicted. Astoundingly, one of the reasons Justice Secretary Leung gave for not prosecuting Ms. Aw was her concern that such a prosecution might lead to the collapse of Ms. Aw's company, and thus damage confidence in Hong Kong.

Earlier, the government had refused to prosecute the New China News Agency, a representative of the Chinese government in Hong Kong, after it blatantly failed to comply with a local privacy ordinance by ignoring a request made by a former legislator to see the file it kept on her. Rather than hold the agency accountable, the government rushed through a new law granting "state" entities exemption from many Hong Kong laws, thus relieving the NCNA - retroactively - of its obligation to comply with the request for the file.

Nearly as disturbing as the government's actions are some of its official statements revealing a scant appreciation for the very notion of Hong Kong's common law system. Chief Executive Tung's assurances, for instance, that the NPC reinterpretation poses no threat to Hong Kong's judicial autonomy do not inspire confidence. And the secretary for justice - the person more responsible than anyone else for upholding the rule of law - has indicated that she is unaware of the distinction between Hong Kong's common-law legal system and what is essentially rule by fiat across the border.

"We shouldn't as a matter of course believe the Hong Kong system is the best," said Ms. Leung on the eve o f the NPC's re-interpretation of right-of-abode provisions in the Basic Law. "We should open our eyes and know more about the mainland system."

The new government also displays a limited understanding of the past administrations' tradition of non-interference in economic affairs. In his maiden policy address, Chief Executive Tung announced that Hong Kong "should have the courage to set aside past modes of thought and plan Hong Kong's future with a vision."

Mr. Tung's predecessors were astute enough to leave the "vision" to private entrepreneurs and stick to maintaining an environment in which others could pursue their vision largely free of government interference. Most important, they were not afraid to let the market reign even in times of difficulty. Mr. Tung has decided that he can do better, and has embarked upon a policy of actively promoting the technology sector, in an effort to turn Hong Kong into a regional high-tech center.

While the effort has been cheered by many - including, not surprisingly, those in high-tech businesses themselves - the consequences of allowing government to dole out preferential treatment to certain industries are already beginning to show. Most notable is the advent of cronyism.

Earlier this year, the government awarded a plot of land worth $777 million to a private company for development into a government-subsidized information-technology development center dubbed "Cyberport." The government's failure to offer the land for public tender, as has been the usual practice, ignited a firestorm of controversy, particularly given the large commercial real-estate portion of the project. The government's explanation for forgoing an open bidding? It would have taken too long, and Hong Kong needs to hurry if it is to catch up with the rest of the world.

Calls for the government to offer subsidies and other advantages to various business sectors aren't new to Hong Kong. In the past, however, they were deflected by the commonsense approach of such people as former Financial Secretary Sir John Cowperthwaite. When businessmen in the 1960s asked for special treatment for their industries, which they claimed were crucial to the well-being of Hong Kong, Mr. Cowperthwaite replied that "I should have thought that a desirable industry was, almost by definition, one which could establish itself and thrive without special assistance in ordinary market conditions." Apparently Mr. Tung believes otherwise.

Mr. Tung's administration has shown itself to be willing to intervene on other fronts. Last August, the government purchased approximately $15 billion in Hong Kong stocks in an effort to fight of speculators who were driving down the stock market and the Hong Kong dollar. While the government has had to struggle to defend its currency, the territory has certainly seen harder times. The stock market crash of 1973, for example, saw the Hang Seng Index plummet from 1775 to 160 in only a few months. The government didn't intervene in this case, and Hong Kong was one of the first economies to recover from the global recession.

Last year's intervention, meanwhile, has come at a heavy price: irreversible damage to the territory's free-market reputation. The move has left foreign investors and locals alike wondering what it will take to spark the government's next foray into the markets.

Hong Kong's political and business elite seem blissfully unaware of - or unconcerned by - the universal tendency of governments to continue to grow when unchecked. They are currently in the process of tearing down a system of checks on government power that was built and maintained with great care by people who had some understanding of its real-world implications. At best, today's leaders use the terms "rule of law" and "free market" as palliative buzz-words, insisting that they are upholding them even as they act to undermine them.

Two years after its return to Chinese sovereignty, Hong Kong is still much freer than most societies. And, given the degree to which the state has encroached upon life everywhere else, it may remain so for some time to come, at least in purely relative terms. It is this very status as a rare enclave of freedom that makes the current government's indifference to what has made Hong Kong unique so tragic.

Ms. Shaffer is an editorial page writer of The Asian Wall Street Journal.

Copyright Dow Jones & Co. 1999