Europe’s Role In The Future Of Hong Kong speech by Mr. Etienne Reuter, head of the Office of the European Commission in Hong Kong

Whenever I am in Europe, Hong Kong is much talked about, both at official discussions and in private encounters, and it always strikes me that in general terms there is a great deficit of knowledge about and an understanding of Hong Kong. Most people seem to think that next year’s transfer of sovereignty would amount to a Chinese takeaway and that life will change dramatically. Few have a precise idea about the meaning of the “one country, two systems” formula. It comes as a surprise to them that life in Hong Kong is not expected to change, that the Hong Kong Dollar will continue to be Hong Kong’s currency, that the border between Hong Kong and the rest of China will continue to be a tightly sealed one, and so on.

Hong Kong matters a great deal to Europe. It is, for the European Union, a most important trading partner, as well as a prime location for doing business with China and in the region. In the chart of trading powers of this world, Hong Kong ranks eighth. The European Union is its third largest trading partner after China and Japan, before the US. In the last five years, this trade has been constantly growing by 15% a year. Relevant statistics are impressive, the more so when one takes into account the fact that roughly half of the trade between China and the EU goes through Hong Kong (this total trade represented in 1995 US$18 billion imports from Europe, and US$34 billion of Chinese exports to Europe).

In addition, Europe has big stakes in the economy of the Territory, where now nearly 60,000 citizens from the 15 European Union Member States live and work. There are over 40 banks from Europe, and well over 40 insurance companies established in Hong Kong. Nine airlines from the European Union fly regularly to Hong Kong. One hundred fifteen European companies are involved in the construction of the new airport and the connecting infrastructure. One third of government supplies are purchased in Europe. One-hundred industrial establishments in Hong Kong are owned by European companies, many of which have their regional headquarters here. All kinds of other partnerships including over 60 current joint research projects between universities here and in Europe are being developed.

At the same time Hong Kong plays a most important part as a gateway to China. Many European entrepreneurs, the small and medium-sized industries in particular, use the Territory as a launching pad for their investments in China. In addition, they come to Hong Kong to plan and to implement their market strategies for other countries in the region, in particular in the ASEAN countries. Hong Kong plays, and will continue to play, a crucial role as a crossroads between Europe and Asia.

Hong Kong is operating like a dynamo for the transformation of the economy that currently takes place in China. The degree of interaction between its own economy and that of its hinterland is very substantial. One third of Hong Kong’s currency issue circulates in Guangdong province. Hong Kong itself has almost abandoned the manufacturing sector, having relocated and invested in production units in mainland China, providing 4,000,000 jobs in Guangdong Province. Hong Kong is now an international service center available to partners from everywhere in the world to broker productive investments in the region and to take care of the marketing and shipping of this production in the region.

This position of Hong Kong will remain after 1997. At the same time, China’s middle class is growing; the true potential of its market is only beginning to be fully realised. Many European companies know little about China and Hong Kong is a natural for locating regional headquarters, sales offices and the like and for finding the right partners with experience and knowledge of China.

Another dimension which is most relevant for Europe’s interest in and approach to Hong Kong is the fact that Hong Kong has, in the past few years, become the media centre of Asia. International news agencies specialising in business and economic affairs have developed their establishments here and continue to strengthen them. Television networks are expanding, cable TV is multiplying its channels, the local audiovisual industry is booming. Taking into account the activities of the local universities in this field, it is obvious that Hong Kong is destined to be one of the major hubs of the global news and information network. Hong Kong has a substantial and lively written press. Most of the influential newspapers and magazines in the world have correspondents and reporters there. The Financial Times and the International Herald Tribune are now printed there.

Hong Kong is a tremendous success story, unparalleled in history, evidenced by its wealth. It generates the equivalent of 25% of the GNP of China, 50% of Taiwan’s and double that of Singapore. Its GDP/capita is US$24,000, considerably higher than the average in the EU, higher indeed than in the UK.

The explanation of this success is found in two factors that are linked: the Hong Kong people and the Hong Kong system. There are many stories of people arriving in Hong Kong penniless, so to speak, some driven by adventure, some seeking refuge from oppressors, and making a fortune and contributing to the well-being of the community. Now we have in Hong Kong one of the world’s richest societies. Its citizens have among the highest life expectancy in the world. Its infrastructure operates smoothly and its crime rate is extremely low, lower than Singapore’s. Freedom of enterprise is its hallmark and the Hong Kong system constitutes the environment in which it strives. Its ingredients are the rule of law, a top class administration embodied by a highly professional civil service, and a super-efficient infrastructure.

For Hong Kong’s future, the preservation of this business environment is essential. For the partners of Hong Kong, for the businessmen from all over the world, this will determine the confidence they will have in Hong Kong’s future. It will determine their choices and decisions regarding future deals, future investments.

Hong Kong is above all an international city with fabulous prospects. Look at the new airport, and all the building sites for new bridges, a new convention centre, new container terminals. It seems to me that the active involvement with all these projects and the perspective of the operation of all these facilities must represent a potent feel-good factor for the future.

The European Union’s position regarding the future of Hong Kong is inherently part of our China policy, as well as of our Asia strategy. We wish to see preserved Hong Kong’s unique role as an international city and an economic dynamo for the whole of the region.

Last December the Union adopted the guidelines for a new long-term policy towards China, which has basically two objectives: to involve China as a full and responsible partner in international affairs, and to seek full opportunities for Europe’s business community in China’s markets. It is a policy based on its own merits and formulated by the European Union specifically to form the backbone of our new relationships in Asia. Europe’s new policy towards China shall be fulfilled within a partnership, signalling increased mutual understanding in exchanges and cooperation. The Union, when devising this policy, took into account the substantial economic interests that Europe has in Hong Kong and Macau, and it underlined the importance it attaches to its relations with the two future Special Administrative Regions of China.

The Asia-Europe Meeting in Bangkok in March was the start of a new relationship between Europe and Asia. This has also a geo-political dimension, determined by China’s emergence on the world stage as a big power. The European Union will continue to work together with others that have interests in the region, particularly the US, Canada, Japan and Australia, that are so relevant for Hong Kong.

In the years to come it will be important to develop and strengthen the relations between the European Union and Hong Kong. I personally believe that as the territory prepares to revert to Chinese sovereignty, one should envisage organising the working relationship between the European Union and the future SAR on a more formal and structured basis.

The objective will be to strengthen the bonds between the Territory and the European Union. The flag that will be folded next June is the flag of one of our Member States, but Hong Kong will continue to be a focus for commercial and cultural exchanges between Europe and Asia.

Hong Kong will continue to be a member of the WTO, where it has acquired a signal reputation for being in the vanguard of trade liberalisation. An important aspect of our policy to strengthen links with the SAR is the vital role Hong Kong plays in the transformation of China’s economy from a centrally-planned one into a market-oriented one.

The Joint Declaration guarantees for the Hong Kong Special Administrative Region a high degree of autonomy, except in areas which are traditionally the responsibility of sovereign governments such as defence and foreign affairs. It provides the basis for Hong Kong to continue the policies which have helped it become a leading international trade and financial centre. For example, “the HKSAR shall decide its economic and trade policies on its own.” Hong Kong will keep its status as an international financial centre and a free port, it will continue to be a separate customs territory and there will be free flow of capital with the Hong Kong dollar remaining freely convertible and managed by a fully autonomous monetary authority. The Central People’s Government will not levy tax in Hong Kong.

To promote its position abroad, Hong Kong will continue to have its own network of Economic and Trade Offices in countries with which it has major economic and trade interests, and it will continue to participate in the activities of important international organisations. Hong Kong is a member of the World Trade Organisation, APEC, the Asian Development Bank, as well as many others like the Customs Cooperation Council, the Pacific Economic Cooperation Council and the Asian Productivity Organisation. The offer to join the Bank of International Settlements is most timely.

The EU’s policy will underscore the autonomy and the market economy of the SAR, looking at possibilities for strengthening our links and preparing the ground so as to be able to take appropriate initiatives in the early months of the SAR’s existence.

Technically speaking there are a number of areas in which the EU and Hong Kong have a mutual interest in developing their cooperation. In line with Article 151 of the Basic Law we could consider areas such as customs matters and procedures, productivity, standards, and the development of high technology, and envisage concluding with the SAR pragmatic and practical arrangements for cooperation in these matters or for wider trade and economic cooperation.

It is too early to consider the precise legal forms which such arrangements could take, but it will be important to make sure that this relationship fits well into our cooperation with China. In the years to come, this cooperation will develop and increase. The experience and the expertise that is available in Hong Kong could play a role in specific areas such as legal cooperation, environmental protection, development of human resources, where both the business community and universities of Hong Kong could provide exciting partnerships, including possibilities that exist in the Special Economic Zones that appear naturally articulated around Hong Kong and Macau.

The European Union and its Member States will support Hong Kong’s continuing role as an open and accessible centre in Asia. Hong Kong will be a component, separate but crucial, of our China policy, and remain on the agenda. Of course, within this new policy we will continue to express our concern for human rights and we will continue to press for the transformation of China’s centrally planned economy into a market-oriented economy, in the context of which getting China into the World Trade Organisation is most relevant.

The Commission had taken a leading role in these negotiations, offering a concept under which China would have made a down payment, i.e. assumed a number of WTO obligations immediately, while committing herself to implementing the rest of the conditions at a later stage. Under such a formula, China would have joined the organisation immediately. Unfortunately, so far it has not been possible to reach agreement on such a formula, although there has been progress on technical issues. Further talks are scheduled for this month in Geneva. The US and Japan have a number of difficulties and insist, as the EU does, that the WTO is a rules-based organisation. Chinese membership should not be engineered on false terms.

But we need to find a new momentum to relaunch the negotiations and consider that in many ways China is a developing economy of a specific kind that has in some fundamental respects not yet assumed the characteristics of a full market economy. This does not mean that one should be willing to fudge the terms of the commitment to free trade. On an essential issue such as the protection of intellectual property rights we cannot envisage to exempt China, quite the contrary is indeed true. But it could be to everybody’s benefit to make a renewed effort, injecting new thoughts.

China’s joining the WTO would have many advantages, bringing her into a legal framework governing international trade and contributing towards the clarification of difficulties that European and other investors both face regarding the trade of products made in China. Many have created production facilities in China. The products are traded through Hong Kong and often find themselves confronted with quotas and other restrictions when they get onto European or American markets. This is one of the many examples that make a case for getting everybody inside the same set of rules for international trade. It is, of course, of relevance for Hong Kong that China could be included in the World Trade Organisation by the time its flag flies over the territory.