The Speaker’s Task Force on the Hong Kong Transition

Ninth Report

January 30, 2002

Presented by
The Honorable Doug Bereuter, Chairman

This is the ninth report of the Task Force on the Hong Kong Transition. It follows eight previous reports, the most recent of which was dated August 1, 2000. The report focuses on events and developments relevant to U.S. interests in the Hong Kong Special Administrative Region (HKSAR) between August 2000 and December 31, 2001.

I. Introduction

Four and one half years have elapsed since Hong Kong returned to People’s Republic of China (PRC) sovereignty on July 1, 1997. Notwithstanding the “One Country-Two Systems” commitment contained in the Joint Declaration, many observers openly wondered whether Beijing could resist the temptation to meddle in Hong Kong’s affairs. While some questions linger, most Western analysts conclude today that the “One Country-Two Systems” has permitted Hong Kong to maintain its unique character. Long-term success depends on preserving the quality and integrity of Hong Kong’s outstanding cadre of civil servants, the rule of law and an independent judiciary, the vigilance of an informed and public-spirited populace, and the continued commitment of Beijing to accept the spirit and letter of the Joint Declaration.

Previous reports in this series have focused on political and economic events affecting conditions after the reversion. These matters, of course, continue to be important indicators of Hong Kong’s relative health. However, of greater interest for purposes of this report is how Hong Kong has responded to major recent global events. The global recession has touched virtually all economies, and Hong Kong’s is no exception. How it responds to the economic crisis will provide important insights into the long-term health of Hong Kong. Clearly, however, the most significant external event is the post-September 11th war on terrorism. As a major international financial center, Hong Kong’s willing participation is essential. The following report explores the manner in which Hong Kong has responded to these and other challenges.

II. September 11th – The War On Terrorism

The September 11, 2001, terrorist attacks upon the World Trade Center and the Pentagon marked a fundamental change in the U.S. perception of its foreign relations. As President Bush noted in his address to the nation of September 20, 2001, “Every nation, in every region, now has a decision to make. Either you are with us, or you are with the terrorists.” In responding to the President’s challenge, Hong Kong has unambiguously made it clear that it is on the side of the United States.

Hong Kong political and business leaders have long felt a kinship with New York City. New York has been viewed as the center of capitalism, a role to which Hong Kong aspires in East Asia. This psychological bond is strengthened by the many Hong Kong families who have relatives living in New York, and the presence of firms headquartered in New York with branch offices in Hong Kong. In the days and weeks following the attacks, we witnessed an outpouring of sympathy from the people and leaders in Hong Kong. Chief Executive C.H. Tung offered full cooperation of the Hong Kong authorities. This cooperation began immediately and addresses concerns related to Hong Kong’s status as a financial hub, its role as a center of trade, and its position as a center for U.S. business and diplomatic activity.

Hong Kong has fully implemented the relevant provisions of U.N. Security Council Resolutions (UNSCRs) 1267 and 1373. The UNSCR 1267 calls for the freezing of funds and other financial assets owned or controlled by the Taliban and Taliban affiliated activities. Resolution 1373 freezes the financial assets of Usama bin Laden, Al-Qaeda, and their associates. In addition, Hong Kong is undertaking the legislative changes to come into compliance with UNSCR 1373. Resolution 1373 calls upon nations to prevent financial activities of terrorists and criminalizes the willful provision and collection of funds for terrorist activities.

Hong Kong participates in numerous international for a regarding illegal financial activity. A senior Hong Kong Government official currently serves as the President of the Financial Action Task Force on Money Laundering (FATF), an international group tasked with establishing a common front against money laundering. Hong Kong also is active in the World Custom Organization’s efforts to counter terrorism.

Law enforcement authorities have the ability to arrest perpetrators of terrorist attacks and seize assets. Hong Kong police and customs authorities have established a special unit to address suspicious financial transactions. And, in contrast to the pre-attack United States, Hong Kong has legislation governing the actions of the underground “hawala” banks that are reported to have been a favorite conduit of the Al-Qaeda network. These hawalas are required to register with police and identify customers conducting transactions greater than US$2,500. Like financial institutions, hawalas are required to report suspicious transactions. In practice, ensuring that all hawalas register is a challenge.

Given the large American diplomatic and business presence in Hong Kong, local law enforcement authorities have significantly enhanced their counterterrorist activities. The Hong Kong Government has assisted with additional security arrangements for U.S. personnel assigned to the U.S. Consulate General and visiting U.S. diplomats. Cooperation on security for U.S. Navy ship visits also has increased.

Hong Kong Government officials and civic leaders recognize that assisting in the war against terrorism is in Hong Kong’s self-interest. Given its position as a technology and financial hub in Asia, and given the large number of multinational corporations that are represented in Hong Kong, it is possible that terrorists might view Hong Kong as a potential future target. Moreover, Hong Kong’s prosperity depends upon free and open trade in commodities and ideas, a concept that is anathema to modern terrorists. For these reasons, Hong Kong has been a willing partner in the ongoing war on terrorism.

III. Economic Issues

a. Economic Slowdown

In 2001, the Heritage Foundation and the Cato Institute both found that Hong Kong enjoyed the world’s freest economy. Driven largely by a healthy export market, Hong Kong’s economy enjoyed healthy growth through 2000 and well into 2001. Indeed, Hong Kong enjoyed 10.5% growth in 2000, and 2.3% growth in the first quarter of 2001. However, hopes for continued high levels of growth have not materialized.

Even before the events of September 11th, Hong Kong’s growth had slowed. By the spring of 2001, the drop in consumer demand in the United States and Europe had dramatically affected Hong Kong’s economy. Total merchandise exports and re-exports fell in the second quarter by 1.9% from the previous year. Real second quarter growth had slumped to 0.5% annual GDP growth, and the Hong Kong Government revised estimates downward to zero percent. Chief Executive Tung recently acknowledged that the Hong Kong Special Administrative Region (HKSAR) was facing “a few quarters” of negative growth.

The economic fallout of the September 11th attacks placed additional strains on an already sluggish economy. The terrorist attacks have resulted in a predictable slowdown in U.S. consumer spending, which in turn reduced the demand for Hong Kong exports. By late fall the Hang Seng stock index had fallen more than 25% for the year, with particularly severe losses in September and October, though it recovered along with the U.S. stock market later in the year. The airline and tourist industries suffered an immediate increase in cancellations, and American participation in some fall trade fairs dropped significantly. In the days immediately following the attacks, approximately 8% of foreign tourists cancelled their reservations, and arrivals from the United States fell almost 25% from the previous year. In an effort to break free of the economic stagnation, Chief Executive Tung proposed a HK$15 billion stimulus package in October 2001 that featured property tax reductions and programs to create temporary jobs. Some critics in the Legislative Council (LegCo) have urged that Hong Kong’s large surplus be tapped for an even greater stimulus package. Hong Kong likely faces two or three quarters of recession in late 2001/early 2002. Unemployment, too, has become a concern. By the end of 2001, unemployment had risen to 5.5%, the highest level in eighteen months. While Hong Kong has escaped corporate collapses and massive layoffs, many firms have announced small-scale layoffs, affecting virtually all sectors of the economy. The relatively high level of unemployment and economic uncertainty continue to dampen consumer spending and domestic investor sentiment.

The Government remains committed to making Hong Kong a high technology center. In support of this goal, it has dramatically deregulated the telecommunications sector. Many of the Government’s “Digital 21 Strategy” initiatives – first enunciated in 1999 to transform Hong Kong into an informational and technological hub – will go online in early 2002, including the first phases of a Science Park and the “Cyberport” project. Several multinational firms have signed tenant agreements with Science Park to establish headquarters and R&D operations there. While Cyberport claims to have obtained signed letters of intent from fifteen multinational firms (including Microsoft, IBM, Hewlett Packard, Cisco, Sybase, and Yahoo!) to become anchor tenants, none of these plans to move into the first phase of the project this year.

Direct investment in Hong Kong by the United States totals over $23 billion, and bilateral trade totaled approximately $23 billion (down slightly from $26.1 billion in 2000). This level of investment is well above the same period in 1999 and Hong Kong remains our 15th largest trading partner (13th largest export market). Sectors having seen the greater growth include telecommunications, where liberalization has created new and exciting opportunities for U.S. firms in the areas of international telephone and broadcast services. The U.S. has also encouraged similar liberalization of Hong Kong’s civil aviation policies. The U.S. and Hong Kong conducted two rounds of informal negotiations on aviation issues last year. To date, however, these negotiations have yet to result in agreement. Hong Kong continues to resist granting commercially significant aviation rights to the U.S. passenger and cargo carriers despite its declared liberal air cargo policy.

Hong Kong strongly supported the membership of the PRC in the World Trade Organization (WTO). The Government believes that the resulting WTO membership for China will enhance Hong Kong’s role as an entrepot for trade, increasing Hong Kong’s GDP by at least 0.5% annually over a 10-year period and bringing a host of new opportunities for Hong Kong. In particular, Hong Kong looks to exploit its ongoing integration with the Pearl River Delta. The Hong Kong SAR in its 1999/2000 report noted that “Hong Kong’s historic role as a financial center and trade entrepot, and its cultural and language ties, will provide and unmatched advantage to tap the potential of the Mainland market.” Some observers believe, however, that the agreement will result in increased competition for Hong Kong firms as the mainland seeks direct international trade and investment.

Commercial and financial interconnectivity with the mainland is inevitable. Indeed, the Hong Kong Government has announced plans to negotiate a free trade agreement with the PRC. This evolution presents both challenges and opportunities. But how is Hong Kong to manage the growth of cross-border activities while at the same time preserving its separate identity? Striking the proper balance between separation and cooperation is one of the fundamental tasks faced by Hong Kong authorities.

b. Intellectual Property Rights (IPR)

Hong Kong continues to make progress in the fight against copyright piracy. Legislation was introduced and approved in the LegCo to control illicit production, reclassify IPR piracy as a serious crime, and criminalize corporate software license abuse. The 185-member Special Task Force established by the Customs and Excise Offices continues to perform effectively, and has been transformed into a permanent institution. As a result of these and other efforts, the U.S. Trade Representative (USTR) removed Hong Kong from the Special 301 list in 1999. The USTR now cites Hong Kong as a model for other Asian economies attempting to deal with IPR piracy.

Sale of pirated discs has decreased in recent years, but remains a problem. In response to U.S. concerns, Hong Kong has made CD piracy an Organized and Serious Crime, enhancing penalties for piracy syndicates. Police and Customs have doubled their enforcement manpower and have conducted a series of aggressive raids targeting both the illegal production and retail outlet. In the first ten months of 2001, Customs officials seized 7.97 million pirated optical discs and arrested over 1,500 people. In addition, a number of illegal CD factories have been shut down, forcing traffickers to depend more heavily on imported products.

Even as outstanding concerns are addressed, new problems emerge. Hong Kong is evolving into a center for electronic commerce and internet technology and new concerns have been raised about Hong Kong web sites that are used to sell and transmit pirated material. A number of establishments have been raided and charged with internet piracy, but none have gone to trial. However, Hong Kong has moved much more aggressively than its neighbors in addressing internet piracy. Hong Kong also has demonstrated a willingness to criminalize corporate use of pirated or unlicensed software.

c. Export Controls

Hong Kong is recognized as possessing one of the world’s best systems of export controls. Disappointing some outspoken critics of Hong Kong and the People’s Republic of China, the reversion appears to have had no major impact on the exercise of export controls. U.S. Government agencies continue to report no evidence of Chinese interference in Hong Kong’s export control system. Chinese officials have recognized that export control matters fall within the trade rather than the foreign policy area, thereby placing export controls within the Hong Kong Government’s exclusive purview. Hong Kong requires both import as well as export licenses, enabling authorities to track controlled commodities as they enter or leave the HKSAR. Hong Kong also refuses to issue re-export licenses for products unless it is sure that the original exporting country would export the product to the ultimate end user. The Hong Kong Government is extremely transparent regarding export controls and cooperates closely with many countries to ensure compliance with multilateral and country-specific export control regimes.

Continued cooperation between HKSAR and U.S. Government officials helps strengthen Hong Kong’s export controls. Semi-annual meetings between U.S. and HKSAR officials have resulted in U.S. briefings on current trends and issues as well as relevant U.S. legislation. Hong Kong adheres fully to international control regimes such as the Nuclear Non-Proliferation Treaty, the Missile Technology Control Regime, the Nuclear Suppliers Group, the Australia Group, and the Wassenaar Agreement. U.S. Department of Commerce officials continue to conduct regular pre-license and post-shipment inspections as part of the dual-use licensing process. U.S. Department of State and Customs officials also carry out pre-license and post-shipment checks of munitions items under the “Blue Lantern” program. Hong Kong has not imposed any limitations on pre- or post-shipment verification by U.S. agencies and in some instances U.S. investigations have conducted multiple inspections to ensure that the end user remains in compliance with the original U.S. license.

The 1999 Cox Commission noted the possibility of transshipment of sensitive technology via Hong Kong, and cited the lack of Hong Kong Customs inspections of People’s Liberation Army (PLA) vehicles when they cross the border. This resulted in Hong Kong reaffirming its commitment to maintain control over all cross-boundary movements, including the PLA. The commitment was demonstrated in March 2000, when customs officers discovered and held five armored vehicles on a vessel bound for China. The armored cars had been assembled in Ukraine and loaded into a container in Naples aboard a ship bound for the northern Chinese port of Tianjin. The vehicles had no import licenses. They were seized (and held for destruction) by Hong Kong Customs agents and three crewmembers including the captain were prosecuted under Hong Kong’s carrier liability system.

The border between Hong Kong and the PRC is among the world’s busiest. For example, over 20,000 trucks traverse the Lok Ma Chau border crossing each day, and the line of vehicles awaiting inspection can extend for several miles. It is anticipated that China’s membership in the WTO will significantly increase this already considerable level of cross-border traffic. The resulting new pressures are causing Hong Kong authorities to consider new and innovative technologies to manage customs inspections. While acknowledging that Hong Kong’s export control regime is truly outstanding, it is nonetheless true that actual physical inspections of airborne, ship-borne and truck-borne cargo are extremely limited, with only a small percentage actually being inspected. Rather, Hong Kong Customs authorities depend upon intelligence information and case histories to develop individuals, cargoes, and modes of transportation that are most likely to be involved in the transportation of contraband. As with any government, export controls in Hong Kong depend on the intelligence, vigilance and integrity of the civil servants tasked with monitoring commercial traffic. Continued vigilance is required, but there appears to be no real threat to Hong Kong’s export control autonomy in the foreseeable future. Hong Kong continues to demonstrate its intention to maintain excellent export controls.

One final concern relates to the October 2000 decision of the Hong Kong courts to dismiss charges stemming from the 1997 re-export of U.S. computers to a defense research institute at Chansha University in China. American and Hong Kong authorities cooperated closely in this matter; however, the Hong Kong court judged that there was inadequate evidence to prove an unauthorized re-export occurred. In a separate issue, the United States maintains an interest in a court case involving radiation-hardened computer chips that were shipped into China. This case, the Means Come prosecution, continues to be a matter of discussion between U.S. and Hong Kong authorities.

IV. Political Issues

a. Political Developments

Under the Basic Law, that serves as Hong Kong’s Constitution, directly elected representatives to the LegCo from geographic constituencies now make up 24 of the 60 members. That member will increase to 30 in 2004. The Basic Law allows for (but does not mandate) the remaining 30 functional seats to be converted to directly elected positions and would permit direct election of the Chief Executive after 2007. The initial term of the Chief Executive, Mr. C.H. Tung, will conclude in June 2002. Selection of the next Chief Executive will be made in March by an 800-person committee that has been elected by business and professional leaders. It is expected by many that the selection committee will choose Chief Executive Tung to continue in his office for a second term. Support from Beijing dramatically increases the likelihood that Tung will remain in office, so much so that a credible opposition candidate may not emerge.

In July 2001, pro-democracy legislators protested vigorously when legislation was approved regulating the selection of the Chief Executive. Critics objected to language that could be interpreted as permitting Beijing to remove the Chief Executive from office. The adoption of such a provision, it was argued, would be anti-democratic and would undermine the continued autonomy of Hong Kong. These concerns failed to sway the LegCo and the legislation was adopted. In addition, pro-democracy activists continue to lobby for a faster transition to a more democratic system. Leaders of each of the three major political parties have called for full democracy by 2008, arguing that the current political system is “unsustainable.” While such calls continued, no progress has been made toward the Basic Law’s goal of universal suffrage in the selection of the Chief Executive.

Following a long and distinguished career, Anson Chan, Chief Secretary of the Civil Service, retired in April 2001. Ms. Chan long had been regarded as a key spokesperson for Hong Kong’s autonomy. As the public face of Hong Kong’s Civil Service, she had conveyed a sense of quiet professionalism that was reassuring to interested observers. Thus, selection of a successor was seen as an important signal of Hong Kong’s direction. Therefore, the selection of the highly respected former Financial Secretary, Donald Tsang, to serve as the new Chief Secretary seems to demonstrate an intention to continue in this tradition. Mr. Tsang’s appointment was been warmly received by most people in Hong Kong, and also by the HKSAR financial markets.

During the past year the PRC arrested a number of visiting American academics and charged them with espionage. One such American was Li Shaomin, a teacher at Hong Kong City University. In August 2001, after his conviction and expulsion from the PRC, Li Shaomin was permitted to return to Hong Kong to complete his reaching contract with City University. In December, however, the university decided that Mr. Li would not receive his salary for the period of his detention in the PRC.

b. Judicial Independence / Rule of Law

Four years after reversion to PRC sovereignty, Hong Kong’s legal institutions continue to function well and the rule of law continues to be respected in practice. A high priority has been placed on ensuring that legal institutions are properly supported. In particular, appointments to the bench have been of the highest caliber. Notwithstanding the generally positive situation, the aftereffects of the “Right of Abode” case continue to be felt. The issue is a fundamental one that goes to the core of the “One Country, Two Systems” principle and the powers enunciated in the Basic Law.

The Right of Abode case actually is a series of legal cases related to the immigration regulations for children of Hong Kong citizens born out of wedlock. In 1999, the Court of Final Appeal (CFA) declared that all children of Hong Kong residents had the right of abode in Hong Kong. Fearing that the ruling would result in an influx of 1.6 million new immigrants, the Hong Kong Government asked the Standing Committee of the PRC National People’s Congress (NPC) to interpret sections of the Basic Law relevant to the Right of Abode ruling. The NPC interpretation did not affect the original litigants in the case, but it did overturn the prescriptive effect of the CFA judgment and reduced the number of people eligible for right of abode in Hong Kong. While fully permissible under the Basic Law, relying on the NPC to overturn a decision of the Hong Kong courts has raised concerned with some civil libertarians.

In July 2001, the CFA ruled on a series of abode cases, upholding the Hong Kong Government in two cases and ruling against the Government in a third. In doing so, the Court demonstrated its intention to broadly interpret areas of Hong Kong autonomy and rejected Government suggestions that it seek legal interpretations from the NPC. The Hong Kong Government chose not to appeal to the NPC in the court case that they lost. In declining to challenge the ruling that went against them, the Hong Kong Government has reinforced the independent rule of law tradition and answered many of the questions raised in the initial Right of Abode controversy. In January 2002, the CFA ruled on the last major set of abode cases, rejecting the appeal from most of some 5,000 plaintiffs. The CFA, however, did uphold the appeal for some claimants (perhaps as many as 1,000) on the grounds that the government had created “legitimate expectations” that their cases would be dealt with in accordance with the original (pre-interpretation) CFA decision of January 1999.

c. Freedom of Expression / Press

The people of Hong Kong continue to enjoy a tradition of free speech and free press. Political debate is dynamic and raucous. Thousands of demonstrations or petitions have been organized since the reversion and the number of protests has increased. A wide and diverse range of opinions, including those critical of the Hong Kong and PRC Governments, are routinely aired in the mass media and public for a. There are sixteen major daily newspapers, four commercial television stations, and two commercial radio stations. These media function with almost no government control.

Despite the wide variety of outlets, there is a general perception both among journalists and the public that a measure of self-censorship is exercised. According to the Department of State Country Reports on Human Rights Practices for 2000, “there is a widely shared perception of a need for special care toward topics of particular sensitivity to China or Hong Kong’s powerful business interests, such as leadership dynamics, military activity, Taiwanese or Tibetan independence, or powerful businessmen’s relations with the mainland Government.”

d. Freedom of Religion

The Basic Law guarantees freedom of religion for the people of Hong Kong. There are some 600 Buddhist and Taoist temples, 800 Christian churches, 4 mosques, a Hindu temple, a Sikh temple, and a synagogue. The Department of State International Religious Freedom Report of October 2001 has concluded that: “the Government at all levels generally protects religious freedom in full, and does not tolerate its abuse, either by governmental or private actors.” Of particular note is the fact that practitioners of Falun Gong – who do not consider themselves to be part of a religion – continue to practice freely and organize political protests.

Adherents of Fulun Gong have been permitted to conduct activities in Hong Kong, but the level of public tolerance has declined following the self-immolation of alleged Falun Gong practitioners in Beijing in December 2000. Since that time, mainland authorities have unambiguously and with some success sought indirectly to limit this group’s activities in Hong Kong. Articles critical of Falun Gong have appeared in PRC-owned newspapers in Hong Kong, and Chief Executive C.H. Tung described Falun Gong as an “evil cult.”

In comments that clearly were directed at both Hong Kong and Macau, PRC. President Jiang Zemin stated that local authorities should not permit activities designed to create divisions with the mainland. In the weeks and days before a major international conference in May 2001, Hong Kong authorities denied entry to a number of Falun Gong practitioners, including some Americans. In the immediate aftermath of the conference, press reports indicated that the Hong Kong Government was considering “anti-cult” legislation. However, the Hong Kong Secretary of Security has stated, and Chief Executive Tung has confirmed, that the Government has no intention of pursuing anti-cult legislation at this time.

In August, a number of Falun Gong practitioners were arrested when they moved beyond the permissible protest area and staged a public demonstration in front of the PRC’s liaison office in central Hong Kong. These individuals were held for several hours and released without being charged.

While Beijing’s primary concern was directed toward Falun Gong, the PRC also sought, unsuccessfully as it turned out, to limit the visibility and influence of the Catholic Church in Hong Kong. When the Vatican canonized Chinese Catholics martyred in China, PRC officials in Hong Kong urged that any celebrations be “low key.” The celebrations, however, went on as scheduled and without incident.

e. Ship Visits

U.S. military ship visits and aircraft stopovers in Hong Kong fall within the purview of the PRC. Hong Kong Government spokesman Stephen Lam has noted that Hong Kong welcomes the contribution that ship visits make to Hong Kong’s tourist industry.

Beijing has used ship visits as a means to demonstrate satisfaction or displeasure at the state of U.S.-PRC relations. Following the accidental bombing of the Chinese Embassy in Belgrade in May 1999, PRC authorities denied U.S. port visits and aircraft stopovers and visits to Hong Kong. After more than a two-month ban, the Chinese Government again began granting permission for such visits. Requests quickly returned to their pre-bombing levels. Visits were again suspended following the EP-3 collision with a PRC fighter aircraft off Hainan Island in April 2001. Visits resumed in July, 117 days after the incident, with the visits of the U.S.S. Guardian and the U.S.S. Patriot. The aircraft carrier U.S.S. Constellation made a port call in August. In December, permission was granted for visits by the aircraft carrier U.S.S. John Stennis and the flagship of the Seventh Fleet, the U.S.S. Blue Ridge.

V. Macau

Like Hong Kong before it, Macau reverted to Chinese sovereignty on December 20, 1999, under the “One Country, Two Systems” model. Macau’s high degree of autonomy and way of life are protected for fifty years under the 1987 Sino-Portuguese Joint declaration and Macau’s 1993 Basic Law. The PRC has largely respected its commitment regarding autonomy.

With a much smaller population and economy than Hong Kong, there has been less controversy and commentary in the United States over Macau’s situation. Crime, particularly organized crime syndicates (triads) fighting for control of the gambling and vice trade, had been a major problem in Macau. The reversion of Macau to Chinese sovereignty has apparently reduced the magnitude of the crime problem in Macau. This improvement has been attributed to better police training and discipline, the successful prosecution of key triad leaders, and closer cooperation between Macau legal and police authorities and those in Guangdong province.

Textiles dominate Macau’s exports market, comprising 80% of all exports. The illegal transshipment of textiles produced elsewhere through Macau has been a major concern. A September 2000 Memorandum of Understanding with the United States is designed to enforce existing textile quotas and prevent transshipment. Macau has made major improvements in its IPR anti-piracy regime and was moved from USTR’s priority watch list to the watch list in April 2000. However, the existing judicial process is cumbersome and has little deterrent effect, and enforcement needs to be further strengthened. Chief Executive Edmund Ho has pledged to work closely with the United States to address the issue.

Money laundering through Macau’s casinos and trading companies also remains a concern to U.S. law enforcement authorities. Prior to Macau’s reversion to the mainland, reports had surfaced indicating that the government of North Korea has used Macau as a transshipment point for counterfeit U.S. currency. North Koreans also have long been suspected of exploiting their diplomatic presence in Macau to sell drugs and weapons for hard currency, and using Macau as a training ground to prepare intelligence officers for undercover operations. Concern remains that these illegal activities continue.

The new government in Macau has expressed its support for an open civil society, and the judiciary remains independent. However, with the exception of the legislative assembly, democratic institutions remain weak. Fundamental human rights, including the freedom of assembly, speech, association and religion, are guaranteed in the Basic Law. However, in what was viewed as a direct criticism of Falun Gong, PRC President Jiang Zemin noted in December 2000, that the Macau Government should not permit anyone to stage activities in Macau against the Central Government or to split the country. Despite heavy-handed treatment and limits upon entry, members of the Falun Gong generally are allowed to continue to follow their precepts.

VI. Conclusion

Four and one-half years after Hong Kong’s reversion to Chinese sovereignty, the unprecedented “One Country, Two Systems” experiment thus far continues to be a success, albeit a success that continues to face many challenges. Despite a worldwide recession, Hong Kong remains a bastion of free-market capitalism, as shown by its ranking as the world’s freest economy in the Heritage and Cato reports. Hong Kong’s business and political leaders appear determined to devote the capital and resources to ensure the SAR remains one of the driving forces of Asian economic growth. Hong Kong continues to formulate an independent economic policy and maintains its own membership in international economic organizations. Hong Kong’s excellent system of export controls remains intact, but will continue to be stressed as cross-border trade increases. While Hong Kong maintains its substantial progress in protecting intellectual property rights, more could be done and close attention is required. The United States also continues to voice concern about Hong Kong’s civil aviation policy.

Hong Kong’s political system is evolving, but at a slower pace than pro-democracy advocates (and the majority of the Hong Kong people, according to polls) would wish. The media remains free and comments critically on the Government and the PRC; however, concerns arise about self-censorship in anticipation of PRC disapproval. Demonstrators exercise the right to freedom of speech and assembly. Vigorous debate over the appropriate degree of autonomy for Hong Kong persists, most recently regarding conditions for the selection or removal of the Chief Executive. If Beijing chose, as critics fear, to remove some future Chief Executive, confidence in Hong Kong’s future would be seriously undermined.

The initial Report to the Speaker on the Hong Kong Transition, dated October 1, 1997, observed that the initial phase of the reversion to China could be categorized as “so far, so good.” That first report concluded:

It is too early to judge the reversion. Nonetheless, indications to date are hopeful. Civil liberties continue largely unaffected. The economy continues to thrive. U.S. ship visits continue with little change and are, indeed, welcomed with open arms. However, we continue to be concerned about the potential over time for the constriction of democracy, media self-censorship and the loss of hard-won rights. Chinese and Hong Kong authorities are acutely aware that the eyes of the world continue to scrutinize their post-reversion actions.

In the intervening years, the economy has been buffeted by recession, and ambiguities in the Basic Law have posed serious challenges for Hong Kong authorities. At its core, however, this initial assessment remains valid. With the benefit of five years’ experience since Hong Kong’s reversion, Hong Kong’s transition from U.K. colony to PRC Special Administrative Region can be judged a qualified success, noting that significant challenges continue to face Hong Kong’s leadership and people in preserving the “high degree of autonomy” promised in the Basic Law.

 

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The Better Hong Kong Foundation is a privately funded, non-profit, non-political organization, formed by leading Hong Kong business people to reinforce Hong Kong’s role as the leading regional, financial, shipping, trading, communication and technology center. The Foundation also serves to enhance greater international understanding between East and West by facilitating communications between Hong Kong, China and the international community.