Speeches and Articles by Former Consul General Richard A. Boucher

U.S. Interests In Hong Kong

Remarks by U.S. Consul General Richard A. Boucher

December 8, 1998

When I'm in Hong Kong, I spend a lot of my time talking to people there about the United States. Now that I'm back here in the U.S., I'd like to take this opportunity to talk a bit more about the United States. More specifically I want to talk about our interests in Hong Kong, since my job is to pursue them, and how Hong Kong acts as a lens to focus on some of our larger interests at this time in Asia. By the time I finish, and lets all hope that's not too long from now, I want to emphasize that:

1. business opportunities abound even in the crisis;
2. Hong Kong can be a window on China's future;
3. we have a big stake in stability in Asia; and
4. we have an enormous stake in showing that freedom works.

First, let's look at what has and more importantly what hasn't happened in Hong Kong in the last few years. A year and a half ago, you could hardly open an American newspaper without reading some analysis of what the reversion to Chinese sovereignty on July 1, 1997 would mean for Hong Kong's free-market system and democratic reforms. You could hardly turn on the television without some commentator speculating about whether Hong Kong could maintain its vibrant freedom and prosperity under Chinese sovereignty. The People's Liberation Army marching into Hong Kong, the final lowering of the Union Jack, the raising of the red flag of China -- these events received widespread coverage in the U.S. But after the handover hoopla was over, after the network news anchors went home, Hong Kong kind of drifted off of the radar screen, reappearing only occasionally when there was a problem, such as the chicken flu epidemic, or an anniversary, or some other unusual event, such as the Hong Kong government's recent intervention in the stock market.

Perhaps, like the dog that didn't bark in the Sherlock Holmes story, this quiet out of Hong Kong provides the best clue about how the transition is going. In short, our basic view is that things are off to a very good start. The things that most needed to be preserved have been preserved. The precedents that are being set for the future are good ones. As a British colony, Hong Kong built its success on being a free society with free markets, strict adherence to the rule of law, freedom of speech and of the press, and a clean, efficient government. As the Hong Kong Special Administrative Region of China, it has preserved these same basic liberties. Political demonstrations are common and peaceful. The legislature elected in May, though not fully representative, puts forth its sometimes contentious or controversial views. The news media are still free and feisty, to the point where the Chief Executive can hardly open a newspaper without seeing an unflattering cartoon caricature of himself.

Economically speaking, Hong Kong has retained its basic adherence to sound economic principles. In the legal arena, the courts try cases based on common law. The Hong Kong Police may no longer use the word "Royal," but it's the same police force ensuring the rule of law prevails. One acquaintance of mine asked a taxi driver about the impact of the historic changes. He answered, "Well, I parked in the same illegal space where I parked before, and I got the same kind of ticket, and I went to the same place to pay it, and the same guy took my money." That's the fundamental continuity of the rule of law.

Before the handover, the big question was whether Beijing would honor its commitments. The answer is yes. When you arrive at the airport, it is Hong Kong Immigration that checks your passport, not Chinese officials. When you cross the border, those are Hong Kong Customs agents and Hong Kong border police. The Chinese People's Liberation Army, about which there was so much comment at the time of the handover, stays in its barracks and very rarely ventures out in public. Likewise, the official Chinese representatives have given a very strict interpretation to their instructions not to intervene in Hong Kong's local affairs. This we applaud.

I remember talking to Donald Tsang, the Financial Secretary and a career Civil Servant, about six months after the handover. I asked him what changes he had seen. He said the most striking thing was that in the old days, he used to come to work every morning and find his in basket full of telegrams that had arrived overnight from London containing information and instructions. Now when he comes to work in the morning, except for a few reports from Hong Kong's overseas trade offices, his in basket is empty. He's on his own.

So the big question is no longer, "Will Hong Kong people really govern Hong Kong?" The questions are now much more complicated: "How will Hong Kong people govern Hong Kong?" and "How will Hong Kong people govern Hong Kong more democratically?" The focus has shifted from the ideals of autonomy and democracy to the practical reality of creating workable institutions and building the structures of representative government. Some of these issues such as the relationship between the legislative, judicial and executive branches are ones that may take some time to settle out as politicians, courts and civil servants test the new relationships.

Last May, in a driving downpour, Hong Kong held elections for the Legislative Council. The high turnout despite the weather provided watertight evidence that Hong Kong people like democracy and want more of it. Currently, only a minority of the members of the legislature are directly elected by popular vote; we believe the expansion of democracy should proceed at a pace that Hong Kong people desire. Freedom of the press is another important issue for us. So far, the local press has remained vibrant and free- wheeling, and we want to make sure future laws against sedition don't limit that freedom. The "one country, two systems" formula seems to be working well but bears watching. The status of Chinese state organs in Hong Kong and a recent case in which a Hong Kong gang leader was tried and sentenced to death on the mainland have been the subject of considerable comment.

Unfortunately, the people of Hong Kong have to make their new governing framework take off in the middle of a major economic earthquake. The Asian financial crisis has shaken Hong Kong hard. As a regional financial center, Hong Kong is subject to all the perils of the region, and as a world financial center, it is affected by events from Russia to Brazil. Hong Kong also had its own bubbles: especially in the property market and some of the Chinese stocks. The adjustment has been hard and swift. The stock market index dropped from a high over 16,000 in August 1997 to about 7,000 and is now hovering around 10,000. Before the crisis hit, the Hong Kong property market had been rising steeply for several years. When that bubble deflated, property prices sank 40% from their 1997 peak. The latest unemployment figures have reached an all-time high of 5.3%. Tourism, construction and retail sales are all down, and now export earnings are declining. The rate of economic growth is expected to be minus 5% for 1998 and to be flat or negative in 1999. While it's true that Hong Kong has withstood the financial earthquake better than many other Asian countries because of its solid foundation as a free society operating with free but well-supervised markets, there is no doubt that the downturn has been painful.

The most famous of Hong Kong's responses was the decision in August to intervene in the currency, futures and stock market. The government bought US$15 billion worth of shares in a number of major companies in the stock market in order to fend off what was seen as a predatory attack by currency speculators and large hedge funds. The move was controversial both in Hong Kong and overseas. But even the defenders of the intervention stress that it was an extraordinary measure, a one-time event, hopefully an action that they believe will not have to be repeated.

So, what can a small city do to cope with such crisis? Well, for one thing, they can prepare for recovery. In some ways, Hong Kong is doing this. They have announced steps to improve their market through better regulation and more transparency. They are taking a major step forward towards opening the telecommunications and broadcasting markets. They are promoting high-technology and trying to improve education systems.

How Hong Kong people and other Asians come out of the crisis is vital to us because our own security and well- being are so closely linked to Asia's prosperity. Currently, 30 percent of U.S. exports go to Asia, more than to Europe, and millions of American jobs are directly dependent on these exports. Oregon, for example, exported $5.4 billion in merchandise to Asia in 1996, the most recent year for which state figures are available. Oregon's exports to Asia accounted for 6.3% of the state's gross state product and have been a key vehicle of growth for Oregon. Now, overall U.S. exports to East Asia are down almost 20 percent for the first eight months of 1998. The effects of the Asian crisis are already beginning to show in our trade balance. There is no question the United States has a big stake in Asia, but let me be more specific in terms of how we see it in Hong Kong.

About 50,000 Americans live in Hong Kong, and it is a major port-of-call for the U.S. Navy. There are approximately 1,100 American companies doing business in Hong Kong, and the U.S. has $19 billion worth of direct investment in Hong Kong, plus much more in funds and portfolios there. It's an important city for American firms because Hong Kong is a place that makes deals happen. The genius of Hong Kong is to find opportunities by bringing together manufacturing, markets, finance, and technology from all over the world.

So that's point number one: we have specific interests in Hong Kong and opportunities to advance them, even in the crisis. At the Consulate General, we advance those interests. We are working to end the piracy of computer software, music and videos, which has been a major problem in Hong Kong and which costs American companies as much as $200 million per year. We are also working to stop illegal textile transshipments, the means by which some exporters evade U.S. textile quotas. We also promote US business and push for more open markets. Given Hong Kong's unique position in the financial and commercial world, there are indeed opportunities for US companies despite this crisis, from investing in suppliers to selling equipment for Hong Kong's high-tech transformation.

And that leads me to my next point, Hong Kong's unique role in China's astonishing transformation. Hong Kong has been a crucial engine powering the economic development of China, providing capital for China's reforming economy. In broader terms, Hong Kong serves as a model for China and for the rest of the region, demonstrating how rule of law and respect for personal freedom can turn a set of rocky islands with no resources into a prosperous, sophisticated city. What goes on in Hong Kong is important to us because Hong Kong is, as President Clinton put it, "a window on China's future."

Third, we who work in Hong Kong are very aware of the key role the United States plays in the prosperity, stability and security of the entire region, and the U.S. interests at stake. Our law enforcement agencies regularly work with all of Hong Kong's law enforcement community to stop drug traffickers, alien smugglers, counterfeiters, car thieves and others who operate through Hong Kong or in the region. This law enforcement cooperation has continued virtually unchanged since the transition. We also regularly host visits by the US Navy ships whose presence in the region has provided an essential underpinning to the region's past economic success and increasing political cooperation.

Fourth, and finally, we have a much bigger stake in how the people of Hong Kong and other places fare through this crisis. Whether it is in expanding individual liberty, helping people find their way out of poverty, or regulating the constructive chaos of markets, we believe that freedom works. And, economic and political freedom work together. Vice President Gore, in his speech last month at the APEC business summit in Kuala Lumpur, underlined the connection between self-government and prosperity. He noted that some people "cling to the belief that authoritarian rule makes it easier to impose the fiscal discipline and financial sacrifice often necessary to weather economic storms and spark growth." But, he said, the facts are otherwise. Worldwide, democracies are coping better with economic crises because their governments have the legitimacy to undertake effective reform.

We must see that they succeed. Continued support for democracy is part of America's strategy to promote economic recovery in Asia. Other efforts include working with the international community to mobilize support for countries in crisis. The International Monetary Fund, the World Bank and the Asian Development Bank have committed $65 billion to the affected countries in the region. The specific steps that President Clinton called for in September to spur growth have begun to be implemented. The U.S. has met its obligations to the IMF. The U.S. and other countries have cut their interest rates, as has Hong Kong. The industrialized nations have agreed to establish a new precautionary line of credit, anchored in the IMF, to help stop the financial contagion from spreading. International bodies will provide more support to strengthen the social safety nets of Asian countries. In addition, we are working on ways to reshape the world financial architecture to make it more open and inclusive, more transparent, less prone to instability and better able to manage risk. Hong Kong is a partner in this process.

So, those of us who represent the United States in Hong Kong are very aware of the stakes in this crisis. Free society and free markets work in Hong Kong. Others in the region are choosing this path as well. We want to make sure they develop and expand, so that peasants and tycoons alike will understand that freedom is the road to success. That's their key to recovery, and the key to protecting our interests as well. For all of us, it's not the time to run away. It's time to look more closely at markets, countries and projects. I hope to see you out there. Thank you.