U.S. and Hong Kong (1997)

U.S. Department of State

Hong Kong Country Commercial Guide for FY 95-96

Office of the Coordinator for Business Affairs

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CHAPTER III. POLITICAL ENVIRONMENT

A. Nature of Bilateral Relationship with the U.S.

The U.S. relationship with Hong Kong is broad and deep. Hong Kong is our thirteenth-largest trading partner and U.S. direct investment in the territory at year-end 1994 totaled close to US$12 billion on a historical cost basis. The U.S. maintains a wide number of cultural and educational exchanges, and enjoys excellent cooperation in law enforcement matters. Over 34,000 Americans reside in Hong Kong.

B. Major Political Issues Affecting Business Climate

Hong Kong will become a "Special Administrative Region" (HKSAR) of the People's Republic of China in 1997. The Sino-British Joint Declaration, signed in 1984, and the Basic Law of the HKSAR, passed by China's National People's Congress in 1990, form the legal basis for China's "One Country, Two Systems" guarantees for Hong Kong. The HKSAR is to have a high degree of autonomy, and enjoy executive, legislative and independent judicial power. The social and economic systems, life- style, and rights and freedoms currently enjoyed by Hong Kong people will remain unchanged for at least 50 years. Beijing will be responsible for foreign affairs and defense of the HKSAR.

Sino-British consultations on transition issues take place chiefly in the Joint Liaison Group (JLG). The JLG (or other joint bodies) must approve Hong Kong's laws, economic agreements with third countries, and economic decisions that straddle 1997. Sino-British disagreement on major transition issues has generated some uncertainty over the territory's political future. Hong Kong Governor Patten's proposals for modest reforms of Hong Kong's three tiers of governmental bodies (the Legislative Council, district boards, and municipal councils) were not agreed to by Beijing after 17 rounds of negotiations. When the Legislative Council voted to approve the proposals in 1994, despite China's objection, Beijing announced that it would disband the Legislative Council elected in September 1995 upon resumption of sovereignty over Hong Kong. Beijing further indicated that it may establish a provisional legislature after reversion until new elections are held under unspecified rules. The future of the legislature, therefore, remains unclear.

The difficulties in Sino-British political relations have had some impact on Hong Kong's new infrastructure development, most notably in delaying progress on the new Chek Lap Kok airport and the construction of Container Terminal 9. In late June 1995, however, the two sides finalized terms for financial support agreements for the airport projects, thus removing the last significant obstacle to full funding for this megaproject. The fate of CT9 remains unresolved.

A breakthrough occurred in June 1995, when Chinese and British negotiators reached agreement on the establishment of a Court of Final Appeal, which will replace the British Privy Council as the highest appeal body on July 1, 1997. This development was widely seen as a step forward in assuring the continuity of the rule of law, which has been fundamental to Hong Kong's success as an international business and financial center. Many hope that this agreement will lead to better cooperation in other areas, which will be important to maintaining business confidence in the territory beyond 1997.

C. Political System, Elections, Orientation of Major Political Parties

As a British dependency, Hong Kong is a free society with legally protected rights. Its constitutional arrangements are defined by the letters patent and royal instructions. Executive powers are vested in a British crown-appointed governor who holds extensive authority. The judiciary is an independent body adhering to English common law with certain variations. Fundamental rights ultimately rest on oversight by the British Parliament. In practice, however, Hong Kong largely controls its own internal affairs. The governor appoints an advisory executive council, and a partially representative Legislative Council has limited powers. The main functions of the 60-member Legislative Council (Legco) are to enact laws, control public expenditure and monitor performance of the government by putting forward questions on matters of public interest.

Of the 39 elected councilors to Legco, 18 were elected by universal suffrage in 1991, and this number will increase by two in the next elections in September 1995. Twenty-one councilors were elected by functional constituencies which disproportionately represent the economic and professional elites and, moreover, violate the concept of one person-one vote, since voters in functional constituencies may vote both in a functional and a geographic constituency. This disproportionality was mitigated in 1994 when Legco approved Governor Patten's proposal to allow for broad-based constituencies in nine new functional groupings. Legco further extended political franchise in the territory by lowering the voting age from 21 to 18 and opening up all seats on district and municipal boards, which provide a forum for public consultation and participation, to direct elections.

Three major political parties are represented in Legco: the Democratic Alliance for the Betterment of Hong Kong, the Democratic Party, and the Liberal Party. The first has a pro-Beijing orientation, the second strongly advocates broader democracy in the territory, and the third is pro-business.

When Hong Kong becomes a Special Administrative Region under China in July 1997, the Basic Law will guarantee the rights and freedoms that Hong Kong residents now enjoy: the continued rule of law, and the maintenance of Hong Kong's capitalist system for 50 years. The HKSAR will maintain its capitalist economic and trade systems, shall retain the status of a free port and continue a free trade policy with free movement of goods and capital. It will retain its status as an international financial center. It will, on its own, formulate monetary and financial policies and safeguard the free operation of business and financial markets. The Basic Law states that the HKSAR will maintain its own currency and use revenues exclusively for its own purposes. The Hong Kong Dollar will continue to be freely convertible and foreign exchange, gold and securities markets will continue to operate. Systems currently in place, including Hong Kong's regulatory and supervisory framework, will remain unchanged. Hong Kong's legal system, including the independence of the judiciary and obligation of the executive authorities to abide by the law, are slated to continue. Beijing will be responsible for foreign affairs and defense of the HKSAR.

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