U.S. and Hong Kong

Congressional Perspectives on Hong Kong
One Year After the Reversion

The Honorable Doug Bereuter
Chairman, Subcommittee on Asia and the Pacific

Woodrow Wilson Center Speech
July 14, 1998

I come to you as a Member of Congress who in the last two years has devoted considerable attention to Hong Kong. As Chairman of the Subcommittee on Asia and the Pacific, Hong Kong was the subject of hearings during the 104th Congress and was the subject of the first hearing held at the beginning of the 105th Congress.

When I accompanied the Speaker to Asia in April of last year, he created a task force to observe and report on Hong Kong's reversion to China. The Speaker asked that I chair this task force, evenly divided in membership between Republicans and Democrats, and for the past year I have been reporting to the House for the task force on a regular basis. We are now nearing completion of our fourth quarterly report, which should be published in the Congressional Record in the next few weeks.

I had hoped to have just returned from Hong Kong, as head of the Speaker's Task Force on the Hong Kong reversion. However, the Task Force's visit had to be postponed at the last minute. Nonetheless, I have been able to form some views regarding the status of Hong Kong on the first anniversary of its reversion and congressional attitudes toward Hong Kong.

At the time of the reversion, when many observers were predicting immediate doom and gloom, I told my congressional colleagues that the real test would not be immediately after the reversion. Division after division of People's Liberation Army (PLA) troops were not going to march into Hong Kong and take over the Government House, the stock exchange, and Stanley Market. Rather, the test for Hong Kong would come over time -- over years and possibly even over decades -- through the success or non-success of possible efforts to manipulate the institutions that have made Hong Kong unique and successful.

Looking back particularly over the past six months, we find that the political situation is better than expected, while the Asian financial crisis has had a much greater than expected effect on Hong Kong's economy. In brief, one year after Hong Kong's reversion, I am pleased to be able to repeat the most basic conclusion found we made in the first, second and third Quarterly Reports. That basic conclusion, I find, is still accurate; it is "so far, so good."

There are a number of areas where we should look at to see how the situation with Hong Kong is evolving. Today I propose I propose to briefly comment on the evolution of Hong Kong's democratic institutions, the state of freedom of expression, the judiciary, the status of intellectual property rights (IPR), economic and trade issues, and U.S.-Hong Kong security relations. I would also just briefly touch on Macau's upcoming reversion and how that might affect congressional attitudes toward Hong Kong.

The Development of Democracy -- The May 24th Election

Certainly, there have been positive signs in the past months. Perhaps the most notable event is the surprisingly high turnout of voters at the May 24th elections. The Legislative Council (LegCo) elections dominated Hong Kong's political agenda in the first half of the year.

There was considerable concern prior to the election regarding the "regressive" nature of the election laws enacted by the Beijing-appointed Provisional Legislature. These laws dismantled key provisions of the electoral reforms put in place belatedly by the last colonial governor, Chris Patten, in 1995. Many in Congress did not believe that Hong Kong could manage to hold successful elections.

Additional concerns were voiced about the formula of 20 LegCo members directly by popular vote, 20 elected by "functional constituencies" and 10 to be chosen by a special Election Committee. Of course, the widespread view in Congress is that direct election is preferable to functional constituencies and that the members elected by the special Election Commission make the process less than fully democratic.

Voter apathy reflected in opinion polls led to expectations of low voter turnout. Apathy was predicted based upon the confusion arising from the complexity of the electoral system, unfamiliarity or distrust of elections, the cynicism about the ability to affect the eventual outcome of events and simple disinterest. However, despite torrential rains, a record 53.3 percent of registered voters participated in the elections. (This compares to 35.8 percent in 1995 -- the "most democratic" election). Certainly, this turnout impressed many in Washington and around the world.

Freedom of Expression

International confidence in Hong Kong is in large part based on the commitment of Hong Kong's authorities to the rule of law inherited from the British. International confidence also stems from the ability of the Hong Kong people to freely express their opinions and to question governmental policies.

My perception is that the people of Hong Kong largely continue to express themselves without restraint. For example, on June 4, the ninth anniversary of the Tiananmen Incident, between 16,000 - 40,000 protesters held the first commemoration of that tragic event since Hong Kong's reversion.

Self-censorship, however, continues to be a concern. In February, a poll showed about 43% of those interviewed thought the media practiced self-censorship. Only 54% believed the media was fully exercising freedom of the press. Self-censorship is a subtle and insidious influence which is difficult to document and impossible to quantify.

The Hong Kong Journalists Association, in its recently issued annual report, noted that self-censorship was "no worse" than in the years prior to reversion. It noted, however, that concerns about reporting on independence initiatives in Tibet, Taiwan or Xinjiang were on the rise. The Western media gave a lot of attention to a local Hong Kong television reporter who claimed that his report on the independence movement in Xinjiang was kept off the air for political reasons.

This aspect of freedom of expression and how it applies to expressions about certain sovereignty issues in China is especially important because Hong Kong's legislative council will soon be considering a measure to define subversion. Moreover, Chief Executive Tung has widely stated that he believes Hong Kong people should not be freely expressing their support for independence for places like Taiwan, Tibet, and Xinjiang. Therefore, a crucial test of Hong Kong's adherence to free expression will be whether mere expressions of support for independence for those areas will be punishable under law.

In January, the specter of official interference in press freedoms arose when a Hong Kong delegate to the National People's Congress criticized Hong Kong's government-funded Radio-Television Hong Kong for airing shows critical of Hong Kong policies. Subsequent remarks by Chief Executive Tung suggesting that the government policies be "positively presented" created considerable concern. Chief Secretary for Administrative Affairs Anson Chan, however, immediately expressed "deep regret" at the delegates' remarks and Chinese President Jiang Zemin showed his sensitivity towards the issue by commenting that Hong Kong-related issues should be discussed in Hong Kong, not Beijing.

Independence of the Judiciary

A fair and independent judiciary is another critical element of international confidence in Hong Kong, an area that Congress certainly will follow very carefully.

In general, the Hong Kong judiciary continues to operate independently and without the taint of political influence. Several incidents this year, however, have focused attention on the possibility that Hong Kong's highly regarded legal institutions may be vulnerable to Chinese influence.

1) The case of a politically well-connected publisher who was not prosecuted for fraud, despite the fact that three of her deputies were charged with fraud and that the publisher herself had been named in a report by Hong Kong's anti-corruption commission.

2) Hong Kong government did not prosecute the New China News Agency, or Xinhua, for violating Hong Kong's privacy statute when it failed to respond by the legal deadline to a request under Hong Kong's privacy law by a politician for a copy of Xinhua's file on her.

On a positive note, the Hong Kong government clarified in April that the first official post-handover human rights report to be submitted to the U.N. by Special Administrative Region government will not be amended by Beijing. The report required by the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights will be submitted through Beijing, but will not be subject to Beijing's review.

Economy and Trade

Ironically, the greatest immediate threat to Hong Kong's prosperity stems not from its reversion to China but from the external events of the Asian Financial Crisis. It is now clear that Hong Kong is in a recession for the first time in 13 years. It just posted its second quarter of negative growth following a 2% contraction in the first quarter. Almost no one (including Hong Kong officials) predicts an early turnaround.

This slow and negative growth has led to an unemployment rate of 4-5%, a 15 year high.

Additionally, Hong Kong's real estate bubble has burst and commercial and residential property prices are 40% below their bubble-priced highs of 1997. The Hang Seng Index has followed the real estate downward slide, falling 40% since its all time high of August last year. Finally, Hong Kong's tourism industry is projecting a decline of 8% in tourism revenues in 1998.

The positive news in Hong Kong is that the Hong Kong Government is responding. Chief Executive C. H. Tung proposed a stimulus package of $5.67 billion U.S. dollars in June and a suspension of public land sales. These two decisions will force the highly efficient and proud civil service to run a budget deficit of $2.7 billion U.S. dollars in 1998-1999.

But if you are inclined to feel sorry for the Hong Kong government and its small projected deficit, consider this. Hong Kong still maintains the third largest holding of foreign currency reserves in the world. With $96.2 billion U.S. dollars, they are behind only Japan and China in that category. Moreover, Hong Kong has not jettisoned its free market ideology and ranks 2nd on the competitiveness rankings of the World Economic Forum and 1st in the Heritage Foundation's ranking.

While the Asian Financial Crisis has seriously jolted and hurt Hong Kong's economy, it has also highlighted Hong Kong's serious and unhealthy dependence on entrepot trade between the United States and China. Entrepot trade is one of the few economic areas still registering positive growth as compared, for example, to exports from domestic manufacturing in Hong Kong.

For Hong Kong, its reliance on entrepot trade is both good and bad. The United States is still growing and buying more and more Chinese manufactured goods. This provides an excellent export market for Hong Kong. Nevertheless, the bad news for Hong Kong is that our current trade deficit with China ($50 billion last year and projected to be $60 billion this year) is politically and economically unsustainable. And if the China trade deficit issue is not addressed by increased market access for U.S. firms to China, then Hong Kong could get hit with collateral damage from a frustrated U.S. government -- even if it does everything right.

Finally, let me say that Hong Kong's role as an entrepot trader between the United States and China is dependent on its positive reputation as an efficient and well-managed customs territory. From my observations over the last year, I have concluded that the SAR government deserves its generally positive reputation with some notable exceptions. Most importantly, in the area of export controls and law enforcement cooperation, it is my understanding that Hong Kong officials remain extremely cooperative with U.S. customs and law enforcement agencies. This cooperation is absolutely critical in attempting to detect and prosecute illegal activity in one of the world's busiest ports. Nevertheless, I am concerned about intellectual property rights enforcement in Hong Kong and would note that Hong Kong has again been placed on our Trade Representative's watch list for its failure to stop illicit trade in this area. From a congressional perspective, I believe Hong Kong officials have to remain extremely vigilant in the key areas of cooperation, including export controls, intellectual property rights enforcement, and other law enforcement issues such as money laundering and corruption. Nothing could undermine congressional support for Hong Kong faster than a serious misstep or break in our cooperation on these extremely important issues.

Security Issues

There are two issues that arise regarding security relations with Hong Kong.

First, the U.S. Navy has enjoyed an excellent relationship with Hong Kong in terms of ship visits. With the loss of Subic Bay as a major installation, these port of call visits have become extremely important for the effective functioning of our naval forces in East and Southeast Asia. Certainly, we could increase our visits to Singapore or Jakarta if Hong Kong's facilities were denied after the reversion, but this has not been a problem. The relationship with Hong Kong port authorities since the reversion has been outstanding. Indeed, had I been in Hong Kong last week, I would have had dinner aboard the U.S.S. Abraham Lincoln, a nuclear-powered aircraft carrier that was paying a port visit. In over 65 port calls since the reversion, I am not aware of any security problems, and the resident People's Liberation Army (PLA) officials certainly have developed a better appreciation of the power and flexibility of the U.S. Navy.

The second security concern is related to the influence of the PLA and Chinese defense industries in Hong Kong business. Certainly, there is a concern regarding the PLA's surreptitious acquisition of militarily sensitive technologies. You are no doubt aware of the uproar in Congress regarding Loral's release of highly sensitive rocket/missile technology. To the extent that PLA entities operating in Hong Kong are engaged in arms trading or in acquisition of Western technology, Hong Kong's relations with the U.S. will be put at risk. In this year's Defense Authorization debate, Representative Saxton sought to offer a sanctions amendment designed to address just this concern. This amendment was not ruled in order, but let me be clear -- there is enormous suspicion regarding any PLA activity in Hong Kong. Their activity, or lack thereof, will be an important determinant in future congressional attitudes.

Macau

No discussion of Hong Kong can be complete without also addressing next year's reversion of Macau. Though smaller in size, and with an economy a fraction of that of Hong Kong, I would warn you that Hong Kong does have an interest in the ensuring a successful reversion for Macau. Certainly, congressional attitudes toward Hong Kong will be affected if the Macau reversion goes badly.

Frankly, I am very concerned about the negative effect of Macau's reputation for lawlessness. When the territory's most prominent citizen is a gang boss by the name of "Broken Tooth," the risk of major IPR violations and diversions of technology must be judged to be great. This is an issue that the Hong Kong authorities must follow carefully, and the anti-corruption authorities should guard against the spread of Macau's triad activity into Hong Kong.

Conclusion

I believe that many of you may have noted a congressional ambivalence toward Hong Kong in my remarks today. It is true that congressional attitudes toward Hong Kong vary from unequivocal support for human rights and democracy there to suspicion that Hong Kong can easily be corrupted by the mainland. Nevertheless, it is very important to note that Congress is not indifferent to the fate of Hong Kong. Largely because of the Speaker of the House's foresight and creation of the Hong Kong task force, Congress has kept a keen eye fixed on Hong Kong throughout the last twelve months. I predict it will continue to do so in perhaps a less formal manner in the future.

In the first three quarterly reports on the reversion, the Speaker's Task Force has ended with the conclusion, "so far, so good." That continues to be my assessment, and I believe, the general assessment of Congress. Largely, that assessment stems from the overriding observation that Beijing has permitted Hong Kong officials to run Hong Kong as they deem appropriate while maintaining a general "hands off" approach. However, we have also noted some general concern that Hong Kong officials may be anticipating what Beijing desires while trying to, as Martin Lee puts it, "outroyal the queen."

One year is not enough to determine whether Hong Kong's unique characteristics will remain uncorrupted or uninfluenced by the mainland. Nevertheless, in one year, Hong Kong has weathered some important tests, already proving wrong the naysayers who predicted immediate doom, upon its reversion to China.