It has been quite a while since I wrote about Hong Kong, but earlier this week I attended a luncheon organized by the venerable free-market Fraser Institute and the keynote speaker was Anson Chan. Chan as you may recall is the former Chief Secretary of Hong Kong – essentially the number two position in the city state’s government – a role she held under both British and Chinese rule until she was forced out in 2001. She has at times been described as Hong Kong’s ‘iron lady’, but it would be far more fitting to label her as the only Hong Kong politician with a large popular appeal and the only establishment figure to act as a forceful voice for universal suffrage in Hong Kong. Her appearance at one of the largest pro-democracy demonstrations a few years ago has turned her into an icon of the Chinese quest for democracy.

Of course, her immense popularity in Hong Kong is precisely what prompted her early retirement and which has kept her out of a formal role ever since. Yet, bitterness is not part of her message and during her speech she debunked some of the most commonly held misconceptions about the former crown colony. Ever since the handover – now almost 10 years ago – the main issues that have faced Hong Kong have primarily been economic, the fall-out from the Asian currency crisis was a crucial one. But also, and Chan failed to mention this, the fact that as China grows it is becoming less reliant on Hong Kong as a port of entry to the mainland and that has taken some of the gloss off the endless row of office towers lining Victoria Harbour. Still, Hong Kong remains the freest economy in the world where the ideal of low taxes, little regulation and the rule of law have remained an incredible force for growth and success.

More importantly, Chan argued that Beijing so far has been fairly benign and fears over the PLA marching down the city’s streets were largely unfounded. Beijing has stuck to most of its commitments under the “one country, two systems deal” with Britain. The one area however where it has dragged its feet is following the route - as laid out in Hong Kong’s Basic Law - to universal suffrage and Chan rightly focused on her concerns about some of the watered down initiatives coming from current Hong Kong leader Donald Tsang, clearly designed to receive the nod from Beijing. Together with her supporters she has now laid out a timetable for full democracy that is far more aggressive than what is currently being prepared.

Two things were noteworthy. When asked if Beijing had pressured her in the past she emphatically said ‘no’ pointing out in a graceful way that she wasn’t exactly known to bow to pressure. But, said Chan, we should never forget that the current Chinese leadership is hardly a monolith speaking with one voice; there are opposing factions within the leadership. And we should not underestimate the sizeable contingent in the Chinese capital that does realize that continued economic growth and Chinese strength can only be sustained through eventual democratic development.

As you know, I am very skeptical about the global warming hysteria, but if you spend a few years in Hong Kong it is enough to turn you into a surefire Greenpeace contributor. When I left Hong Kong in 1999 there were already deep concerns over the city’s environment and its impact on international firms that were increasingly reluctant to send staff to a place where the quality of life was simply appalling. It was also a local question and precisely one that touched on direct democracy as Hong Kong’s citizenry was never allowed to give any input on how the city’s pro-business elite basically relegated a clean and healthy living environment to the bottom of the list of priorities. The issue was ignored and Chan to some extent bears some of the responsibility for that. When asked about this Chan’s answer could have had a 1999 timestamp, nothing has changed in terms of pro-active environmental policies, things have actually turned worse as the unfettered urban and industrial sprawl continues unabated into mainland China, often supported by Hong Kong capital.

The basic train of thought has always been that democratic change in Hong Kong would eventually help foster freedom in mainland China. Capitalism and eco-destruction have proven how profound and successful the influence from the former British enclave has been to date. Democracy may be a tougher export product, but it surely has potential for Hong Kong and its motherland.

Anson Chan is one of the few Asian politicians who knows how wealth creation has created an emerging class of engaged citizens that demands to have a say as to how they want to enjoy the fruits of their labor. She ended the meeting by underlining the importance of staying true to your values, and Hong Kong as a fiercely proud beacon of freedom will no doubt follow the deep convictions of its lone political heroine.

As you may recall one of my favorite books is former Hong Kong Governor Chris Patten's East and West. Patten was not a welcome guest in Beijing during his years in Asia and the reason was quite simply that he managed to stand up to Beijing, regardless of the consequences:

Patten's most provocative chapter is on China. He contends that the West should treat it like any other country and refuse to kowtow to a regime that is ''at the end of an era.'' There is no correlation between bending to Beijing and benefiting economically, he says.

It is a lesson that is hardly ever practiced, so deep is the fear to miss out on the economic frenzy that is China. Yet, in breaking with his predecessor's record of leaving Canadian citizens to their own devices in foreign prisons and in taking Patten's clear advice to heart, Stephen Harper has created another unusual benchmark. And note that Harper is pursuing the human rights of someone that can hardly be classified as an average Canadian: Huseyin Celi holds dual citizenship and is, according to the Chinese, a terror suspect.

Smart and sound.

It's like going into Hollywood and argue against the merits of producing entertainment. Hong Kongers are perplexed:

Shouts of "People before profit," "No tariff cuts" and "Down with the WTO" echo through the city that prides itself on being one of the world's major financial centers and a poster child for laissez-faire capitalism.

"Most people in Hong Kong don't understand what they (the anti-free trade protesters) are doing. This is not in their culture. They like free trade," said K.K. Cheung, a 68-year-old retired construction engineer.

Money, trade, markets. It built Hong Kong. It's the lifeblood of Hong Kong.

NOTE: Others blogging the WTO event in Hong Kong are Flagrant Harbour and Freedom to Trade.

A major march for democracy took place in Hong Kong yesterday, an interesting feat given the recent positive change in local leadership and the fact that the territory’s economy is on the mend. While there is some debate about the turn-out numbers, it was a significant event. It underlines once more that the 1990s argument that Hong Kong Chinese are only interested in making money is bogus, it was a myth propagated by the business community who were willing to pay any price to ensure stability. They even went as far during one of the pre-1997 missions to meet with China’s leadership to argue that the city-state state’s people yearned for a return to the Chinese motherland. That, even for the autocrats in Beijing, was a little too rich.

What was the most interesting part of the demonstration however was the participation in it by Hong Kong’s most popular politician, Anson Chan. Not only was she the second highest ranking government official during the last years of British colonial rule, she continued in that function for four years after the handover until she was forced out. And it hasn’t shut her up, on the contrary:

"There are moments in one's life when you have to stand up and be counted and for me this is one of those moments," she said.

"I believe democracy to be good for Hong Kong and when the time is ripe it would also be good for my country."

Note how she extends the argument to mainland China by talking about "my country", a remarkable comment. Take a look at her photo here and the banner in the background which captures the essence of it all: “Democracy no threat to stability”.

As we know now, the lack of transparency and democracy contributed in no small part to Asia’s meltdown in 1998, so democracy may actually contribute to economic stability. And while they won’t share that knowledge publicly, the Beijing leadership knows that once its economic engine overheats, popular dissent will get the upper hand. As China’s only enclave with a more mature and westernized economy, Hong Kong can and probably will function as a model for things to come on the mainland. While talk of a democratic revolution in Hong Kong is ludicrous, the city state does have an ability to tweak the course of Chinese history into a more open direction. Yesterday's march was proof of that.

It’s been a while since I’ve written about my former hometown, Hong Kong. Yet, it continues to come up regularly and people always – and that means always – ask me if I left because China took over sovereignty in 1997. They don’t really ask me now that I think about it, they tell me. Well, we left HK in 1999 and it had nothing to do with the odd PLA officer cruising through downtown Hong Kong or the way Tung Chee-Hwa had stepped into the shoes of the former governor. Nor did it have anything to do with the real distress for Hong Kong in the late 90s: the economy. It’s interesting because few people are aware that the former British colony took a few big blows following the Asian currency crisis of 1998. But it wasn’t just the region that had an impact, the artificial boom that the British had engineered leading up to 1997 by restricting the supply of land (driving up property prices and the Hang Seng index) had to come to an end one day.

But, the new government realized that there was probably limited scope for a simple bounce back and became resourceful by initiating an economic vision for the future, Hong Kong as a tourist destination. Flagship project – following the age old wisdom that big project spending will eventually get an economy going again – was an offshore Disneyland. Well, the project is complete now and Simon was kind enough to look at the way the HK government took most of the risk while Walt Disney Co. is likely to reap most, if not all, of the rewards. That is, if the adventure park takes off and judging from Phil’s initial visit, the new Asian Disneyland leaves a lot to be desired but in the scheme of things that shouldn’t matter, local and mainland Chinese will treat the facility as a welcome diversion from the city’s shopping malls.

Real entertainment in Hong Kong however is provided by whatever takes places in the territory’s courts and while visiting Phil’s Flying Chair, I learnt that the Nancy Kissel affair had come to a conclusion earlier this month with Mrs. Kissel disappearing behind bars for a very long time. It’s a real jaw-dropping crime saga with all the right ingredients (wealthy Americans abroad, sex, a gruesome murder) and I wonder why the real Nancy never jumped on this opportunity to fill some airtime. Anyway, if you read this summary you’ll probably know most of what you need to know about this weird case.

Maybe I'll turn this update into a monthly feature or something like it, for not only does the place provide a never ending stream of interesting news, from time to time I do miss it.

It’s a pity that the Economist’s piece on Hong Kong’s new chief executive Donald Tsang is subscriber only for the accompanying photo is a classic. For those of you that haven’t seen it, in the 1997 picture Tsang kneels, and Prince Charles knights the future Beijing-approved leader with a sword. A Chinese man kneeling for a royal Brit, hardly material for a Beijing endorsed career but Sir Donald has managed it by carefully maneuvering and playing up the essential skill-set for the job: deep loyalty and relentlessly pursuing the one thing essential for Hong Kong’s prosperity and Beijing’s relatively magnanimous approach: stability. On top of that he’s got an asset that his predecessor didn’t: Hong Kong people like him. It’s not democracy but in Hong Kong for now, it’s as good as it gets.

Via Norm, the world's Top-100 city skylines, ranked by a formula that takes account of the number of buildings and the floor count per building. Guess who's first on the list? If being spectacular were the defining variable then the same city would probably end up on top as well.

It seems that Hong Kong’s Chief Executive, Tung Chee-hwa, has resigned for health reasons, that old Kremlinesque phrase for political housecleaning. Simon has some analysis and reactions from the ground and it does indeed looks like a masterstroke with Beijing’s fingerprints all over it, bearing in mind that Tung’s term ended in 2007:

Some political analysts say the latter is likely and that Beijing may have crafted the timing of Tung's departure and the ascendance of Tsang to stave off demands from Hong Kong's troublesome pro-democracy camp to participate in the electoral process.

Hong Kong’s top job is, like all other political leadership roles, a balancing of interests while at the same time laying out a vision for the polity that you lead. Tung failed miserably on both counts and it is not likely to get much better with Donald Tsang who has done everything in his powers to transform himself from a knighted British public servant into an obsequious puppet of Beijing. That’s a remarkable journey and I have to commend Sir Donald for his unusual efforts that have now landed him in the top job. Don't expect any, and I mean any, changes in the way Hong Kong is run going forward.

Not as great a success for the anti-Beijing Democrats as they would have hoped, ending up with 24 seats in a legislative chamber of 60 seats where 30 are appointed ensuring their pro-Beijing stance (note that the Democrats picked up only 18 of the directly elected seats).

Simon is right to note that the record turn-out, a paltry 53%, probably signifies the lack of confidence Hong Kongers have in the current arrangements, but turn-out for these events was low even under British rule. Still it’s an uptick from the 40-45% zone where it used to be and that may point to more democratic awareness in the fragrant harbour, however the results would point to the fact that when it is crunch time there is not an awful lot of appetite to rock the boat. The Democrats must be disappointed and Beijing can be pleased, sit back and point with some glee to the results.

It's an interesting sign that Hong Kong is starting to mature as a democracy and is learning some of the old tricks practiced in the free West: one of the Democratic contestants became the focus of negative campaigning when he was arrested after patronizing a prostitute and the Beijing camp benefited from a mainland charm offensive. Once more evidence that somehow it pays to let issues be issues and focus on good old election manipulators. In any case I am glad that Albert Cheng got voted in.

For now things will remain pretty much as they are although it may inspire some adventurers in Beijing to reintroduce some unpopular stuff in Hong Kong by pointing to this election result.

While in Canada a campaign is underway to preserve free speech by helping a radio-station in its fight with a ruthless regulator ready to yank its license away, in Hong Kong Albert Cheng seems to finally have been ditched by his former radio employers.

For the uninitiated, Cheng once hosted Hong Kong’s most popular radio show, Teacup in a Storm which had become a prominent vehicle of pro-democracy and anti-Hong Kong government comment. However Cheng resigned from the role earlier this year after receiving numerous unanimous threats. He did so with good reason: in August 1998 he was attacked by chopper-wielding thugs and left in a pool of blood in front of the radio station where he was due to run another episode of Teacup, the culprits of course were never apprehended. It was a miracle Cheng survived and he was brave enough to return to the airwaves in the wake of this vile attack on his life arguing that he could simply not give in to violence. It has been impossible to prove a direct link between the attack and continued threats and Beijing’s attempts to stifle the free press in Hong Kong, but the frequency and targets have fueled suspicion with fingers pointing in one very clear direction.

Albert Cheng has returned to the front and has announced he will stand as a candidate in Hong Kong’s legislative elections scheduled for September. These are contentious elections by their very nature since the vote is rigged in such a way that the real democrats can participate and win seats but never capture a workable majority. As a wealthy man with a foreign passport (that he is willing to renounce to participate in the election) Cheng’s stand is commendable, he could easily pack up his bags and play golf in Canada for the rest of his life. But, he’s willing to give his vast Teacup audience a voice that they can no longer hear on Hong Kong’s airwaves in order to bring the battle a little closer to Hong Kong’s pro-Beijing establishment.

The long July weekend not only marked the American and Canadian national holidays, July 1 is also the date the Hong Kong Special Administrative Region was established, “SAR Day”, and this year the celebrations saw a massive turn-out of close to 500,000 Hong Kong residents protesting for democracy. Conrad has his usually succinct comments and Simon has a great link-filled round-up of events, as does Donald Sensing. Interestingly, the monthly magazine of the Dutch Business Association in Hong Kong, where Irene used to work and for whose monthly magazine I occasionally wrote a piece when we lived in HK, rolled into our mailbox the day after SAR Day and the Chairman in his monthly column hastens to lay out his views on democracy in Hong Kong:

In Hong Kong, we have free press and freedom of speech. We can watch CNN, we can go barhopping 24/7. Setting up a company is easy and without the need for a lot of cash. We have good public transport, low taxes, reasonable to good housing and financial stability. And - most important this - you feel safe when walking around, even at night.

Very true, but I don't like where he is going with his argument. He continues to say that things aren’t that bad with China firmly in control of HK, but here’s the kicker:

Actually, what I am saying is that progress should be good for the people but over the centuries revolutions or revolutionary ideas have most of the time not given what was expected.

Taking a lesson from the outcome of the Chinese Communist revolution an international business leader in Hong Kong essentially tells locals not to bother to fight for democracy. Of course, this is not a new way of looking at things; it’s the good old argument that Hong Kong people don’t need democracy: they only want to make money. I thought that ideas like this had gone seriously out of fashion in the late 1990s when it became apparent in Asia that if you don’t have open and democratic societies making money can become quite difficult at times. Equally important is the notion that when you are making money and your society is becoming wealthier, citizens do want to have a say as to how that wealth is allocated, especially in an environmentally and demographically challenged city state such as Hong Kong. What’s more, a clear move toward universal suffrage is something that was explicitly promised to Hong Kong in the various treaties that governed the handover in 1997. Treaties that were registered with various international bodies, but to date I have seen few signs that would point to an international outcry over Hong Kong. On the contrary.

Decisions over loosening the hold on power remain largely in the hands of a pro-Beijing administration that, following the instructions of their mainland masters, have thwarted any move toward serious democratic reforms. They are backed up by the local business community who preach stability and patriotism as the defining virtues of a successful and prosperous Hong Kong, however the days that such arguments worked are long over. Last week half a million Hong Kong residents pointed out the manifest lie that they only care about stability and making money. If we’re all that worried about democracy in the world it’s time we start paying some attention to the people that are willing to take to the streets en masse to claim their inalienable rights.

Earlier today I was hit by a sudden and profound bout of Hong Kong nostalgia. I have started to check into the other major Hong Kong blogger, Phil and his Flying Chair and it alerted me to Anita Mui’s death on December 31. If you follow the thread of comments you will get an idea of what the late Cantonese diva was all about, the Big White Guy also has some moving comments. To me, even though I have limited knowledge of her oeuvre, she was the ultimate symbol of Hong Kong stardom and her early departure at age 40 as a result of cervical cancer has only added to the Callasesque proportions of the legend that she now is. Rest in peace, Anita.

Hong Kong Chief Executive Tung Chee-Hwa had to let two of his senior cabinet members go, Secretary for Security Regina Ip, as well as Financial Secretary Anthony Leung. The first resignation was clearly related to the controversial anti-subversion law debate, but the latter might also have had something to do with Leung’s purchase of a luxury car shortly before he announced a tax hike on luxury cars. In any case, Tung may be able to shift some of the blame onto Ip and Leung and ride out the storm but as the Financial Times accurately predicts it may be very hard to replace them. With increasing demands for democracy from the Hong Kong population and intense scrutiny from Beijing it may require a leader with unusual qualities to navigate Hong Kong through these testy waters. I am afraid that Tung may not have the skill set to do this as it would require being firm with Beijing and that is something that to date he has failed to do. At the same time he will have to get the territory’s economy back on track and convince the international community that Hong Kong continues to be a great place to invest and do business. Tung’s days may well be over.

In 1997 many were hoping that integration of the open and free territory of Hong Kong into the People’s Republic at some point would lead to a process of democratization in China. Who would have believed back then that only six years later Beijing would send a team of officials down to Hong Kong to talk to local leaders and residents and find out why many are so concerned over the recently shelved anti-subversion laws and to collect ideas for what to do next. If the Chinese leadership is really climbing down from its ivory tower and is starting to listen to its citizens, things are really changing in the Middle Kingdom.

I continue to be thrilled over what is unfolding in Hong Kong. So is The Gweilo who is on a roll, even setting up a resignation pool, forecasting the respective resignation dates of Tung Chee-Hwa and Regina Ip.

The Economist has a good summary, highlighting most of what I have said before, but as its name implies it points to possible economic solutions to bolster Hong Kong’s fortunes. Yes, the peg of the HK Dollar to the US Dollar always makes its way to the headlines during less fortunate times and many will argue that in order to restore competitiveness and bolster its economy, Hong Kong should let its peg go. A break with the peg would inevitably mean a downward slide of the currency’s value and definitely make Hong Kong a cheaper place to do business. It might lead to the HK Dollar stabilizing at the same level as China’s currency, the yuan, making Hong Kong cheaper by about 6%. The irony would be that where political convergence appears to be failing, economic convergence would have some potential to succeed. However I do not really believe that unpegging is likely to happen anytime soon.

The last time the peg came under serious pressure was in 1998, when hedge funds attacked it in the wake of Asia’ currency crisis. I remember this very well as I was expecting a sizeable payment from my then employer in HK Dollars and I had to make my way to the bank to take out a forward contract to protect this payment. My hedge did not prove to be necessary as the HK government successfully defended the peg. Dilacerator some time ago discussed currency boards (the formal name of a peg) following the collapse of Argentina’s peg, leaving Hong Kong to be the only economy in the world with a currency board in place. As he demonstrates flexible economies may be able to withstand pressures on their economies by rapidly adjusting and Hong Kong has done exactly that, property prices have tanked and unemployment increased substantially. That in theory should have restored some of the territory’s competitiveness and tinkering with its currency and making it a play ball of hedge funds would not exactly be a wise move. It would increase economic uncertainty even further and that is the last thing Hong Kong needs. In any case, Hong Kong’s economy is likely to continue to struggle and even at a reduced price level it would have a hard time improving its fortunes given the structural changes that have taken place in Asia since 1998.

Update
BNP Paribas just released a report saying that deflation in Hong Kong is set to continue for another 12 months and that unpegging would adversely affect investor sentiment and long-term prospects.

As I reported yesterday the Hong Kong government was backing down on the proposed controversial anti-subversion laws, today Tung Chee-Hwa announced that the vote scheduled for Wednesday would be postponed. This followed the resignation of James Tien, Chairman of the Liberal Party, from Tung’s executive council. The Liberal Party, a pro-business and pro-Beijing party, has always been a solid supporter of the current government and Tien’s departure made it clear that the Liberal Party would not be able to support the new law in the legislative session later this week. This is major news and a phenomenal victory for the pro-democracy camp and many are now suggesting that this will open the way for getting rid of Tung, he failed to win the support of the Hong Kong people but he has also not been able to deliver what Beijing ultimately needed. The question of course is who will be able to balance those contradictory forces, but for now, let’s savor the victory for Hong Kong’s pro-democracy camp.

Hong Kong Chief Executive is backing down on the controversial anti-subversion laws that are about to be voted into law this week. This is important news and it appears that those who have unparalleled influence on Hong Kong’s government, no not Beijing, not Tung’s cabinet, but the Hong Kong business elite (who to date have been pro-Beijing for obvious reasons) have pushed for some sort of a compromise. We will have to see what it looks like but this is a major development and evidence that not everything is dictated top-down from Beijing. This is the ultimate test for Tung. As I mentioned earlier the Hong Kong government is completely out of touch with its citizens to the extent that:

Even if his concessions defuse tensions, and the law passes, Tung still faces a severe crisis of confidence. One critic said the political atmosphere was so poisoned that the government would have trouble passing a bill giving away free lunches.

The next big protest is scheduled for Wednesday July 9, the day Hong Kong’s legislative council will vote on the controversial laws. I penciled this day in my diary as “Iran Day” following Sullivan’s call to make it "Democracy in Iran Week". It may turn out to be Hong Kong’s week.

It is still not clear to many, judging from the reactions I get, that Hong Kong is a separate legal entity within China with a physical border separating it from mainland China, a separate government and a separate legal system based on common law. China assumed sovereignty in 1997 with responsibility for defense and foreign affairs, while all other administrative matters fall within the jurisdiction of the Special Administrative Region (SAR) government. The separate legal framework is of extreme importance and in fact, there continue to be British judges active in Hong Kong. Many groups outlawed in China operate from Hong Kong and that is probably one of the major irritants that has led to the introduction of the anti-subversion laws that have in turn resulted in this week’s mass demonstrations.

China to date has been very careful to impose its will on Hong Kong, and if it has done so it has done it very quietly and subtly. It is of crucial importance for the Beijing leadership to show to the rest of the world that “one country, two systems” works. Why? Because there is an even fatter price awaiting them: Taiwan. Whichever Chinese leader is able to implement the “one country, two systems” on Taiwan will forever be enshrined in the pantheon of Chinese leaders, right along with Mao and Deng. China can therefore not afford to screw things up in Hong Kong as it will put the main prize of Chinese reunification out of reach forever. Note that both British Hong Kong and Portuguese Macau would have fallen into the mainland’s lap anyway and were never a threat militarily.

Many people approach me and comment that Hong Kong’s slide downwards is the direct result of the handover of the former colony to China but as I have pointed out many times before, that is not the case. Hong Kong’s fall from grace is primarily economic, see my piece "What Now, Fragrant Harbour" in the sidebar. To the extent that Beijing’s influence is adversely affecting Hong Kong it needs to be understood that mainland interference is very much a function of how far Hong Kong authorities have been willing to open the door and let Beijing have a say. The SAR government theoretically had a fairly good chance of keeping the door tight, but from day one it has been willing to open it as far as possible for Beijing. Once Beijing was in there was very little room to get them out again. That attitude – playing to the tune of the Zhongnanhai leadership – actually materialized well before the handover. Even the Chinese leadership was mystified at the many Hong Kong dignitaries and businessmen visiting Beijing with the message that Hong Kong people were looking forward to an end to colonial rule and be embraced by the motherland. Bizarre of course, and the Chinese leadership must have realized right then that they probably did not need to lift a finger to implement any change in Hong Kong. The willingness of Hong Kong Chinese to do whatever possible to ingratiate themselves with their new masters extended to the press as well. The number one English daily, the South China Morning Post started to self-censor in the run up to the handover and has since become a pretty average newspaper with little independent editorial direction. They even banned Hong Kong’s most famous cartoon character, Lily Wong, from its pages. For an example as to why Lily disappeared, look here and I particularly recommend number 53, Li Peng’s Change of Heart.

It remains to be seen how this week’s demonstration plays out but my guess is that the Hong Kong government, led by the docile Tung Chee-Hwa, will not lift a finger and will adopt the anti-subversion laws as currently drafted. The wishes of Hong Kong’s population have never been taken into account by the Tung administration and I doubt they will now, despite Tung’s unusual comments to the contrary.

Since yesterday was Handover Day, today is SAR day or Special Administrative Region day, celebrating the return of Hong Kong to China. Today a massive protest took place bringing an estimated 500,000 demonstrators to the streets to rally against the gradual erosion of freedoms in the territory by a local government that has not shown any leadership or willingness to listen to the Hong Kong people in a time when the collapse of the city-state economy and the increasing influence of mainland authorities would have warranted that. Many think that the Chinese leadership in Beijing is setting the rules and is coming down hard on Hong Kong, but the blame lies not entirely with the Chinese leaders. To a very large extent the Hong Kong government under Tung Chee-Hwa has done very little with the authorities it has been granted as a separate administrative entity and has bent over backwards to the will of the mainland authorities many times before there was even a need to do so. So today’s demonstration, the largest since 1989, does not just focus on the controversial anti-subversion law which is to be enacted, but result from a broad level dissatisfaction and frustration with the SAR government and, let’s not forget this, the abysmal state of the Hong Kong economy.

A little while back I explained that the gradual decline in Hong Kong was primarily economic and not political and I continue stand by this position. If Hong Kong was booming today, the number of people that would come out to protest anti-subversion laws would be significantly lower.

I have been tempted to write on the SARS epidemic but I can honestly say that I have not found the right angle to approach it from. The WHO travel advisory was a matter of both prudence and telling the world that they were on top of things as opposed to the Chinese Government. The Hong Kong Government has stepped up to the plate this week with an economic aid package and that is telling, whenever the frugal team of Tung Chee-Hwa starts to fork out cash for the economy, things are really in bad shape in Hong Kong. The latter is a sad conclusion, I have reported earlier on the tough times that the former crown colony is experiencing. The last thing they needed was a crisis like this. As there was quite a bit of feedback on that particular issue I have included “What Now, Fragrant Harbour” under Peaktalk’s favourites on the right. If you want to have a piece of vintage Hong Kong and its government's frugality in relation to this crisis, go here. Sad but very true.

With the SARS epidemic on the front pages, Hong Kong has found its way back in the public eye although it appears the respiratory disease has its origins in Guangdong Province and not in Hong Kong itself. Many people I speak these days tell me that I am probably pleased that I no longer live in Hong Kong. Well, the answer to that is that I am very often sorry that I no longer live in Hong Kong and that I just do not look at it that way. I love the place so much that it really bothers me to see what is happening right now, Hong Kong has more than enough other problems it has to deal with. The issue that emerges wherever I go and discuss Hong Kong in North America, is that people automatically assume that the territory’s reversal of fortune is due to its return to the Chinese fold in 1997. While it is true that Hong Kong has found itself in a period of decline since the late 1990s, it is not necessarily the resumption of Chinese sovereignty that caused it and I think that this is something that merits further discussion. When the Union Flag was lowered over the fragrant harbour, which is the exact translation of the words Hong Kong, in June 1997 the city state almost instantly seemed to have lost its vigor as an engine of economic growth, yet it is not fair to accuse the Chinese leadership in Beijing of throttling the place which is what so many do. There are a number of forces at work here.

First of all, the boom period for Asia came apart when a currency crisis enveloped countries like Thailand, Indonesia, Malaysia and Korea. It so happened that the crisis started in 1997, shortly after the China handover. This event had a major impact on Hong Kong as one of Asia’s key financial centers, and although it was able to successfully defend it own currency, it was dragged down to a large extent by the implosion of what was once deemed the Asian miracle.

Another reason for Hong Kong’s fall from power is that it – and local Hong Kong Chinese are so good at blaming that factor – was no longer lucky. Few realize that Hong Kong in itself is nothing but a small peninsula and a collection of fragmented islands off Guangdong province’s coast with originally very little economic importance. Its unique status as a free trading post off the Chinese coast with low taxes and common law rule helped it sustain itself as an economic entity. When it was swamped with Chinese refugees after the Chinese Communists took over mainland China in 1949 it was an overpopulated place with initially limited means of taking care of its huge population. Yet, it developed an industrial sector were the production of labor intensive products such as textiles thrived, many will remember the ubiquitous “Made in Hong Kong” label. It was deemed to be a lucky coincidence that Western industries increasingly sought cheap production locations in politically stable environments and Hong Kong was able to provide both. When China adopted free market economic policies and Hong Kong’s industries migrated across the border into China, Hong Kong was lucky again. China’s revolutionary changes needed to be funded, sustained and managed and Hong Kong proved to be the gateway to China. Banks, law firms, insurance companies, traders and everyone else you can think off that wanted to be in China moved into Hong Kong first as their was very little in the way of infrastructure or a regulatory structure in China. If you wanted to do something in China, go to Hong Kong, that’s were you start, was the mantra in the 1980s and 1990s. I have witnessed firsthand the endless stream of fortune seekers that set up shop in Hong Kong in order to make it big in China. The slogan “there’s a billion Chinese, and one day they will all need a fridge” was a ridiculous oversimplification of the situation, yet everyone from Wall Street investment bankers to Italian coffee makers bought into this notion and spent a small fortune in Hong Kong pursuing it.

With the substantial population growth and an influx of foreign businesses came the art that contributed in a phenomenal way to Hong Kong’s wealth: property speculation. Here’s the third point I want to highlight. In order to maintain confidence in Hong Kong’s economic stability and fund the ambitious projects mentioned below, the colonial government under Chris Patten (I talked about him before) limited the supply of land so that it was able to fetch record prices for land and property prices skyrocketed. I have first hand experience at forking out a small fortune every month for very small apartments. Property companies are the main constituents of the Hang Seng Index (the Dow Jones equivalent) so soaring property prices helped an escalating stock market which in turn created a boomtown of unlimited proportions. Yet the bubble was not sustainable and when the property market started to slide it had a devastating impact on the territory.

The 1990s also witnessed the construction of the world’s singular most ambitious infrastructural project: the new airport. It was not just a new airport, no it was the building of a state-of-the art airport on reclaimed land next to an outlying island and connecting it with the main city via a series of roads, bridges, tunnels as well as a hi-speed rail line. Needless to say the influx of capital, construction companies and other services oriented businesses from al over the world contributed greatly to what was already a party of unfettered growth.

Yet by the end of the 1990s the world had changed. Asia’s economy headed for a slowdown in the wake of the currency crisis, China became directly accessible from all over the world obliterating Hong Kong’s status as gateway to China, the property bubble started to burst and the airport was complete. And while Hong Kong’s monetary authorities had successfully defended the peg of its dollar to the US Dollar it had turned the place into a very expensive one to do business. Singapore and Shanghai thankfully provided a haven for many companies that sought a new foothold in Asia.

The new Hong Kong government believed the solution was another major project and cut a deal with Disney for an Asian Disneyland (and a generous deal for Disney indeed), but it did not have the magintude and pizzazz like the new airport had before. The fact that the government bent over backwards to lure Disney away from other locations in fact raised some serious eyebrows, was Hong Kong not the ultimate laissez-faire economy with very little government intervention?. More experiments were launched: Hong Kong as a hub for high tech businesses. The problem here was that the place does not have a high tech tradition, and the cost of doing business is arguably higher than North America’s west coast so why even bother to go to Hong Kong for technology? It all underlines the realization of the Hong Kong government that its luck had ran out and that alternatives had to be developed in order to sustain its standard of living and maintain its reputation as the place to do business in Asia and tell the world that it was able to do that under its new, Chinese, management.

So in summary, although in certain situations the Chinese leadership may have favored other Chinese cities from time to time, it has been the economy that has had a very negative impact on Hong Kong and not the change of sovereignty. I believe that Hong Kong will always be a unique urban center with an economic role to play especially given its huge hinterland in Guangdong province, yet, the question is whether it is ever able to recapture the strength it had before and not become an ordinary Chinese city. Shortly before the handover to China, Larry Yung a Hong Kong business tycoon and son of former Chinese Vice President Rong Yiren said that “If Hong Kong becomes a Chinese city, then Hong Kong is dead”. At the time I found that a bold statement for someone with his pedigree but I sensed he was right. He probably was right but I do hope that Hong Kong is able to regain its footing as an exceptional economic powerhouse. It may yet get lucky again.

I continue to trace pieces of news that somehow shaped my decision to live in North America. Yesterday I highlighted the inability of the Dutch to respect their armed forces as symptomatic for the Dutch’s deteriorated social and cultural climate, which had been one of the reasons to not go back and live in Holland, today there’s disturbing news over another place I used to live. The latest from Hong Kong tells us that the fear for respiratory disease is deepening:

“… as all public hospitals reduced non-essential services, workers and students were told to stay home if they felt at all ill and one of the two top officials handling the outbreak was himself hospitalized”

When I read this I really feel a sense of sadness and anger. Hong Kong used to be one of the most dynamic economic engines of the world, a unique model for wealth creation. And in addition, it used to be a great place to live, I doubt if I will ever live in a place that has so much to offer as Hong Kong. However that great Hong Kong engine stalled at the end of the 1990s as a result of the slowdown of Asian markets but also because it stopped being the gateway to China as mainland China became directly accessible from abroad. The big issue to me has always been that very little of the wealth generated was plowed back into making Hong Kong livable. Yours truly is probably a veritable free-market conservative-libertarian who abhors statist intervention (which is why I fitted into Hong Kong so well), but if there was ever a case to redistribute some tax revenue for the better it would have been in Hong Kong. Apart from the excessive air pollution and littering, recent years saw phenomena as the chicken flu, red tide (dead fish turning up all over the place), cases of cholera and now the pneumonia or SARS epidemic. Now, Hong Kong residents have a propensity to go over board when certain isolated incidences of a disease hit the newswires, but we can confidently assume that the pneumonia scare is the latest installment of a rapidly and seriously deteriorating living environment in the former British colony.

It is interesting to note that when I left Hong Kong in 1999, the local government sought help from the international business community in addressing environmental issues. I do not know if the advice from that community was ever put to good use, but I doubt it. The decline of the quality of life had already been set in motion during British rule; in fact, the environment had never been an issue of great concern. The reason was that too big of a price tag was attached to trying to do something about it and that was something that did not sit well with the great money making, saving and investing skills of Hong Kong and its residents. The dichotomy of generating wealth but the inability to spend some of it on improving the place where you make and enjoy that wealth has been one of the more problematic aspects of life in Hong Kong. It may actually be one of the few as it is such a great place and I really hope that they will have the resolve to fix their current predicament.

Every now and then real disappointment hits you. A memory of the past gets tainted by the realities of the present day. What am I talking about? Here you go:

Chris Patten also challenged U.S. President George W. Bush's argument that a war to overthrow Iraqi President Saddam Hussein would combat terrorism and spread democracy in the Middle East. "As a general rule, are wars not more likely to recruit terrorists than to deter them? It is hard to build democracy at the barrel of a gun, when history suggests it is more usually the product of long internal development in a society," he said.

There was a time when I deeply admired Chris Patten. That was when he was still Governor of Hong Kong. I met him a few times when I lived in Hong Kong, the last time when I picked up a few signed copies of his marvelous book “East and West”. You see, Patten was one of the people who promoted free markets and democracy as he so firmly believed in the theory that markets can flourish only in free societies where the rule of law guarantees freedom. That is why he set out to make some drastic changes in Hong Kong’s electoral process while that was still possible before the territory was handed back to China in 1997. He antagonized almost everyone at the time, the Hong Kong and international business community (who were afraid of missing out on deals with China), Hong Kong politicians (afraid of their new masters) and a variety of others who felt the need to be gentle with Beijing. Patten was at the time a lonely crusader supported by only a few. It was brave, it made sense and it was the right thing to do.

In the early 1990s, one of the widely held views was that the ‘Asian Values’ model was working: suppress dissent, use as little democracy as possible so that everyone can focus unhindered on economic growth. It was a great excuse for authoritarianism for as long as it worked. Patten questioned this socio-economic model promoted by especially Dr. Mahathir in Malaysia and Lee Kuan Yew in Singapore. For the Chinese leadership in the 1990s under Deng Xiaoping it seemed like an ideal approach to restructure their society: capitalism with an iron fist, for which they coined the term “socialism with Chinese characteristics”. Patten at the time did not win the day as Asian economies were indeed booming beyond belief recording phenomenal economic growth rates. However, as the Asian market meltdown unfolded between 1997 and 1999 it became evident that it was precisely the lack of transparency, the inherent corruption and limited rule of law that contributed to the market collapse in Asia. Patten it seemed was right and he went on a campaign with his book and TV-show to tell the world that capitalism and free markets only thrive in free, open and transparent societies. The world was at his feet, he could have picked any job he liked but, after a brief spell advising how to restructure the Northern Ireland police, he became a Euro Commissioner. And that is where things got off track with him I guess.

His anti-war stance, his support for continued funding of the Palestinian Authority and his criticism of Israel are in sharp contrast with the liberal and freedom promoting values he stood for when he was Governor of Hong Kong. The irony is that he is a member of Britain’s Conservative Party, and that the current British Prime-Minister supporting a war against Iraq comes from the left. Chris Patten it seems has internalized a little too much of continental European thinking to a point where he is now on a collision course with Bush and Blair who are ultimately defending the free and transparent world that Patten so promoted in the 1990s. Again Chris, I am disappointed.