China’s Grasp and Hong Kong’s Golden Eggs

Hong Kong is a glittering testament to hard work, independent energy, ruthless competition, and myriad, brave entrepreneurial visions. What was once a barren rock has been transformed into a twenty-first century, international metropolis. This is thanks largely to a British colonial government that was just unimaginative enough to let the once penniless refugee population alone to pursue millions of dreams of how to get rich quickly. And rich they are. Adjusted for purchasing power, per capita income in Hong Kong is $ 13,906, slightly below France and West Germany but ahead of Japan and Great Britain. Total domestic product has risen 25 times in 22 years to $ 63 billion in 1989. Hong Kong is the world’s eleventh largest trading power with total exports of goods and services of $ 85 billion—more than China or India. The city exports almost $ 15,000 worth of goods and services for each man, woman, and child—five times the average Briton, six times the average Japanese, and ten times the average American. But more and more these days, Hong Kong’s residents feel like geese who have had the misfortune to lay golden eggs. The city is gloomy about being handed over to Chinese sovereignty in mid-1997, and it has every right to be. Already, China’s businesspeople are moving in—into business, trade, and politics—and treading so clumsily that the best of the local population are fleeing, distrustful of Beijing’s promises about the autonomous capitalist existence that the colony will supposedly enjoy. In May 1990, for example, uniformed Chinese security officials boarded a ship in Hong Kong’s waters, seized its cargo—including three Mercedes-Benz cars—detained the crew, and arrested two undercover Hong Kong policemen, who were conducting an investigation of their own. The policemen were released 16 hours later, but the other men were held for several weeks and the cars for months—“probably being used by Chinese bigwigs,” said a senior Hong Kong government official. If Chinese officials can’t keep their hands off Hong Kong when it is still a British territory, can they be trusted to do so when Hong Kong becomes part of China? The exodus from the colony is a tragedy for the people left behind—people not rich (or well connected, talented, or lucky) enough to get foreign passports. But it will also be tragic for China itself. Hong Kong entrepreneurs have contributed about two-thirds of China’s new investment during the last decade. Even more important has been the know-how that sympathetic Hong Kong managers have supplied to China. The colony has been a useful place for Japanese, Americans, and even British to do business with China. It is also a buffer between China and Taiwan that allows the offshore island, which still proclaims itself the legitimate Republic of China, to participate in the mainland’s economy from a safe distance. Nevertheless, Hong Kong seems likely to be throttled by the expediencies of international politics. The chief villains in the story are the power-crazy octogenarian rulers of Beijing, blindly defending their tattered revolution. But Hong Kong is also being undermined by kowtowing diplomats in Britain’s Whitehall, by the cravenness of most of its own politicians, and by the indifference of other world leaders. Keep in mind that Hong Kong’s population of six million people is almost three times greater than Kuwait’s, whose independence United Nations armed forces pledged to restore. Hong Kong is bigger than New Zealand, Ireland, Norway, Israel, and 40 other fully paid-up members of the UN. Is it not shamefully ironic that just when Eastern Europe was on the verge of popular revolution, no one in Britain (or the West) spoke up for the right of the people of Hong Kong to shape their own future? A Piece of the Rock The first thing that any visitor notices is Hong Kong’s magnificent harbor, busy with shipping—sleek ocean liners in whose wakes are chugging grubby coastal junks. Fringing the scene are sparkling skyscrapers, appearing to leap from the water’s very edge. Here is the world’s most expensive building, the headquarters of the Hongkong and Shanghai Banking Corporation (usually shortened to the Hongkong Bank), a battleship gray cathedral to modern banking that looks like a chemical works. According to bank propaganda, the building cost $ 640 million, but more likely, it cost $ 1 billion, including fittings, furnishings, and financing costs. (Happily, the land was already owned.) There, shining and daggerlike, is the new Bank of (Communist) China headquarters, the world’s fifth tallest building and the highest outside the United States—a mere $ 256 million to build. Across the road are the triple towers of Exchange Square, housing the state-of-the-art stock exchange and jam-packed with the world’s biggest banks and financial houses. There are more than 300 of them in the tiny 404 square-mile colony. Only Manhattan rivals this skyscraping Hong Kong. And on the ground, Hong Kong seems the more thriving, thrusting city. New buildings emerge fresh overnight, like mushrooms. It is impossible to photograph Hong Kong without part of the skyline shrouded in scaffolding. Hong Kong has the busiest container port in the world. It is the world’s biggest exporter of textiles and garments, toys, watches, and such eccentric goods as artificial firewood. There is eccentricity in the city’s patterns of consumption as well. Hong Kong consumes more brandy per head than anywhere else in the world, has more Rolls-Royces per square mile than anywhere else, has the world’s largest statue of Buddha, the world’s longest escalator ride—225 meters at Ocean Park—and the busiest McDonald’s. But most remarkable, perhaps, is the fact that Hong Kong has anything at all. Lord Palmerston, the Victorian foreign secretary who was given the glad news in 1841 of the arrival of the island into British colonial possession, scorned it as a “barren rock.” He dismissed Captain Charles Elliot of the Royal Navy, who had secured it for Britain. At various times before the British arrived, Hong Kong won fame and fortune as a haunt of thieves and vagabonds. Lord Kadoorie, chairman of China Light and Power, Hong Kong’s utility company, remembers that even as late as the 1930s, Hong Kong was a “smug little Hastings in the East,” at least compared with the truly international city of Shanghai. And then, with the Communist Revolution in China in 1949, poor war-torn Hong Kong was flooded with refugees by the tens of thousands. Some of them, according to legend, carried gold bricks hidden in their Rolls-Royces as they crossed the frontier. Others were former industrialists from Shanghai who came penniless but with a wealth of knowledge about industry, specifically textiles, which later benefited Hong Kong. Many more were just bedraggled peasants fleeing from Communism. Yet these poor refugees became the bedrock of Hong Kong’s present-day prosperity. People supported by a paternal colonial administration. People traumatized by Communism, which still controls things just across the border. It is surely one of the greatest miracles of the modern world that this population of refugees and riffraff, these children of duck farmers, have created—indeed, have become—one of the most important economic powers in the world. Superficially, Hong Kong is a very international city, where English is the language of government, law, and much of business life. All the great international brand names are there, from Citibank and Sony to Kellogg’s, Heinz, and Hennessy. But though the talk in the Mandarin Oriental Hotel and other central watering holes is redolent with upper-crust English accents, underneath it all, Hong Kong is a uniquely Chinese place. There are British, Americans, Australians, and Japanese, a proliferation of Filipino maids (more than 50,000 of them), but deep down, Hong Kong is uniquely Chinese. About 98 % of its 5.8 million people are Cantonese-speaking Chinese. You have to search hard for families who can boast that they were there before the British. Some distinguished families came during the Victorian era or at the turn of the century. Possibly 25 % of the population originally came from the Shanghai region. Some, including Li Ka-Shing, one of the world’s richest men and the colony’s third biggest landlord (after the government and Hongkong Land Company) came from Chuichow on the borders of Guangdong province. But most people are refugees from next-door Guangdong, noisy people, always bustling and hustling (especially compared with the Mandarins of Peking and the North). They have not forgotten their Chinese history, traditions, or superstitions (see the insert, “An International City?”). An International City? On the surface, Hong Kong is the most international city in the world. American Airlines, British Airways, Citibank, Deutsche Bank, Industrial Bank of Japan, Morgan Stanley, Nomura Securities, Salomon Brothers, Baker and McKenzie, Coudert Brothers, Dentsu, Hill and Knowlton, Arthur Andersen, Price Waterhouse, Daimaru, Seibu, Hilton Hotel, Sony, YKK—all of these have prominent offices in the territory. On the shelves of the supermarkets too, Western brand names predominate—Crest, Kellogg’s, Nescafé, Kodak, Philips. It is easy to forget that 98 % of Hong Kong’s inhabitants are Cantonese-speaking Chinese. But if you tear away this international veneer, an intensely, superstitiously Chinese city is exposed—so Chinese that former Chief Secretary Sir Philip Haddon-Cave described it as “the only living, evolving Chinese culture in the world.” Most offices, homes, and many street corners have Buddhist or Taoist altars. On the roads, it is easy to miss them; they often do not have an image but merely a piece of red paper with gold letters on it. Incense sticks or scorch marks give them away. Chinese festivals are celebrated with great glee, and with the Chinese New Year, Hong Kong shuts down almost completely for three days. Before that, many families will ceremoniously burn a picture of the Kitchen God, carefully smearing his mouth with sticky sweet-meats beforehand to make sure that he says flattering things in his report to the Jade Emperor. Businessmen trained in the United States may publicly scoff at old traditions, but they will furtively consult the Chinese Almanack to make sure that the day is auspicious for doing business. Christian converts not only go to church but also to the temples to pray for their ancestors. Chinese superstitions impinge on every aspect of life—from office furnishings to the choice of a license plate number. Businessman Stephen Codron recalls how a dealer tried to sell him a car with the numbers 2958: “He obviously thought I was an ignorant foreigner, but I knew that the plate meant ‘continuous business with no money.’ I would have been a laughing stock. I told him to find something better, and he got 782, meaning ‘always prosperity in business’—which, I am happy to say, has proved true.” Reflective glass on the windows of the American consulate general also caused concern. Clerks in the government legal department across the road feared that the glass would reflect bad fung shui (the words literally mean “wind and water” but can be translated as “spirits”) onto them. So the clerks installed small hexagonal mirrors to deflect the reflections. Even big foreign businesses heed the superstitions. The plush, waterfront Regent Hotel built a huge glass lobby so the nine dragons, from which Kowloon gets its name, would be able to see through and bathe safely in the harbor. McDonald’s was advised to install a tank of piranha alongside its door to ward off evil spirits. Mark & Spencer’s Kowloon store has lucky goldfish, special lighting, and four wooden turtles to encourage good fung shui. Even Hong Kong’s governor, Sir David Wilson, was advised to change the transliteration of his name. If he had not done so, he would have been known in Cantonese as Ngai Tak-Ngai, which could be very unlucky, since the first Ngai can mean false or counterfeit and the second suggests a story about two ghosts knocking at the door. He decided instead to become Wai Yik-Shun, which means “to defend and protect with faith and trust.” The need for good fung shui extends to the grave. When someone dies, relatives make and burn paper models of his or her house, car, and money. Some families design elaborate passports for their dead, complete with proper Chinese seals and a visa allowing entry to the underworld. Behind all of this is the fear that if the dead are not properly sent on their way, they will come back to haunt the living. In all, Hong Kong is a world that a foreigner finds difficult to enter. Expatriates are commonly known as gweilos, an expression that some foreigners laughingly call themselves. But it is no joke. Gweilo literally means pale ghost, beyond the pale of Chinese civilization. And China, it is always worth remembering, means the center of the world. “You should not say that Hong Kong is being handed back to China,” a former government secretary and member of the executive council once instructed me bitterly. “Hong Kong as you see it is the creation of much maligned British colonial officials and refugee Chinese. Our only obligation is to return a barren island with hardly a house on it.” To be sure, not everything is pleasant even in the Hong Kong of 1990. The gaps between the Rolls-Royce rich and the tenement poor are appallingly wide. If you wander through overcrowded downtown Kowloon, you have to hold your nose against the stench of human beings packed too closely together. The Walled City, now being evacuated, was sardine-packed with 33,000 people in approximately six acres; that would amount to more than three and a half million people per square mile. Westerners easily recoil at the sheer noise of the Cantonese: a small group chatting (they think) amiably can sound like a regiment on the march. Pollution is so bad that Financial Secretary Sir Piers Jacobs once joked about how someone swam in Hong Kong’s Tolo Harbour—”but not for long.” Still, Hong Kong has prospered precisely because the government has allowed people to make their own mistakes—not tried to protect them from the cold logic of the marketplace. A common boast is that one can register a new business in the morning, open up in the afternoon, and be making profits by the evening. The colony’s industrialists learned quickly to switch nimbly from one international fad to another. In the early days, often operating from small back-yard factories, they would jump from plastic flowers, to wigs, to toys. They learned markets or went out of business. Legend has it that a Hong Kong businessman would get upset if he missed a business deal attending to some distraction, like getting married or burying a parent. And Hong Kong has, in a way, moved even faster than its legend. Many still think of it as an island of sweatshops, producing cheap (and by implication) shoddy goods that flood world markets. Ten years ago, Hong Kong’s goods were the mainstay of European mail order catalogs. Today the territory is an international fashion leader. Its businesses have moved into the world’s great department stores, such as Harrods and Saks Fifth Avenue. Young Hong Kong designers—Judy Mann, Eddie Lau, Regence Lam—have made their mark, while many American and European designers have stood still. Hong Kong is a leader in hard goods too, not the cutting edge of high tech, perhaps, but the cutthroat edge of consumer marketing. Johnson Electric Industrial’s electric motors are so good that Germany’s Bosch has stopped making its own. Johnson motors are found in products as diverse as food mixers and Mercedes cars. Today Hong Kong’s Playmates Holdings is developing the Ninja Turtle product line, cashing in on Turtle mania in the United States. Colony toy makers also manufactured most of the Cabbage Patch dolls that took the world by storm in the mid-1980s. Hong Kong also leads the world in watches; international brands like Bulova and Timex are made in the colony. Symbiotic Economies If the world were a sensible place, a place without politicians, the flourishing, interdependent, yet separate commercial relationships between Hong Kong and China would continue forever. Hong Kong has been of paramount importance to China for some time. Even in the dark days of Mao Zedong’s orthodoxies, the tiny British territory was an important customer for water, pork, and vegetables. Former Financial Secretary Sir John Bremridge quipped that Communist China had discovered the secret that had long eluded medieval alchemists: “China is selling cabbage and turning it into something as good as gold, fully convertible Hong Kong dollars.” Hong Kong now provides about half of China’s foreign exchange earnings: not only sales from food and water but profits from mainland companies, remittances from local Chinese with families on the mainland, even tourist dollars of foreigners who flock across the border to get a glimpse of life behind the bamboo curtain. Moreover, investment has been reciprocal. Squeezed by shortages of land, by soaring rents and high labor costs, many Hong Kong companies have moved onto the mainland, subcontracting manufacturing work. At first, this investment produced painful experiences for mainland Chinese. Their knowledge of modern factory work was scant. But in time, productivity improved. Soon roads from Guangdong to Hong Kong were jammed with lorries carrying China-made parts to Hong Kong factories for final assembly. Disembodied plastic parts for dolls filled the lorries. By 1990, more than two million Chinese were working for Hong Kong companies. That was about two and a half times the total Hong Kong manufacturing labor force. Particularly if you are making electronics and toys, a Chinese factory has become essential. “Without an operation in China, you are dead,” declared a big electronics maker. For their part, many Chinese enterprises began to come into Hong Kong to do business and to learn about capitalism. The Bank of China is the second biggest banking group in the colony today. There is China Resources, which runs department stores offering a cornucopia of China not seen in the mainland, and China International Trust and Investment Corporation, which has bought 12.5 % of Cathay Pacific Airways and 30 % of the local telephone company. No one, not even the Chinese government, knows how many mainland enterprises have offices in Hong Kong, though U.S. official sources estimate some 750 Chinese concerns that have Hong Kong offices. Such is the distrust for China in the colony that when the Xinhua news agency, which doubles as Beijing’s official representative, once tried to do a telephone survey, it found the line cut. Chinese investment is probably about $ 10 billion, which is more than investment by U.S. or Japanese capitalists. In some ways then, tiny Hong Kong and giant China have become Siamese twins, joined to each other’s survival. For a large number of Hong Kong companies, China has become the only source of labor, since there aren’t sufficient workers in booming Hong Kong. At the same time, the colony’s companies have supplied two-thirds of the money invested in China during the last decade. Great Power Bullies Why is the status quo giving way? Britain bullied China 150 years ago. Beijing started bullying back in the early 1980s. All negotiations were conducted in secret. The people of Hong Kong were not informed of progress until after the deal was signed, sealed, and delivered. British leaders quickly boasted that China, in signing the “Joint Declaration,” was promising that Hong Kong would be able to enjoy virtual autonomy and a prolonged capitalist existence for at least 50 years after China assumed sovereignty. There would continue to be freedoms of speech, press, association, and religion. There was also promise of elections for the legislative council, not a governor appointing legislative counselors as it is now. And initially, there was something like euphoria among Hong Kong residents. Ordinary Chinese on government housing estates (where 54 % of the population lives) naively expressed happiness to be rid of the “colonial yoke.” One young Hong Kong Chinese woman sharing communal bathrooms and lavatories with several other families asked, “What have the British ever done for us? At least now we will be ruled by our own Chinese people.” The fat cats of business and industry were delighted that China had promised to continue business as usual. Michael Sandberg, chairman of the Hongkong and Shanghai Banking Corporation, gloated that Hong Kong could do a lot in helping to develop China: “Hong Kong has amply demonstrated the capacity of an overwhelmingly Chinese community to prosper in the world’s markets and create a rapidly rising standard of living… It all adds up to a huge challenge facing China to explain why its own mainland population should not achieve at least as much.” Granted, there were some skeptics—the “spoil-sports.” Martin Lee Chu-ming, a Queen’s counsellor, had the bad taste to point out that on paper the Chinese people enjoyed democracy but in practice they were forbidden it. The city would not be safe, he urged, unless it had a fully democratic government. He worried about Hong Kong’s freedoms being safeguarded, not by Britain’s Parliament but by the National People’s Congress, where the Communist Party is above the law. But Victor Fung, managing director of Li & Fung, an old, established, local Chinese trading concern, predicted that Hong Kong could show the big mother country the way forward. Helmut Sohmen, son-in-law of shipping and property billionaire Sir Yue-Kong Pao and a legislative council member, declared that Hong Kong should not worry about autonomy but should look forward to a full business merger with China. Then came the suppression of the prodemocracy demonstrations in Beijing in June 1989. People in Hong Kong were shocked out of their traditional political apathy. Normally, any gathering of more than 100 people for a political event was regarded as a huge success. The Hong Kong Cantonese were too busy making money to be interested in politics. Yet demands for democracy in Beijing suddenly became relevant to their own future. On three occasions, up to half a million sympathizers turned the center of Hong Kong into a seething sea of bodies—once it was even raining, and there was a typhoon warning. When the Chinese Communists ordered its troops to turn their guns on their own people, there was outrage in Hong Kong. A young Chinese girl summed up the fears, “It is immoral to hand Hong Kong over to a murderer.” Pillars of the community who had previously sung the praises of the 1984 Joint Declaration protested against China’s savagery. Sohmen, the same man who had seen Hong Kong merged with China, now asked, “If they treat their own people like this, how might they treat the people of Hong Kong?” He demanded an immediate lease-back of the colony to Britain. Simon Murray, managing director of Hutchison Whampoa, who had looked forward to continuing prosperity and stability in Hong Kong, lamented, “This is an enormous blow and is tremendously damaging. This place is shocked with anger, outrage, and sadness, though we should have learned the lesson of Tibet.” A Dictatorship of “Harmony” What can Hong Kong really expect? Deng Xiaoping’s speech before the Communist Party Central Committee in Beijing on April 1987 was his clearest statement yet that China will make Hong Kong its own colony. “Will a general election necessarily be good for Hong Kong?” Deng unctuously asked his cronies. “I do not believe so… Our opinion is that the people who are to manage Hong Kong affairs should be those who love both Hong Kong and the motherland. Can a general election guarantee that such people will be selected? If the central government gives up all its rights and powers, there will be chaos and Hong Kong’s interests would be adversely affected.” Deng announced that the central government would reserve certain powers to handle problems Hong Kong “cannot solve without the central government acting on [its] behalf.” Beijing has now fixed the iron frame—the Basic Law or constitution—by which Hong Kong will be ruled from 1997. Only 30 % of the first legislature will be directly elected; the rest will be chosen by a variety of indirect elections. The chief executive of Hong Kong will also be chosen by a loaded indirect electoral college, which Beijing will dominate. In 1990, London and Beijing agreed that the number of directly elected seats in the first legislature would be 20 out of 60. This kind of “democracy” went out in Britain with the Reform Act of 1832, the first big step toward a one-man vote. Before that, politics had been the exclusive preserve of the privileged elite. True, a Bill of Rights was to guarantee international conventions on civil and political liberties; originally, the colonial government said it would be legally entrenched and supreme above all other laws. But when China objected, it was agreed that the Bill was subordinate to the Basic Law and China would be able to repeal it. In any case, the Bill of Rights would be vulnerable to an override by subsequent acts, on the common law principle that courts must consider themselves bound by most recent legislation. Beijing also retains the power to declare an emergency in Hong Kong whenever it deems this warranted. Catch-all phrases have been inserted in the protocols guaranteeing the subservience of Hong Kong to Beijing’s political interests—however China may wish to define these. For example, Hong Kong is to enact a law to prohibit treason, secession, sedition, subversion against the central government, or theft of state secrets. This might be interpreted as curbing the freedom of speech of anyone who dissents from Beijing policies. Indeed, for rulers already nervous (but unrepentant) about Tiananmen Square, the British colony is all too obviously a center of potential subversion. Beijing has already demanded to be consulted on all “major” decisions regarding Hong Kong, even before 1997. It has even questioned plans for spending $ 16.3 billion on a new international airport and port development. After the bloodshed in Tiananmen Square, there were expressions of horror from British politicians, no less than from the press. Yet if China is seeking a loyal colony, Britain has been all too willing to provide one. Britain has insisted that there be “convergence” of Hong Kong’s system of government with that outlined in the Basic Law. Former Foreign Secretary Sir Geoffrey Howe declared, “Hong Kong prospers when Beijing and London are in harmony.” Ironically, he later went to Moscow and lectured the Soviet Union that it must encourage representative government in Afghanistan. William Ehrman, political adviser to the Hong Kong government and a British foreign office official, wrote late in 1989 to Xinhua in Hong Kong, promising that the territory’s laws would be used against those whom Beijing considered political subversives. In July 1990, prodemocracy activists appeared in court and were convicted on charges of using a loud speaker without permission. They had been protesting against the Basic Law. Apologists for the Hong Kong government claim that the territory is so small and crowded that such police actions are necessary to preserve the peace. But it is hard not to conclude that the Hong Kong government is mainly concerned now with appeasing Beijing. Recently, Hong Kong film censors cut nearly 17 minutes out of a 78-minute video documentary called “Mainland China 1989.” The segment was about the student protest movement; its crushing was described by Hong Kong officials as “propaganda likely to seriously damage good relations with other territories” (meaning China). In February 1991, strongman Deng Xiaoping sent a firm message to Hong Kong’s prodemocracy “dreamers”—they would have no part in the post-1997 colonial government. “The opposition party that organized the alliance in support of democracy has to be kicked out of the political establishment,” the 86-year-old Deng told an internal meeting of party leaders. “If they create turbulence, the Hong Kong government should send troops.” Also typical of Peking’s heavy-booted line, vice premier Wu Xueqian said in January that only China, not Britain, had the right to speak for Hong Kong in the period until 1997—not the Hong Kong government nor, least of all, the people of Hong Kong themselves. For her part, former Prime Minister Margaret Thatcher, made a stand of sorts when she insisted, over China’s objections, that 50,000 Hong Kong families should get full British passports. “That is our undertaking,” she said, “to keep prosperity going under the agreement. I see it as a matter of solemn duty.” Her idea is that loyal servants of the British Crown—people in sensitive occupations or those in valuable political or commercial jobs—should hold British passports until 1997 so that they would feel encouraged to stay rather than join the emigrants. But the Basic Law has set strict limits on the number of foreign-passport holders who would be able to sit in the legislature or be judges. They would not be able to hold top civil service positions. So without allaying any real fears, the scheme has only underlined the division between haves and have-nots. Those denied passports feel insulted—as well as tempted to redouble their efforts to find a safe haven away from Communist rule. Worst of all, Beijing has denounced Thatcher’s move, declaring it would not recognize any such British passports after 1997. In a scathing dismissal of Hong Kong residents who accept passports, Chinese spokesman Lu Ping said, “Their arses are in Hong Kong, but their hearts are in Britain.” The Desperate Flight Alas, there are actually fewer arses in Hong Kong every day. The outflow of people can no longer be called a brain drain; it’s more like a brain hemorrhage. Government officials estimate that 62,000 residents left in 1990, most of them the able-bodied, intelligent, energetic, entrepreneurial people who have built the colony’s economic miracle. Increasingly desperate, more and more of them look beyond the United States, Canada, and Australia and are moving to nearly any place that will give them a foreign passport, even tiny islands like Jamaica, Mauritius, Tonga, and Fiji. Some important companies and institutions are already hurting. Hong Kong’s airline, Cathay Pacific, and its engineering associate, Hong Kong Aircraft Engineering, were badly hit when Qantas, the Australian carrier, lured away a large number of key engineers. And Cathay had already tasted China’s bullying. In negotiating with the Civil Aviation Administration of China (CAAC), it was forced to concede an 11 to 1 advantage on flights between Hong Kong and China to China’s inefficient, bungling, bureaucratic, and sometimes unsafe carrier. Even more worrisome is the failure of the Royal Hong Kong Police to keep pace with its recruiting requirements. Instead of the more than 200 officers a month the force used to take, it was managing just over 50 during some months last year. Considering that the top ranks of the force are dominated by expatriate officers and that senior-ranking Chinese had been vetted to ensure that they were not fifth columnists, it is not surprising that Hong Kong Chinese police feel threatened by the approaching Communist takeover. This is a bad time for the police to be so disorganized. With the approach of 1997, more and more local Chinese are keen to make a pile of cash quickly while they still can; it is commonly believed that having a healthy bank balance is the only way to impress Western immigration officials. So there has been a sharp increase in fraud in ordinary business transactions. Major companies are even taking out insurance against desperate executives trying to make their fortunes by hook or by crook. At the same time, the arrival in Hong Kong of privileged Communist cadres throwing their weight around—demanding, in effect, to be given a piece of the action in various companies—is terribly demoralizing. They boast openly of their guanxi, their “connections,” but people in Hong Kong see them as the vanguard of an army of leeches that will eventually suck the colony dry. Especially apprehensive are local Hong Kong Chinese manufacturers, people who have actually enjoyed burgeoning ties with mainland China. Foreigners may take the calculated gamble that a Chinese government still professing an open-door economic policy is not going to antagonize them—anyway, foreigners can easily relocate. But Hong Kong Chinese companies have nowhere in the world so good for business, nowhere that has such an efficient and helpful customs and tax regime, nowhere that has such good physical communications and telecommunications, nowhere that boasts a Chinese market with its billion people, nowhere with such a vast pool of sympathetic Cantonese-speaking labor just across the border, people disciplined by a Confucian work ethic. The nearest challengers to Hong Kong for the hearts of free Chinese entrepreneurs are also in Asia, principally the other three fast-growing “dragons”—Singapore, South Korea, and Taiwan—and the next generation of newly industrializing countries like Malaysia, Thailand, and possibly Indonesia. But Bangkok’s traffic is so bad, you can sit all day in a traffic jam. Business deals are not as clear-cut as in Hong Kong, where if a person says yes, he or she will deliver on time and at the agreed-on cost. Singapore is clean and green, far more pleasant than Hong Kong. The legal system is also inherited from the British. But Lee Kuan Yew’s government is heavy-handed—far too heavy for the carefree, wheeling-and-dealing Cantonese of Hong Kong. In Malaysia and Indonesia, Chinese businesses are already encountering difficulties with mostly Malay populations. Managing Pessimism Nevertheless, many Hong Kong manufacturing businesses have begun to diversify outside the colony. Some have established bases inside the protective walls of the European Community, notably Ireland, Italy, and the Iberian peninsula where labor costs are not so high. Others are looking to Thailand or the Philippines. Financial companies are hanging in. In fact, depression on Wall Street and in London, where big financial houses have laid off large numbers of young executives, has actually been a boon to Hong Kong. A spate of American whiz kids have turned up, offering their services at bargain rates. This is a good thing because the Hongkong Bank, which dominates the local market, has been losing about 8 % of its Chinese executives every year. (Now the bank’s biggest worry is competition for ordinary clerks; posh department stores offering perks have lured many away.) The Hongkong Bank, whose share of the local debt market may be as high as 50 % , has also spread international wings. It owns Marine Midland of the United States, the British Bank of the Middle East, and has a 14.5 % holding in Britain’s Midland Bank. More than half of its assets are abroad. The bank ranks among the world’s top 30 by assets and normally scores better on profitability. Just before Christmas 1990, the bank’s chairman William Purves announced plans to transfer its registered domicile from Hong Kong to London. He stressed that the physical headquarters and the bank’s management would remain in the colony, but the change impressed even ordinary Hong Kong Chinese. A newspaper hawker remarked, “Even the Hongkong Bank does not trust the Communists.” Most analysts praised the move as prudent. It would save at least the majority of the bank’s assets from being confiscated by the Chinese, if worse came to worst. But it hardly amounted to a vote of confidence in the colony’s future governors. In the meantime, Chinese leaders have repeated their heavy-handed messages. Other big finance companies have tried to lessen their exposure by registering elsewhere. Jardine Matheson, Hong Kong’s oldest company (and the model for the novel Noble House), has led the way by switching to Bermuda. Almost 100 other large companies have followed suit. It is likely that half the companies quoted on the Hong Kong stock market will soon have their registered offices outside the colony. Several companies are investigating Singapore as their regional headquarters. Managers of these major companies believe that Beijing’s rulers would not be so stupid as to nationalize big and highly visible foreign concerns. Nevertheless, many prudent Hong Kong companies are doing their best to load up their Hong Kong liabilities to match any assets. Are there reasons to hope for better days? The colony is, no matter what, likely to be a more pleasant base for doing business with China than China itself. Japanese concerns have also moved into Hong Kong, especially retail operations. The mega-rich—whether Chinese or foreign—are hoping that China itself may change before the real crunch hits. Deng Xiaoping is, after all, in his late 80s, as are most of his colleagues of the Long March. Demonstrations all over China during the spring of 1989 revealed mounting popular pressure on the new generation of leaders to show results through sustained political economic reforms. Shouldn’t the twin cities of Hong Kong and Canton become the heartbeats of the most prosperous megalopolis the world has ever known? But there is a lot of wishful thinking in this view. China has still not accepted any kind of private ownership. For all the talk of new capital markets and stock exchanges, the Chinese planners are thinking only in terms of new ways to tinker with and dress up public ownership. The grip of the Communist Party is still strong, and it may take years to shake. In the meantime, Hong Kong’s lifeblood is draining away. By the time a clear and more reasonable path is set for China, it is possible that too much damage will have been done and too many people will have fled. China may suffer greatly from its leaders’ clumsy behavior toward Hong Kong. Hong Kong, China will not be a barren island. It will have many glittering skyscrapers. But without talented entrepreneurs for tenants, even the most handsome building can become an empty shell. Even in the absence of democracy, people can vote with their feet.

China’s Grasp and Hong Kong’s Golden Eggs

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