Asian Strategies Group

Commentary

Copyright the Daily Yomiuri

Hong Kong Model Could Change China

by David Gries

When world dignitaries gather next week for ceremonies marking Hong Kong's return to China, their thoughts will be on changes in store for Hong Kong after this first major redrawing of China's boundaries in more than a century. But the most profound changes are likely to occur not in Hong Kong but in China, which is susceptible as never before to the Hong Kong model of efficient, minimalist government and unfettered capitalism.

To understand this, it is instructive to review the scope of contacts between Hong Kong and China over the last decade. When Deng Xiaoping first announced China's modernization policy in 1979, relations between Hong Kong and China were limited at best. Refugees, food, drinking water, and light manufacturers traveled in one direction, and a trickle of investment capital, technology, and management know how traveled in the other. Two-way trade never exceeded U.S. $2 billion per year in the 1970s, and Hong Kong's investments in all of China were not much bigger.

Fast forward to 1996. Two-way trade between Hong Kong and China has exploded to U.S. $45 billion per year, and two-way investment flows have reached U.S. $18 billion per year. Hong Kong entrepreneurs are swarming over China, turning the region into Hong Kong's workshop, with most of Hong Kong's manufacturing sector now relocated there. And the reversion of Hong Kong to China next week is likely to accelerate rather than slow integration, as remaining barriers to cross border trade and investment gradually melt away.

But economic integration is not taking place in a vacuum. Along with trade and investment flows, Hong Kong is exporting its unique mix of small, efficient government, hands-off policies towards business, and laws and courts relatively immune from political meddling. The Hong Kong model is reaching China at a time when China is moving slowly-very slowly, some would say--in the same direction.

China's efforts to change its cumbersome bureaucratic state system, especially the tradition of top-down decision making, pervasive political controls, and deep government involvement in the economy, dates from Deng Xiaoping's 1979 reform movement. Slowly at first but more rapidly now, the bureaucracy is being pared down, government ministries are starting to give up management and "ownership" of industries they regulate, and the foundations for a legal system are being put in place.

Although the reform movement faces a long and bumpy road ahead, already South China is sprouting a free wheeling business-oriented culture that owes much to the Hong Kong model next door. Hong Kong's currency circulates widely in the region, and evidence of Hong Kong's pop culture is everywhere.

Observers who expect that China will also inherit a democratic political system from Hong Kong will be disappointed. The democratic experiments launched by Governor Patton a few years ago were the first seen in Hong Kong in its 150 year history, and their sudden appearance had more to do with politics in London than in Hong Kong. Historically, British rule was anything but democratic. But the British did permit and protect a high degree of individual freedom for Hong Kong citizens, and these freedoms, now deeply embedded in Hong Kong's business culture, are almost certain to have an impact on China.

Already, the ground there is fertile. Since reform started in 1979, the Chinese people have gained the freedom to plant and produce what they want, to travel freely within China, to find their own jobs and to change jobs, and to go into business for themselves. When Deng Xiaoping said that "to get rich is good," millions of Chinese were apparently listening. Measured against democratic standards, freedom is still limited, but the Chinese people as a whole have never been freer in their 3000 year history.

Into this mix the Hong Kong model of minimum government and maximum freedom is about to be added. What emerges will have a big impact not only on China but on the world, for China will soon be the colossus of Asia and a leading actor on the world stage. Soon China's GNP will pass the $1 trillion mark, making it one of the largest in the world. Although still low, China's per capita GNP has increased almost four-fold since 1979, and there is no end in sight. China is clearly on the move. Its domestic policies, its relations with the rest of the world, are having an effect on all of us.

There is a good chance that the Hong Kong model will reinforce positive trends in China. The Chinese government's ability and its will to intervene in everything from private lives to business decisions has been receding for some time, and the Hong Kong model of minimal government may speed up the process. Chinese leaders have made, but not fully implemented, decisions to confine the government to regulating the economy, while turning over management and ownership to a mix of state owned and privately owned corporations. The Hong Kong model could be a useful guide.

But Hong Kong's tradition of individual freedom may make the biggest difference over the long run. It is significant that Beijing has already snuffed out Governor Patton's eleventh-hour democratic experiment, but has taken only limited steps to curtail individual freedom, provided freedom is not deployed against the government in the form of demonstrations, opposition political parties, or debate about government powers.

This situation bears a striking resemblance to most of Asia, where private enterprise is encouraged, the private lives of most citizens are beyond government's reach, and democracy exists in form but not in substance. If the Hong Kong model helps to make the Chinese government act more like governments in the rest of Asia, Hong Kong, China, and the world will benefit. We might prefer a China that has a democratic system, but we can get along with a China that is relatively free.

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