Eric's Beijing Diary

Hong Kong has a powerful attachment to three countries.

First is Great Britain. Hong Kong has a uniquely British heritage. There is much in Hong Kong that is clearly influenced by British life and culture. Downtown Hong Kong really reminds me of London. That's not just a subjective value judgment, either. Couldn't be--I've never been to London. Seriously, it all really does feel very British, if you know what I mean. But Hong Kong's connection with Great Britain is much more than that. The Basic Law by which Hong Kong is governed is an offspring of the treaty between Great Britain and China, negotiated by Margaret Thatcher and Deng Xiaoping before the handover in 1997, to which Great Britain was a signatory. To watch news items about the development of Hong Kong since 1997, one would think that the whole issue comes down to what Beijing decides, and Beijing is, in fact, quite sensitive on this point, stating repeatedly that the Basic Law is domestic, and draws its authority from the People's Government. But we must remember that before the handover, Hong Kong people were British subjects, and the UK has a direct treaty interest in making sure that terms of that treaty (the Joint Declaration) are followed, and the interests of those former subjects are protected. So the conditions specified in the Basic Law are based on the provisions in the Joint Declaration, and it is at least true that the UK would have reason and cause to object if any provision in the Basic Law, or interpretation of any provision were deemed by Great Britain to be in violation of that declaration.

The second country is the United States. Economically, Hong Kong is a very American city. The Hong Kong dollar is pegged to the US dollar, which means that Hong Kong is essentially an extension of Wall Street, and that Hong Kong's monetary policy is outsourced to the Federal Reserve. Up until 2005, China's currency was pegged to the dollar, too, but that's different, because the RMB is not convertible. In Hong Kong, there has even been suggestion that Hong Kong dispense with local currency altogether, and just use US dollars. I don't think that will actually happen, and I would not recommend it personally (because it would essentially freeze the dollar peg), but it is an indication how closely Hong Kong is tied to the United States, at least in terms of economics. Can you imagine the People's Republic abandoning their currency and using US dollars?

The third country, of course, is China. Hong Kong is technically part of China now, although there are restrictions on how much influence and/or control China is able to exercise in one area of life or another. In practical terms, the effect of the agreement between Great Britain and the PRC that set the stage for the handover in 1997 is to essentially postpone the handover for another 50 years (39 years from now). Technically, that means that after the 50 years is over, Hong Kong could become just another Chinese city. But 39 years is a long time. Try to remember what China was like 39 years ago. It was 1969, and China was in the throes of the Cultural Revolution. The difference between China today and China back then is much greater than the difference between China today and Hong Kong today. Anything can happen in 39 years. So how will Hong Kong change in the years to come, in anticipation of eventually being "swallowed up" by China? Some have suggested that the Hong Kong dollar should be pegged to the RMB instead of the US dollar, but that is not possible as long as the RMB is not convertible. There is more and more talk about that now, given the decline of the dollar, but the US is Hong Kong's second largest trading partner (after the PRC) so that decline does not hurt Hong Kong that much in practical terms. When it comes right down to it, the question we need to be asking is not how Hong Kong will change, but how China will change, and how those changes will affect the relationship between Hong Kong and the mainland.

Labels: Basic Law, Hong Kong, Joint Declaration