"We want small government and a big market," says Hong Kong's chief executive.
BY MARY KISSEL
Saturday, February 24, 2007 12:01 a.m. EST
HONG KONG--Remember June 30, 1997? That afternoon, the city's last colonial governor, Chris Patten, blinked back tears as the British flag was lowered from its flagpole at Government House. At 8:00 that night, red fireworks exploded over Victoria Harbor while Hong Kong's good and great sat down to dine in a grand hall; China's Jiang Zemin arrived later, glowing as Asia's "world city" was returned to its mainland mother. After the stroke of midnight, a 500-strong People's Liberation Army contingent marched over the border, soon followed by 4,000 more--a brutish touch, a hint of things to come? No one knew.
Nearly 10 years later, Donald Tsang, the current chief executive, knows. He's part of a grand juggling act, protecting Hong Kong's cherished freedoms while integrating the place--carefully, it's hard work, doing the best that we can, he'll tell you--into the mainland's booming economy. Nowhere is this more evident than from Mr. Tsang's campaign office, from which the chief executive is steering another bid for high office next month.
Tucked on an upper floor of one of Hong Kong's soaring office towers, the entrance to Mr. Tsang's nerve center boasts no campaign photographs of the bow-tied, impeccably attired Cantonese civil servant; the walls are bare, and not a single policy leaflet graces the shelves. Granted, the office had been opened only two weeks prior to our interview. But the sterility of what should be a raucous debate in a democracy only reinforces the reality: Mr. Tsang is "running" for "re-election" in a rigged campaign where Beijing still picks the winner.
"Here's my card," he says, entering the windowless conference room where I and my colleague from New York, Melanie Kirkpatrick, are seated. A tidy little number, the specially printed campaign business card ("Donald Tsang, Candidate") boasts contact details in English and Chinese, plus a cursive slogan that seems scrawled as an afterthought: "I'll Get the Job Done!" "It will be a collector's item someday," Mr. Tsang jokes, settling into his chair.
The slogan is apt. Mr. Tsang has spent nearly 40 years in the civil service preparing to bridge East and West. Knighted in 1997 (he no longer uses the "Sir"), he was appointed by Beijing in 2005 to serve out the term of the former chief executive, Tung Chee Hwa, whom Beijing's Party elders encouraged to resign when the Hong Kong people marched through the streets for full democracy. Hong Kong can do what it likes, the thinking goes, so long as it doesn't make a fuss. China's leadership has far more pressing problems to worry about--rioting peasants in the countryside, corruption permeating its ranks, a nuclear North Korea--than the humming, affluent dot on its southeastern flank.
Mr. Tsang, a former financial secretary, has focused his energies on the economy. And that's a good place, we agree, to start our discussion, given that Hong Kong just rolled up the No. 1 slot--for the 13th year running--in the Heritage Foundation/Wall Street Journal's "Index of Economic Freedom." So how has Hong Kong influenced--maybe even led--the mainland down the capitalist road since 1997?
Hands clasped, Mr. Tsang thinks for a moment on these "serious and deep" questions. "Opening up is the answer, following the road map charted out by Deng Xiaoping," Mr. Tsang says. "So in the context of Hong Kong, it will be wrong to assume that this little tail is wagging the big dog. It is not." But Hong Kong, he explains, is the most effective "broker, the bridge, the gateway for the nation as a whole."
Surely last year proved his point. For the first time, the flood of mainland Chinese companies selling stock on Hong Kong's stock exchange pushed volumes above those of New York and London. Hedge funds poured into the city, eager to base themselves in a place with civil law (in more ways than one, when compared to the mainland's corrupted bench) and an English-speaking labor force.
Most important, Hong Kong cemented its place as a testing ground for China's capital account liberalization. The mainland's domestic currency, the renminbi, circulates in a limited way in Hong Kong. Shops accept it; Hong Kongers can open savings accounts in it; and mainland companies can issue renminbi-denominated bonds in the territory.
"All this is taking place! It's the only place outside the mainland of China where these activities are allowed!" the chief executive emphasizes, in a rare moment of emotion. "Right here!" In Hong Kong today, "you see how renminbi, on a limited scale, can move in the free-market environment of Hong Kong."
The chief executive dreams of the day when the floodgates will open up and the cash gushes out of China into Hong Kong's banks, mutual funds and businesses. "This will come, this will come," he affirms.
All this adds to up to a vision for Hong Kong as a nexus for capital not unlike that of London for Europe, or New York for the Americas--a city in the South China Sea devoted to servicing China's rising middle classes. "We need three [financial centers] . . . because most of us agree that we have to work eight hours a day!" Mr. Tsang quips.
That plan is already being echoed by China's rubber-stamp legislature, the National People's Congress, which included Hong Kong in its five-year plan for the first time last year. Mr. Tsang recites the text verbatim: the leadership, he says, sees Hong Kong as "a center for international finance, trade and shipping/aviation" (the Chinese-language characters for shipping and aviation are, conveniently, the same).
Mr. Tsang's eagerness to bet Hong Kong's future on the mainland is genuine: He is undoubtedly a Chinese patriot. But why should this capitalist city scramble to join the Communist Party's five-year industrial plan? Other actions, too, hint that the Hong Kong government is starting to stray from the free-market policies that made it so rich.
Last year, Mr. Tsang's administration proposed a new consumption tax, started debating a minimum wage, and embarked on rhetoric of leveling societal "inequalities." The chief executive himself publicly disavowed the policy of "positive noninterventionism," the term coined by one of Hong Kong's financial secretaries to describe the territory's famously laissez-faire approach--an action for which this newspaper, and the late economics Nobel Laureate Milton Friedman--chastised him.
"You were wrong," Mr. Tsang replied, staring me right in the eye. "It's a slogan." Hong Kong still has the freest economy by a mile--its public sector takes up 18% of total GDP; total public spending isn't allowed to exceed 20% of GDP. Even if the government tried to impose European-like safety nets on the public, the rise in taxes would never be tolerated; the 5% consumption tax proposal was met with a public outcry.
"We want small government and a big market," Mr. Tsang explains. "We facilitate what the market does." And what does facilitate mean, exactly? "When, for instance, people believe, Mary [emphasis on my name], the mainland should be the next target of action. . . . I will lead a delegation into the mainland, making sure that any . . . trade barriers could be removed for them. . . . I go in there and try to do things for them."
Why, I wonder, is the same zeal for sealing business deals not applied to the Hong Kong people's wish for universal suffrage? In 2003 and 2004, over a half million of them marched for the full democracy promised to them by the mini-constitution, called the Basic Law, that Mr. Patton and the British left behind. The current setup is far from perfect; it includes a twisted system for electing the legislative branch and the chief executive that effectively gives Beijing veto power over the latter. But regardless of the silent overlord, this year a challenger to Mr. Tsang managed to garner enough official nominations to stand for chief executive--an event that has given an electric charge to the democracy movement.
How does it feel to have a challenger? "It's allowed for in our electoral arrangements," Mr. Tsang answers dryly. "And it's giving our people a little more fun, a little more fireworks. But it doesn't mean that even if I were the only candidate running that I would not be providing a manifesto." The chief executive is a list man, focused on process; he dismisses opposition candidate Alan Leong as a "single issue man" who "just says universal suffrage, universal suffrage, universal suffrage."
Mr. Tsang seems perplexed by such a stance, noting that his city already enjoys freedoms other democracies have, such as freedom of assembly, freedom of religion, and freedom of the press. "In Hong Kong, we've got all those things." Mr. Tsang declares. "We want democracy for the sake of political participation. So, as a purist form, we should consider it carefully . . . but it must not be achieved at the expense of what they already got."
Why would universal suffrage threaten freedoms? Wouldn't a degree of public accountability impel the chief executive to follow the "will of the people" (a favorite phrase) more closely?
Mr. Tsang answers immediately: Beijing "supports [democracy] as a principal enshrined in the constitution, but I think they want to be sure they're not doing it at the expense of stability and prosperity." Read: Authoritarian regimes are afraid of placing control in the hands of the people. They could publicly protest, or elect an independently minded chief executive, or--as Mr. Tsang notes--they could declare independence, as in the case of Taiwan.
Mr. Tsang has now spent almost a decade working under the Chinese flag, versus 30 under the Union Jack. How is it different? Surprisingly, interactions with the mother ship are "less than before," he confides. "No faxes, no telegrams." He may consult closely on political reform with the local representative office of the central government, but for now, Mr. Tsang's administration operates the territory's economy independently from that of the mainland--so there's less reason to call for advice.
"The style of operation is very different," Mr. Tsang says. "We are dealing with people in the same nation, but it requires a perquisite of mutual trust and faith. But once we have built up a sense of trust, between ourselves and the mainland, it seems that you can achieve quite a lot--a lot more than before."
Within limits, that is. As we wait for the elevator next to those empty shelves where election campaign pamphlets might sit, the limits of Mr. Tsang's ability to "get the job done" seem clear.
Ms. Kissel is editorial page editor of The Wall Street Journal Asia.
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