Trust of Hong Kong Becomes Side Issue in Espionage Debate

The carefully orchestrated but fragile independence of this Asian financial center from mainland China is being threatened by fallout from the U.S.-China espionage scandal, officials fear.

A recent congressional report claiming that Hong Kong has become a major transshipment point for Chinese spies and smugglers has triggered calls for a review of U.S. policy that recognizes Hong Kong’s unusual status as an independent territory within mainland China.

“You’ve got to realize, if you’re selling to Hong Kong, you’re selling to the PLA [People’s Liberation Army],” says Rep. Christopher Cox (R-Newport Beach), head of the bipartisan committee that released the report last month on Chinese espionage. “Hong Kong is the whole ballgame.”

Hong Kong hotly disputes those charges and contends its own export controls are tougher than those of the United States. The sanctity of its border is central to the terms under which the former British territory was returned to the mainland two years ago.

That set up a “one country, two systems” agreement designed to protect Hong Kong’s political and economic independence for 50 years. As a show of support prior to the hand-over, Congress passed a law agreeing to treat Hong Kong as a separate economic entity unless there is evidence that its borders with China are not being closely monitored.

In that spirit, U.S. export rules allow more powerful technology to be shipped to Hong Kong than can be sent into mainland China.

But the Cox committee report contends that restricted U.S. technology, such as high-performance computers, is slipping past Hong Kong’s export controls and ending up in the hands of the Chinese military, which has troops based in Hong Kong.

Hong Kong’s Fate May Portend Asia’s Future

Cox and other China critics in Congress say the answer is to eliminate the distinction between Hong Kong and the mainland for purposes of controlling the sale of sensitive technology.

That would not require repealing the U.S. statute recognizing Hong Kong’s independence, but China watchers see such a move by a powerful Western supporter of the territory as a step down a slippery slope.

Ever since the historic change of control in July 1997, the survival of the capitalist enclave when confronted by China’s authoritarianism has been watched closely as a portent of Asia’s future. While press and economic freedoms and democratic institutions appear to have generally been respected, fears remain that there will be a gradual erosion of the legal foundation underlying Hong Kong’s unique status.

A serious challenge to Hong Kong’s independence would not only undermine the territory’s laissez faire image and economic vitality, but would weaken its role as a critical bridge between the western world and mainland China during a time of increasing tensions, according to China experts.

“The Hong Kong Policy Act was based on the assumption that we had an interest in preserving ‘one country, two systems,”’ said David Bachman, a China specialist at the University of Washington in Seattle. “If we start messing around this way, we create a self-fulfilling prophecy that is moving Hong Kong in a direction we don’t want it to go.”

Despite anger in Washington over the alleged Chinese espionage, there is strong resistance to undermining Hong Kong’s independence, according to Douglas Paal, a former Reagan and Bush administration China specialist and president of the Washington-based Asia Pacific Policy Center.

“If we have more bad news out of China, something that bolts from the blue, I can’t rule it out,” he said. “But it’s unlikely. The integrity of Hong Kong’s arrangements are important to us and it would be a contradiction to switch it around and assume they’ve lost control.”

But the Cox report has highlighted the sharp divisions in Washington over the sanctity of Hong Kong’s borders.

The U.S. Bureau of Export Administration, the Commerce Department division in charge of enforcing U.S. export controls, argues China’s critics have gone too far in trying to implicate Hong Kong in the espionage scandal.

William Reinsch, the undersecretary for export administration, praised Hong Kong’s export control efforts and said he opposed congressional efforts to “effectively reverse” U.S. policy on Hong Kong. An interagency committee is presently reviewing U.S. export control levels for high-performance computers and there is no plan to move Hong Kong into a more restrictive category, according to Sue Hofer, a bureau spokeswoman.

Meanwhile, tougher export controls would effectively cede the Hong Kong market to European and Japanese technology companies, U.S. officials say.

In 1998, U.S. manufacturers sold nearly 70% of the computer servers and workstations purchased in Hong Kong, according to a study by the Gartner Group, a technology consulting firm.

But Cox, a prominent China critic, argues that Hong Kong’s independence has been seriously compromised by the mainland Chinese military presence and should--at least in the case of export controls--be treated as if the border didn’t exist. That would mean limiting Hong Kong’s future access to technology to the same level as the mainland.

Cox insists he doesn’t want to punish Hong Kong for China’s misdeeds but believes it is simply “realistic” to assume the Chinese military will be able to get its hands on technology sold in Hong Kong.

Cox contends it is China, not Congress, that should be blamed for jeopardizing Hong Kong’s future.

“It is the presence of PLA troops that undermines Hong Kong’s autonomy,” he said.

The Cox report, citing unidentified sources, claims trucks owned by the PLA are allowed to cross the border without inspections by Hong Kong or U.S. officials. It also accuses the Chinese military of using Hong Kong firms as fronts to acquire restricted technology or to divert legitimately acquired goods to the mainland.

Debate Flares Over Port Controls

Among the handful of Hong Kong-related cases cited in the Cox report is a 1996 incident in which Automated Systems Ltd., a major Hong Kong-based computer firm, sold a Sun Microsystems high-performance computer to a firm in the People’s Republic of China.

That firm allegedly resold the computer to a company connected with China’s Commission on Science, Technology and Industry for National Defense. Automated Systems has been charged by the Hong Kong government with export control violations and U.S. authorities are reportedly still investigating that case.

“Hong Kong is the PRC at this point,” said the Republican congressman. “It does not make sense to have a different level [of controls] for Hong Kong.”

The Cox committee only recommends further study of the issue. But the Senate Foreign Relations Committee is considering a bill that would automatically impose China-level restrictions on Hong Kong if its officials refuse U.S. requests for pre- and post-shipment verifications of sensitive technology and other export control measures.

And other congressional committees are considering similar measures to close the gap between Hong Kong and the mainland, according to Al Santoli, national security aide to Rep. Dana Rohrabacher (R-Huntington Beach), a senior member of the House International Relations committee. “You have to be realistic; Hong Kong is a part of China,” Santoli said. “That distinction in the ‘one country, two systems’ is being increasingly blurred.”

But unhappy Hong Kong officials argue their system is working, pointing out that most of the cases cited in the Cox report occurred before the hand over and came to light through cooperation between U.S. and Hong Kong authorities. They say the Chinese military is subject to the same export control laws as commercial entities and deny that PLA trucks cross the border without inspection.

Edward Yau, a top Hong Kong trade official, calls the accusations “unfounded” and “utterly absurd.”

Officials here claim smugglers actually avoid Hong Kong’s ports because their export control system--which is modeled after the U.S. regime--is far more restrictive than many other Asian ports.

For instance, Hong Kong is one of the few places that requires companies to obtain permission for both the import and export of any restricted technology products, even if they are simply passing through the ports. The Hong Kong government also holds all parties involved in a trade--regardless of where they are based--responsible for adhering to the export laws.

Trade Limits Could Send Wrong Message

Hong Kong officials, citing their history of global compliance with arms control efforts, warn that targeting them unfairly would severely undermine the U.S. campaign to bring other countries into the fold.

“Penalizing Hong Kong would send a totally wrong signal to the international trading community, and would push other places hoping to emulate Hong Kong’s comprehensive and stringent system in the wrong direction,” said Yau, the deputy director general of trade for the Hong Kong government.