An Economic Flu

Critics blame the Hong Kong government’s decision to champion a harsh security law for triggering the territory’s biggest crisis since its return to China in 1997. They condemn the proposal as an assault on Hong Kong’s freedoms. Because the bill is vague about what constitutes an anti-state crime, even those who have remained neutral fear that the new law would interfere with Hong Kong’s way of life and undercut Western-style civil liberties that Beijing promised to preserve in the territory.

Not everyone shares these anxieties. One survey found that most Hong Kong residents are more angry about the city’s sluggish economy, record-high joblessness, falling salaries, declining property values and erosion of living standards since Beijing’s takeover.

Therein lies the real challenge to Hong Kong’s future. Although the debate over the security law is important, far more crucial is the fact that Hong Kong is no longer the gateway to China. If it is to reclaim its former luster as an economic powerhouse and center of commerce, Hong Kong must grasp all opportunities to become more “Chinese” and to strengthen its links with other parts of China. In that way, it can nurture its own democracy and even take it to the mainland.

Hong Kong was an extraordinarily vibrant city under British rule, brimming with wealth and opportunities. But since 1997, it has been hard hit by Asia’s financial crisis, successive recessions and the outbreak of SARS. Its economy has plunged to a historically low point, with the unemployment rate jumping from 2% to nearly 9%. Public confidence is sagging and social unrest mounting. The crime rate is the highest in eight years.

The troubled economy has spawned a sense of despair in society, evidenced by Hong Kong’s soaring suicide rate, which is among the highest in the world. Last year, there were 1,100 suicides in the territory.

How did Hong Kong get into such a crisis? Many blame the incompetent leadership of Chief Executive Tung Chee-hwa, nicknamed “One Step Behind,” which is evocative of his approach to problems. A recent poll indicated that only 35% of Hong Kong residents had a favorable opinion of him. One measure of Tung’s political ineptness was pushing the security bill in a territory still reeling from fear of severe acute respiratory syndrome. That Tung and his staff chose such a moment to win support for the anti-subversion bill showed how disconnected they were from reality.

The problem runs much deeper than Tung’s leadership, however, and Hong Kong’s stagnated economy is more than bad luck. Powerful currents within globalization have dramatically affected the former British colony since it became part of China.

The most significant change is that China is no longer an isolated socialist country but a vigorous capitalist market. Integrated into the global economy and international trading system, China has opened its doors to welcome Western businesses. In the past, foreign companies had to use Hong Kong as a springboard to the mainland; now they go directly to China. It is a telling fact that in June, when the SARS outbreak in China was barely over, such major multinational companies as Anheuser-Busch, Honeywell, Mary Kay, Volkswagen, AOL Time Warner, Morgan Stanley, United Parcel Service and Wal-Mart had already rushed to establish or expand their businesses in China. Many have relocated their regional headquarters from Hong Kong to Shanghai.

Just as Hong Kong’s role as middleman to the outside world has diminished, its importance to China has declined. As a member of the World Trade Organization, China no longer needs a steppingstone to international markets. For example, Haier, China’s leading producer of household appliances, has set up a large office in New York and opened a refrigerator factory near Columbia, S.C.

Hong Kong also faces increasing competition from several rapidly developing Chinese cities, especially Shanghai. With its close ties to international markets, Shanghai has emerged as a linchpin of China’s fast-growing economy. It has not only become a sophisticated commercial entrepot for foreign investment and export industries, but also thrives as a financial and service center for international businesses in China. Shanghai has realized its ambitions to reclaim its pre-1949 status as “Paris in the Orient” and has replaced Hong Kong as a gateway to the vast Asia market. More broadly, the remarkable growth and development of regional centers along China’s coast threaten to put Hong Kong out of business.

What can residents of Hong Kong do under such circumstances? Although China vows it will continue to back Tung, Beijing is aware of the territory’s crisis. Rumor has it that Beijing may, as a compromise, add a vice chief to Tung’s Cabinet. If true, it would open doors for a new boss who knows the intricacies of local politics. Because Hong Kong residents are famous for their hard-nosed pragmatism, there is a chance for a shrewd politician to make a fresh start for the territory and reverse the economic tides.

In the long run, Hong Kong needs a strategy to transform its economy and secure a new niche in the fast-changing surrounding Chinese world. For example, Hong Kong could turn further “inside,” expanding relations with neighboring Guangdong province with the aim of turning the territory into a center of South China. Because Hong Kong has never been self-sufficient -- 70% of its fresh water comes from the mainland -- its economic infrastructure will have to be better tuned to China’s development. Once it is, democracy will have a stronger economic footing and succeed in not only Hong Kong but also China.