Edited by Bob Arnold

HONG KONG'S DILEMMA: SCHOOLS VS. SOCIAL SERVICES

The Hong Kong University of Science & Technology (HKUST), a bright post-modern complex with a dazzling view of Clearwater Bay, has enjoyed generous government support since its founding in the early 1990s. Now, Chia-Wei Woo, HKUST's president, is trying to keep it that way. Woo is fighting a proposal by the government's advisory body on higher education to cut funding to universities by 10% over three years. "It is inexplicable," he fumes. Though he has made steady progress toward building a research culture at HKUST, Woo says the school is still way behind leading institutions in the West. "This is a strange time for a penalty," he adds.

Cutting spending on universities may not be popular with the likes of Woo, but the Hong Kong government under C.H. Tung may see little other choice. Tung and his advisers want to improve the territory's maligned education system by building more schools and spending more money on those that already exist. That will win him popular support and help improve Hong Kong's competitiveness by improving skills in languages, science, and math. Hong Kong's incoming leaders also want to spend more money on primary and secondary schools. To make up the difference, they'll be calling on government-supported universities like HKUST to tighten their belts a little.

Many officials see reform of public schools as vital for preventing other Chinese cities from catching up with Hong Kong. "Our education system must improve substantially in order for our economy to remain competitive," says Joseph W.P. Wong, the current secretary for education and manpower, who will remain in his post in Tung's government. The schools must improve, he adds, "to ensure that we are always one step ahead of mainland China."

Education, as well as other social issues such as welfare, housing, and the elderly, will put pressure on Tung from all ends of the political spectrum to spend more of Hong Kong's $63 billion in foreign reserves. "The neglect of education has been disgraceful for a city this wealthy," declares Woo, who is also a member of Beijing's Preparatory Committee. "Now that Hong Kong is in a period of autonomy," he promises, "good times are ahead."

How much more money do critics want Tung to spend on the schools? Tsang Yok-sing, a high school principal who is chairman of the pro-China Democratic Alliance for the Betterment of Hong Kong, calls for "a substantial increase in funding." A member of the Provisional Legislature, Tsang says Hong Kong spends about 3% of its GDP on education, and he calls for that to increase to 4%. That would translate into $1.5 billion more a year on the schools -- with most of the money going to primary and secondary schools.

As important as it is, education is just one of the several major priorities that will compete for the new government's resources. Others include the sort of everyday issues that immediately affect the lives of many of Hong Kong's population. For instance, many are calling for Tung to be more generous with spending on welfare and the elderly. That's because the gap between rich and the poor is growing. According to a 1995 World Bank report on 24 of the world's most advanced economies, Hong Kong ranked last in income distribution, with the bottom 20% of the population earning just 4.3% of the wealth. The top 20%, by comparison, commanded 50% of the income.

The shortage of affordable housing amplifies the growing income disparity. For a single person at the bottom of the economic ladder, housing costs shot up 122% from 1990 to 1995 -- more than twice the rate of inflation. For a family of four, they rose 85%. About half of Hong Kong people find relief through government housing, but the waiting list is about six-and-a-half years.

Government plans to build 40,000 more flats a year don't impress activists such as Virginia C.P. Ip. The chief secretary of the Hong Kong People's Council on Public Housing, she says the government is in league with property developers. Others, too, are calling for Tung to act quickly before the problem gets worse. "It's a time bomb," warns Lee Wing Tat, a member of the government Housing Authority and a Democratic Party legislator.

To alleviate the problem, Tung's advisers would like to stabilize housing prices. Over time, they figure, the market will be able to reach some sort of equilibrium. But they're resisting calls by some activists to flood the market by releasing more government-owned land. They don't want prices to fall, lest the developers and banks that dominate the Hang Seng index suffer.

There's another reason the government wants to keep the property market buoyant. Hong Kong relies on high real estate values to fund its operations. The government keeps a tight grip on the amount of new real estate it allows onto the market, since about 35% of its revenue is derived from land sales, says Christine Loh, a member of the Legislative Council and a frequent critic of government land policy.

Hong Kong under C.H. Tung, who likes to talk about traditional Chinese values such as respect for elders, will probably spend somewhat more on assistance to the elderly. But don't expect Tung to use much of Hong Kong's huge reserves. There's too much opposition from China and from local tycoons who fear the creation of a Western-style welfare system.

Moreover, the government regards the foreign reserves as an insurance policy against speculators who might test the Hong Kong dollar. "C.H. Tung is not going to allow the money to flow out of government coffers, in case George Soros comes along," says one property developer. Yet at the same time, Tung has an ambitious social agenda. Finding a way to achieve it without spending too much money will be his challenge -- and, perhaps, his accomplishment.

By Bruce Einhorn in Hong Kong