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Hong Kong is suffering from a bad case of Shanghai envy. While the local unemployment rate jumps as the economy in the former British colony enters a recession, Hong Kong's historical rival to the north seems to be booming. New buildings are rising. New companies are forming. Things are happening. Last month, Shanghai hosted the Asia Pacific Economic Cooperation forum, the biggest diplomatic gathering on Chinese soil. Hong Kong, by contrast, was rejected by the central government when it tried to get some crumbs from the 2008 Olympic Games recently awarded to Beijing. Hong Kong wanted to host some of the events, but the central government decided to give the privilege to cities on the mainland instead.
Much of Shanghai's growth, ironically, comes from Hong Kong. Glitzy new shopping centers on Shanghai's main drag, Nanjing Road, rival the most upscale Hong Kong has to offer. Some of them, like the Hang Leong group's posh Plaza 66, are developed and owned by Hong Kong companies. In another part of town, another Hong Kong company, the Shui On group, has recently redeveloped into a nightlife district an area that includes the site of the first meeting of the Chinese Communist Party.
Unfortunately, many Hong Kong businessmen seem to be learning the wrong lesson from Shanghai's rise. As they focus on the excitement in Shanghai and the angst in Hong Kong, they point to what they see as a major impediment to progress in the former British colony: freedom. Shanghai can get things done quickly, partly as a result of the political system. The government wants to build a park or a highway or a semiconductor plant or an entertainment district? Done. Suppose there are people who live where these projects are to build? No problem. They move. It's simple.
Hong Kong doesn't traditionally work that way. The city has a legal system left over from the British that usually prevents the government from simply doing whatever it wants at breakneck speed. Moreover, Hong Kong is an increasingly political place. There's a legislature with representatives elected by the people, and political parties that represent both pro-government and anti-government views.
LIMITED DEMOCRACY. To be sure, Hong Kong isn't a democracy by any stretch of the word. There may be elections for the legislature, but only a relatively small percentage of the members is directly elected by the people. The others represent special interests -- one representative for the tourist industry, another for the banking industry. Teachers, lawyers, doctors -- they get their own representatives, too. Meanwhile, the government is run by a Chief Executive, Tung Chee-hwa, who's chosen by a committee of 800 people, most of them selected for their progovernment views. The other 7 million or so Hong Kong residents don't get a choice.
Still, even this very limited amount of democracy is too much for some of Hong Kong's business elite. They gripe that Hong Kong has become too politicized since the 1997 handover of the territory to China. They complain about the corrosive effect of policies with grassroots appeal. They say that the local government is swayed too much by special interests.
They've got a point -- Hong Kong is suffering because of its strange political system. But the answer is not to move toward more authoritarianism. Hong Kong is suffering from too little democracy, not too much of it. Since the handover, the Tung administration has eliminated one tier of local government, the city council, which was composed largely of elected members.
BIDS? WHO NEEDS 'EM. And the government has tried to be more Shanghai-like in pushing some projects. It awarded a prize piece of land to Richard Li's Pacific Century CyberWorks to build what the company and the government have dubbed Cyber Port, for instance, without any competitive bidding. The idea to build this IT hub was hatched in 1999, during the peak of Internet fever. Now it seems like a disaster in the making. Not a great sign that Shanghai-style planning is right for Hong Kong.
When deciding on Cyber Port, the government kept members of the Legislative Council, the equivalent of Parliament, in the dark. That's no surprise. Legco has so little real power that one of its leading members, Christine Loh -- a politician who had surrendered her British passport a few years earlier in order to qualify to run for Legco -- last year quit the body in frustration.
But even while Tung stiffs the Legislature, he is keen to show that he has political legitimacy. He doesn't want it to appear that he has simply been handpicked by Beijing to rule over Hong Kong. That would make him seem uncomfortably like the former colonial governors, who were handpicked by London to rule over Hong Kong.
LOCAL POLITICS. Problem is, Tung is not a career politician. He's a shipping magnate who's not a natural in working a crowd. So the sorts of things that former Gov. Chris Patten used to do -- walking about town, glad-handing shop owners, and sampling all sorts of local foods -- don't come as easily to Tung. So his government is understandably reluctant to push through unpopular measures. That's especially true when opinion polls consistently show that only about one-half of the public approves of the way he's doing his job.
If Hong Kong's chief executive were directly elected, he or she would be able to enjoy the sort of political legitimacy necessary to push through measures that might not be popular in the short term -- but ones that are necessary for Hong Kong's long-term success. That's what leaders do. But it's not going to happen. Tung's term is up next year. He hasn't made an official announcement, but everybody assumes that he's running again -- and those 800 people on the election committee are the only ones who get to vote.
Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BW Online Edited by Beth Belton
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