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The Fuse Is Sizzling In Hong Kong


International Business

THE FUSE IS SIZZLING IN HONG KONG

Hong Kong Governor Chris Patten describes himself as a "nonconfrontational man." But he sure is in the center of controversy. The 48-year-old Briton has set off a political storm in the past month that is reverberating around the globe. Without consulting Beijing, Patten boldly announced a new blueprint for government that would modestly increase the level of democracy in Hong Kong. Offended by his tactics, Beijing elders gave dark warnings that they would repudiate the entire handover treaty. Their vociferous response rocked Hong Kong's stock market off its all-time high (chart).

On one level, Patten's blast can be seen as Britain's last attempt to impose Western-style institutions on this tiny slice of China. But the squabble is broadening into a deeper crisis, touching off fears abroad, including the U.S., that Beijing could go too far. If China strikes back too hard, Hong Kong land prices could tumble and new investment could flow elsewhere. And a strong Chinese reaction is certain to sour neighboring Taiwan on reunification with the mainland anytime soon.

Suddenly, the balancing act by China's leaders between economic reform and political cohesion is more precarious than ever. Fearing that growing calls for democracy in Hong Kong could spread to Guangdong and other southern provinces, China's leaders are digging in their heels. That in turn could cause political disruptions just as Beijing is engaged in massive economic reforms.

Why Britain's sudden passion for democracy in Hong Kong after 150 years at the helm? The British argue that while full-fledged democracy doesn't exist in Hong Kong, there is a rule of law that provides protection of fundamental human and civil rights. What's more, Hong Kong's institutions "give business a decent environment in which to operate," says Patten. So British Prime Minister John Major and Patten decided to lock in as many protections as possible before the colony changes hands.

GROUNDED? Patten's game plan may win praise back home, but it's backfiring among the business elite in Hong Kong and China. They worry that the Chinese could make good on threats to flout any contracts signed by Hong Kong that extend past 1997, including those for a new $22 billion airport.

Now, the flap is hitting Washington, just as the new Administration prepares its China policy. At issue is not only how hard to push for political and human-rights reforms but also coveted most-favored-nation (MFN) trade status. Hong Kong is clearly mn President-elect Bill Clinton's agenda. On Dec. 8, he declared that the U.S. "should do what it can . . . to ensure that human rights and personal freedoms will be observed, moving towards 1997 and beyond."

Beijing is already cooking up ways to woo Clinton. For starters, more releases of imprisoned Tiananmen dissidents could be in the offing. And a Buy American campaign would try to shave China's $15 billion trade surplus with the U.S. In mid-November, China announced a $2 billion purchase of U.S.-made computer-chip-manufacturing equipment.

But Hong Kong is just too close for comfort. Indeed, Hong Kong officials report that some 10 million viewers in southern China tuned into Patten's speech via satellite when he announced his reforms. Fully 97% of those interviewed in Guangzhou and Shenzhen have heard of Patten, while only 67% could name their own provincial governor, according to a telephone survey by a Hong Kong newspaper. "The Chinese government is concerned that the British will use Hong Kong as a base to create trouble to subvert the present regime," says an expert at a leading Beijing think tank.

The irony is that while Hong Kong politics rattle the leadership in Beijing, China is opening elsewhere as never before. Leaders have flung open the doors to foreign investment, and a record $31 billion has flowed in this year. Some 30,000 Chinese students have studied in the U.S. since the Tiananmen Square massacre. Even top Chinese officials are signaling a readiness to change. Qiao Shi, a member of the Politburo's inner sanctum and head of China's secret police, said on Dec. 4 that China should learn from the West in amending its constitution to "benefit the development of a democratic legal system."

COMMON GROUND. If China backslides in Hong Kong, its fragile progress would count for little. Already, the China-Hong Kong spat is spurring fresh calls in Congress for tougher trade terms. And if reports that China has shipped M-11 missiles to Pakistan prove true, the U.S. may insist on retaliation.

But Patten and Beijing do share some common ground. Early next year, Patten will head for Washington to lobby vigorously for unconditional MFN status for China. There is also some wiggle room in his democracy plan. His ideas are "proposals," not "decisions," he says. Ultimately, it is up to Hong Kong's Legislative Council to vote on the extent of reforms early next year. If they are watered down to pass muster with Beijing, Patten could still claim victory, having let the locals cast the final vote. That would be enough to allow Britain to pull out of its last major colony with a clear conscience.Joyce Barnathan in Hong Kong


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