Reality Check, 2002: Emigration is once again an issue -- but this time people are headed out of the city and back to the mainland. Rents and property values are on the way down. Queen's Road Central? It remains just that. The PLA soldiers are snug in their barracks -- and a lot better behaved than their British predecessors. But once again, a sense of gloom pervades the air.
Ironically, instead of a heavy-handed Middle Kingdom squelching Hong Kong, it's China's stunning rise that has left Hong Kong gasping for air. The mainland is the hot new destination for adventurous job-seekers. While it's true that the Asian financial crisis hit just one day after the handover to China in 1997, that alone can't explain the remarkable loss of self-confidence in Hong Kong.
HERETICAL THOUGHTS. The grousing over starched-linen tablecloths at tony restaurants and clubs here reveals that something new and troubling is afoot. The elite of Hong Kong are wondering out loud if it has lost its edge. Can it still carve out a role as something more than just another megacity on the South China coast? I think it can, but the city is overlooking its most obvious assets.
This week, prominent banker David Li urged the local government to introduce a draft bill on proposed antisubversion legislation, rather than simply ramming the bill through the Legislative Council in a form that, under Hong Kong's quasidemocracy, would make amending the document all but impossible (see BW Online, 10/31/02, "In Hong Kong, Security or Suffocation?").
This is the most obvious sign yet that Chief Executive Tung Chee-hwa's Administration is increasingly dividing the community. Heretical as it might seem, progressives here are starting to wonder what Hong Kong can glean from the mainland in terms of good governmental practices.
SAVING FACE. In a private meeting recently with a gaggle of influential Hong Kongers, I was struck by how much the mood is changing. One prominent citizen, with inside knowledge of the mainland government, regaled the audience with tales of areas where the mainland's administration did better than Hong Kong. China is faster at reforming and even eliminating bureaucratic red tape, she said. It has rigorous, 360-degree performance evaluations for senior officials. It has sophisticated procedures for policy formulation. And it has the will and energy to reform and catch up.
Most Hong Kong officials still look down on the mainland. But the feeling among the financiers, scholars, businessmen, and officials around this table was that today's China is more like the old Hong Kong -- adaptable and serious about reform. Hong Kong, by contrast, seems to be spinning in circles. Despite recurring budget deficits, the local government has extracted only the most modest pay cuts from its handsomely-compensated civil servants. Securities reform lags, as its regulators confuse "consulting the market" with making decisions. A new ministerial system, designed to bring greater accountability, has mostly succeeded in demoralizing the civil service.
Make no mistake. China wants Hong Kong to succeed: It serves no one well if Hong Kong were to go from prosperity under British rule to penury under Chinese rule. But more than face is at stake. China needs Hong Kong's knowhow -- above all its ability to tap the international markets for money. The city still has deep foreign-exchange reserves and the highest per capita income in China. But it's clear that Beijing is frustrated with Hong Kong's malaise. Hong Kong officials frequently go to Beijing and ask for help.
PLAYING TO STRENGTHS. This sense of bafflement as Hong Kong squanders its advantages underlies Chinese Premier Zhu Rongji's recent pronouncements on Hong Kong. Speaking after a meeting with Hong Kong's Tung Chee-hwa in Beijing, Zhu recommended that Hong Kong civil servants accept pay cuts, with higher officials taking bigger cuts.
A crisis of bloated bureaucracy? I think Hong Kong's problem isn't too much bureaucracy, it's too little democracy. Right now, the city has the worst aspects of authoritarianism with a smattering of democracy thrown in. Its political system is limited to the elite, so it lacks legitimacy, like authoritarian governments everywhere.
Yet it has a remarkably free press by Asian standards -- and an assertive, educated populace. Policy debates are fought in newspaper columns and protest rallies, rather than in the legislature. Meanwhile, a besieged government circles the wagons, excluding anyone who's regarded as not sufficiently loyal to Tung.
Counterintuitive though it may seem to Tung and to the Beijing leadership, opening up the political system is Hong Kong's best way out. Tung needs to reach out even to the people who oppose him and use their talents. They are not opposed to Hong Kong, whatever the pseudo-patriots who claim to "love" Hong Kong might tell him. Tung must open up the system, and he must listen to the people of Hong Kong. It's his best hope for saving a city whose future is under threat. Clifford is Hong Kong bureau chief for BusinessWeek. Follow his China Journal column every week, only on BW Online