Politics & Policy
The Contracts that China Forgot
Kin-ming Liu
05/03/2004

American business leaders intent on securing a slice of the vast Chinese market should pay close attention to what is happening in Hong Kong to see how China treats legally binding contracts. Relations between Hong Kong and Beijing have reached a low point in the past year. Last July more than 500,000 Hong Kong residents took to the streets to protest antisubversion legislation. It was the largest demonstration here since over a million people marched to condemn the Tiananmen Square massacre in 1989.

On January 1, 100,000 people marched in protest, demanding full democracy.
The current row began over the apparent unwillingness of the Chinese government to honor the terms of the mini-constitution it drafted as the basis for the 1997 handover, when Hong Kong ceased to be a British colony and became a Special Administrative Region of the People’s Republic of China.

The document, known as the Basic Law, states that direct elections of the chief executive and the legislature can take place as early as 2007 and 2008, respectively, if Hong Kong’s legislature, the chief executive and China’s National People’s Congress all agree. While China has stacked the deck with appointees who seem unlikely to support direct elections, Articles 45 and 68 of the Basic Law state that its ultimate aim is the selection of the chief executive and members of the legislature by universal suffrage. However, Beijing now claims that it will have the final say in the election of both the chief executive and the Legislative Council.

At the same time, according to another legally binding document, the Sino-British Joint Declaration, signed in 1984, Beijing made a number of promises under the “One Country, Two Systems” formula that then-Premier Deng Xiao Ping designed: Hong Kong could enjoy a high degree of autonomy with “Hong Kong people running Hong Kong” and keep its current system and ways of living unchanged for 50 years after Britain surrendered its last colony to the world’s largest dictatorship.

The people of Hong Kong, interpreting these terms to mean that they can run their own system, have been demanding the right to elect their leaders. On January 1, 100,000 people marched in a protest, demanding full democracy. Beijing, however, says no, and insists that the Hong Kong Chinese have to be “patriotic.”


Contracts and Commerce
Beijing’s heavy-handedness has worried not just democratic activists in this city of 7 million people, but also the usually apolitical business community. “The discussion on patriotism is an unhelpful distraction,” says Lucille Barale, chairwoman of the American Chamber of Commerce in Hong Kong. “One of Hong Kong’s distinctive features is its strong rule of law, and anything that takes away from that is going to have an impact not only on the quality of Hong Kong generally, but as a place to do business. Having things go forward in accordance with the Basic Law is very important.”

For the 10th year in a row, Hong Kong ranks at the top of the list of the 155 economies surveyed jointly by the Wall Street Journal and the Heritage Foundation, a conservative Washington think tank, in their Index of Economic Freedom. As strong supporters of Hong Kong’s free market system, however, both the Wall Street Journal and Heritage are feeling uneasy about China’s treatment of the enclave of liberty. An editorial that ran in the Wall Street Journal’s U.S. and Asian editions in January noted that if the index measured political freedom, “Hong Kong’s score would have taken a plunge on the news that Beijing has decided to slow the pace of democratic reform in Hong Kong and perhaps abandon it altogether. This is a clear violation of the terms by which Britain agreed to return its then-colony to China in 1997.” Edwin Feulner, president of Heritage wrote: “It’s clear that too many in China still have no idea of what it takes to build and maintain a prosperous and stable society.”

What is going on between China and Hong Kong is, in the eyes of these Western observers and many Hong Kong citizens, analogous to reinterpreting the terms of a business deal after both parties have signed the contract. If Beijing can openly defy an international agreement with Britain and violate the self-governing terms it promised Hong Kong, how can foreign businessmen trust such a government to honor its trade obligations? 

Kin-ming Liu is the managing editor of the opinion page at Apple Daily, a Chinese-language newspaper in Hong Kong.