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Country Commercial Guides for FY 2000: Hong Kong Report prepared by U.S. Embassy Hong Kong, released July 1999

CHAPTER III:   POLITICAL ENVIRONMENT

A.   Nature of Bilateral Relationship with the United States

The U.S. and Hong Kong maintain close and cooperative relations. Hong Kong is our fifteenth-largest trading partner. According to preliminary data from the U.S. Department of Commerce, U.S. direct investment in Hong Kong through 1998 totaled US$20.8 billion on a historic cost basis. The United States maintains a wide number of cultural and educational exchanges with Hong Kong, and enjoys excellent cooperation in law enforcement matters. Over 50,000 American citizens reside in Hong Kong and over 1,100 U.S. companies have offices in Hong Kong.

B.   Major Political Issues Affecting Business Climate

Hong Kong became a "Special Administrative Region" of the People's Republic of China on July 1, 1997. The Sino-British Joint Declaration, signed in 1984, and the Basic Law of the Hong Kong SAR, passed by China's National People's Congress in 1990, form the legal basis for China's "One Country, Two Systems" guarantees for Hong Kong. Hong Kong has a high degree of autonomy. China has promised that the social and economic systems, life-style, and rights and freedoms currently enjoyed by Hong Kong people will remain unchanged for at least 50 years. The Hong Kong Government negotiates bilateral agreements (then "confirmed" by Beijing), and makes major economic decisions, on its own. The central government in Beijing is responsible only for foreign affairs and defense of the SAR.

C.   Political System, Elections, Orientation of Major Political Parties

When Hong Kong became a Special Administrative Region of China in July 1997, the Basic Law guaranteed the continuation of the rights and freedoms that Hong Kong residents already enjoyed: in essence, the continued rule of law, and the maintenance of Hong Kong's capitalist system for 50 years. In fact, the SAR has maintained its capitalist economic and trade systems, retained the status of a free port and continued a free trade policy with free movement of goods and capital. It retains its status as an international financial center, as can be seen in its active participation in efforts to address the Asian financial crisis. It formulates, on its own, monetary and financial policies and safeguards the free operation of business and financial markets. The Basic Law states that the SAR will maintain its own currency and use revenues exclusively for its own purposes. The Hong Kong Dollar continues to be freely convertible and foreign exchange, gold and securities markets continue to operate as before. Systems currently in place, including Hong Kong's regulatory and supervisory framework, have remained unchanged.

Hong Kong is a free society with legally protected rights. The Basic Law serves as Hong Kong's mini-constitution. Executive powers are vested in the Chief Executive, C.H. Tung, who was selected by a 400-person Selection Committee. The judiciary is an independent body which operates according to the precepts of the Common Law, with certain variations. The Basic Law (article 8) stipulates that the laws in force in Hong Kong before reversion, except for any which contravene the Basic Law, remain in force. Legislative power rests in the hands of Hong Kong's Legislative Council.

The Rule of Law remains the bedrock of Hong Kong's free market system. Hong Kong's courts are independent and have jurisdiction over all cases except acts of State such as defense and foreign affairs (Basic Law Article 19). The courts exercise judicial power independently, free from any interference (Basic Law Article 85). However, the Basic Law also provides that on matters "which are the responsibility of the Central Government" or affect Chinese Central Government-- Hong Kong, the courts may seek an interpretation of the Basic Law from the National People's Congress in Beijing. In June, fearing that the Court of Final Appeal January ruling in the Right of Abode case would result in the influx of more than a million migrants from China, the Hong Kong Government requested and received such an interpretation. If this method becomes routine rather than extraordinary, the Rule of Law and the independence of the judiciary will be gravely undermined.

Prior to 1985, members of the Legislative Council were not elected. Between 1985 and 1995, legislative seats appointed by the Governor were eliminated and an increasing number of legislators were elected either directly from geographic constituencies or by professional, business, and labor groups, called functional constituencies. The first elected legislature under the SAR Government was elected on May 24, 1998 and sworn in on July 2, 1998. Based on the Basic Law formula of 20 geographic seats, 30 seats from "functional" constituencies representing the professions, business sectors, and labor, and 10 seats from an electoral committee, the methods used to elect the legislature limited "pro-democracy" candidates to about twenty out of sixty seats, despite the fact that they received about two thirds of the popular vote. The most popular political party, which only has 600-800 members, is the Democratic Party, which received 43 percent of the vote in the May 1998 election. The left-wing labor union affiliated and generally pro-China DAB (Democratic Alliance for the Betterment of Hong Kong) is the second most popular political party with approximately 25 percent support.

D.   Macau Political Scene

Macau is recognized by both China and Portugal as Chinese territory under Portuguese administration. The "Organic Statute" of 1976, which serves as the constitution, grants it considerable administrative, financial, and legislative autonomy from Lisbon. The Governor, appointed by the Portuguese President, has extensive powers under the Organic Statute. Both the Governor and the Legislative Assembly exercise legislative power. Voters directly elect only one-third of the legislators; the rest are appointed or elected by interest groups. The judiciary is independent. Macau's human rights record is generally good. However, its civil society is relatively weak. Labor unions and the press have close ties with Beijing.

Under the principle of "one country, two systems" specified in the 1987 Sino-Portuguese Joint Declaration, Macau is to become a special administrative region of China on December 20, 1999. Its economy and way of life are to remain unchanged for 50 years. After reversion, the "Basic Law", promulgated by China's National People's Congress in 1993, is to serve as Macau's Constitution and most of the laws currently in force will continue to apply.

After reversion, recently elected Chief Executive Edmond Ho will lead the government. The elected members of the current Legislative Assembly will maintain their seats through reversion and until the next scheduled election in 2002. Although most senior civil service positions have already been localized, Ho will be leading a relatively inexperienced government.