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Stanley O. Roth
Assistant Secretary for East Asian and Pacific Affairs
U.S. Department of State
Testimony Before the Senate Foreign Relations Committee,
Subcommittee on East Asia and the Pacific
Washington, DC, July 1, 1999

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U.S. Policy on Hong Kong

Mr. Chairman, thank you for the opportunity to speak before your subcommittee this afternoon on the subject of United States policy toward Hong Kong. Since I first appeared before the SFRC as the Administration's nominee to be Assistant Secretary for East Asian and Pacific affairs almost two years ago, I have appreciated the intensive and constructive oversight over U.S. policy in the region which your committee has provided. I have been honored to testify at a number of hearings which you have chaired on events in China and U.S. policy toward that important nation. Yet, this is the first time we have met to discuss U.S. policy toward Hong Kong. I believe there is an important reason for that omission.

Exactly two years ago, on July 1, 1997, China peacefully resumed the exercise of sovereignty over Hong Kong. That peaceful transfer was the product of years of preparation by the leaders of both Great Britain and China and by the people of Hong Kong. It was a transfer fraught with difficulties and uncertainties and one central question: Would Hong Kong be able to retain the openness and the rule of law that had made it one of the most vibrant cities in the world?

The questions we asked, the concerns we felt were primarily political: Would Hong Kong actually retain the autonomy it had been promised? Would Beijing allow the people of Hong Kong to continue to enjoy the human rights they had exercised under British rule? Over the course of the past two years, we have watched political developments in Hong Kong closely. Most have been positive, although as I will note later in my remarks, there are a few worrisome clouds on the horizon. Hong Kong has largely remained autonomous, open and observant of the rule of law -- far more so than any had anticipated.

Surprisingly, the difficulties which Hong Kong has encountered since the handover have been not political, but economic. The financial crisis erupted just as Hong Kong came under Chinese sovereignty, and Hong Kong suffered its first negative growth in over 25 years. That has posed serious problems for the Government of Hong Kong and challenged the confidence of the people of Hong Kong in both their government and their future. While Hong Kong has begun to recover economically, the difficulties remaining before it are real.

Given these challenges I would like to reverse my accustomed sequence and consider economic developments first, then turn to the political. Nonetheless, this two-year anniversary offers a welcome opportunity to assess how Hong Kong has done, where it is heading, and what this means for U.S. policy.

ECONOMIC DEVELOPMENTS

Hong Kong continues to be one of the world's most open and dynamic economies -- the seventh largest trading entity and the fifth largest banking center. As one of the four tiger economies of East Asia -- together with South Korea, Taiwan and Singapore -- Hong Kong has been a regional hub for large numbers of U.S. companies and the jumping off point for many seeking to do business in the People's Republic of China. Over 1,100 U.S. companies employ 250,000 Hong Kong workers (10 percent of the workforce).

Impact of the Asian Financial Crisis

Despite these strengths, Hong Kong, like the rest of Asia, suffered during the regional financial crisis. Property values dropped in 1998 by as much as 65 percent from their '97 peak. GDP declined 5.1 percent in 1998 and will likely remain flat in 1999. Unemployment, now 6.3 percent, has grown to the highest levels in thirty years.

These negative developments were largely not of Hong Kong's making and had nothing to do with its reversion to Chinese sovereignty, but they did pose the first real challenge to the new government of the Hong Kong Special Administrative Region (SAR). Whether fairly or not, the new chief executive and Hong Kong's renowned civil service were subjected to intense scrutiny by the Hong Kong people who were sent reeling by these economic shocks.

For example, in late 1997 an "avian flu" was discovered among chickens being sold in the markets of Hong Kong. The Government stepped in to destroy all chickens in Hong Kong markets to block the infection spreading. Shop keepers and their customers felt frustrated, and the Government was criticized. In July of 1998, the new government opened the new international airport at Chek Lop Kok. In both cases, the government was sharply criticized for problems, which might have gotten less attention at other times.

In August '98, the Government provoked quite a different sort of furor when it spent about US $15 billion to intervene in currency, stock and futures markets in order to defend the economy against what it perceived as "manipulators." The Financial Secretary and others explained at some length why this step did not mark a reversal of Hong Kong's commitment to a free market, but many investors appeared shaken. They wondered if the new SAR Government would do things differently, making Hong Kong a less attractive financial hub than it had been. While these questions have continued among some analysts, Hong Kong authorities continue to express their adherence to free market policies, and Hong Kong continues to be a very attractive location for U.S. manufacturers and investors.

In view of these challenges the SAR Government has encountered over the past two years, it is worth noting that Hong Kong's economy and confidence in the economy have begun to rebound. The SAR Government has undertaken an effective series of modest budget accommodations. It froze government land sales (its largest source of revenue) from June '98 through March '99 to stabilize land prices, which have recovered 15 percent from their '98 lows. The government is also considering strategic changes in economic policy to make the SAR more competitive.

Last year's business confidence survey by the Hong Kong-American Chamber of Commerce already indicated that its members were confident in the SAR's recovery. 54 percent considered the '99 outlook as "satisfactory" or "good," rising to 87 percent and 98 percent for 2000 and 2001.

POLITICAL DEVELOPMENTS

Now let me turn to political developments. When Hong Kong became a Special Administrative Region (SAR) of China on July 1, 1997, its people were promised by the Joint Declaration [note 1] and the Basic Law [note 2] that the social and economic system, the lifestyle and rights and freedoms they had enjoyed as a colony of Great Britain would remain unchanged for fifty years. Hong Kong was promised a high degree of autonomy in all matters except foreign and defense affairs. Political developments since reversion have fulfilled that promise.

Autonomy

Over the past two years Hong Kong has been governed by Hong Kong. The Chief Executive Tung Chee Hwa has worked closely with the civil service and Chief Secretary Anson Chan. In all of the management and economic issues which I discussed above, the decisions were made by the SAR Government without reference to Beijing.

PLA Hong Kong Garrison

The PLA garrison stationed in Hong Kong has been the primary symbol of China's sovereignty over Hong Kong. With the exception of concerns over their possible role in transshipments of sensitive technologies, which I will discuss below, the garrison has been non-controversial. The garrison troops maintain a very low profile. They are mandated only to provide national defense and may act in other roles only at the request of the SAR Chief Executive. Thus far, they have kept strictly to that limited role, have had minimal interaction with Hong Kong's uniformed services and have not engaged in business activities.

Human Rights

One of the most closely watched barometers of Hong Kong's autonomy has been its continued respect for fundamental freedoms, including free association, freedom of press, and freedom of the speech.

Free Association. At the time when Great Britain and the PRC were still negotiating the hand-over, this concern was thrown into sharp relief by the suppression of the Tiananmen protests on June 4, 1989. This tragedy immediately sparked massive demonstrations in Hong Kong. Every year since, before and after the reversion, the people of Hong Kong have held protests and candlelight vigils to commemorate Tiananmen. This year, Hong Kong saw a 4,000 person march and a candle light vigil by 70,000 orderly and reflective demonstrators, all of which happened peacefully and without police obstruction.

Freedom of the Press. Both print and broadcast media in Hong Kong remain free and feisty and report without taboos. Reporters and commentators have criticized the SAR government for problems in the opening of Hong Kong's new airport and its handling of an outbreak of avian flu. Commentary on affairs in the PRC is equally vigorous. One newspaper, "Apple Daily," regularly published a column by Wang Dan, a leader of the Tiananmen student protests now living in the U.S.

Freedom of Expression. Others in politics and society have also demonstrated their freedom to express different points of view. For example, Independent Labor Union organizer and Tiananmen activist Han Dongfang broadcasts his Radio Free Asia program from Hong Kong. In April, the Frontier and the Hong Kong Alliance in Support of Democratic Movements in China organized a petition drive to protest the arrest in China of Democratic Party and human rights activists. Last month, lawyers and human rights activists protested the Hong Kong Government's decision to seek NPC interpretation of the Basic Law, a decision I will discuss in a moment.

TWO NEW CONCERNS

On all of these political issues where we had had concerns on July 1, 1997 the record has been quite positive. Since then two unexpected issues have arisen and raised significant concerns -- judicial autonomy and the export of sensitive technologies -- and I know they have concerned you personally, Mr. Chairman.

Judicial Autonomy Under the Basic Law

Hong Kong has continued to have a high-quality, independent judiciary, selected by a non-partisan commission. The highest court, the Court of Final Appeal, also includes distinguished jurists from other Common law jurisdictions.

At the same time, there have been several judicial rulings, both in Hong Kong and China, that have raised troubling questions about judicial autonomy. In perhaps the most controversial case, the SAR Government requested the National People's Congress to review a ruling by the Hong Kong Court of Final Appeal, which, the government claimed, could allow over 1.6 million Chinese to flood into Hong Kong. Just this Monday, the Standing Committee of the NPC issued an interpretation of the relevant Basic Law provisions on the Right of Abode. This had the effect of reversing in part the Court of Final Appeal ruling regarding which children of Hong Kong residents had residency rights in Hong Kong.

That is the short summary of the case, but the issue is more complex than that. Concern over unlimited mainland migration into Hong Kong troubled the colonial government of Hong Kong for many years. Along the border arose an intimidating fence line to discourage illegal migrants. Hong Kong residents feared that new migrants could threaten their jobs and make the over-crowded city almost unlivable. It was against this background that the Basic Law sought to establish limits on the rights of Hong Kong residents to bring their families to Hong Kong from China.

When a group of Hong Kong residents filed a test case to clarify exactly who was entitled to the right of abode, the court ruled that the Basic Law had not limited the right as closely as the drafters had intended, leading to the government estimate that over one million additional family members from China would be allowed to enter from China.

This was a result troubling to both the government and most Hong Kong residents. There were no easy remedies. The Government could request the National People's Congress in Beijing to amend the Basic Law, it could seek an interpretation of the Basic Law, again from the NPC, or it could request the court to reconsider its ruling. Each approach was legal, each approach had its particular difficulties. The Government chose to seek an interpretation.

Although the Basic Law does include a process for seeking such an interpretation, this action sets what we hope will not leave a troubling precedent. Frequent resort to interpretations by the National People's Congress could render the SAR Government immune from any judicial decision it wished to reverse and spell the end of both the powers of judicial review and Hong Kong's autonomy from Beijing. On the other hand, this could simply be, as the SAR Government insists, an extraordinary case.

Export Controls

The 1992 Hong Kong Policy Act mandated that the U.S. treat Hong Kong as a separate entity from the PRC for purposes of controlling exports of sensitive technologies "as long as the United States is satisfied that such technologies are protected from improper use or export." To carry out this mandate, the Administration has kept the status of Hong Kong's trade control system under close and continuing review. There have been extensive bilateral discussions, exchanges of information and verification visits by interagency teams and Commerce Department investigators. We have been satisfied that the Hong Kong Government since the handover has been diligent in implementing its system and open to cooperation with the U.S. and other countries that wish to retain control over sensitive technology exports.

We completed our most recent inspection of Hong Kong's export control enforcement in March and April of this year. It confirmed once more that Hong Kong continues to have an effective trade control regime. There is no confirmed evidence that Chinese officials have interfered in Hong Kong export control decisions.

In 1998, Chief Executive C.H. Tung received a petition from an influential mainland company to return a Chinese armored personnel carrier Hong Kong Customs had seized in 1997. On its own initiative, Hong Kong Customs had seized the vehicle in transit from Thailand, where it had been featured in an exhibition, back to China, because the shipper had not obtained the required license. The petition was rejected. The Hong Kong Government fined the shipper and confiscated the armored personnel carrier. This was the kind of response which our export control officials have come to expect of the Hong Kong authorities.

Recently, concerns over Chinese espionage and the integrity of U.S. export controls has led in turn to new questions about whether militarily sensitive technology might have been transshipped to China through Hong Kong. The Cox Committee's report asserted that the PRC commonly imports sensitive technologies through Hong Kong and hypothesized that such transshipments might occur either through PRC controlled companies or via PLA vehicles crossing the land border between Hong Kong and China without inspection. The Cox Committee's conclusions on the subject were sharply at variance with our own assessments.

Nonetheless, we followed up on the concerns raised by the Cox Committee, and we discussed with Hong Kong officials the possible use of PLA trucks for the transit of sensitive technologies. We have made clear to the Hong Kong authorities that the ball is in their court. They need to ensure that all PLA trucks transiting the Hong Kong-PRC land border are subject to inspections and update us on their efforts.

Following on the heels of the Cox report, a number of members of Congress have proposed to legislate a stiffer export control regime for Hong Kong. I believe such proposals are inappropriate for several reasons. As I noted above, cooperation between Hong Kong and U.S. officials in enforcing export controls on sensitive technologies has been excellent. If there are problems, the Administration already possesses the legal tools to address those problems, even to impose harsher export control requirements on Hong Kong. Finally, the United States has a policy interest in supporting Hong Kong's status separate and distinct from China. We should not, as some members of Congress have proposed, treat Hong Kong like China when there is no evidence indicating we need to do so.

U.S. MILITARY STOPOVERS

Before concluding this review of Hong Kong and U.S.-Hong Kong relations, let me turn briefly to the recent decisions by the PRC to deny U.S. military planes and ships access to Hong Kong. These denials have occurred as a response by Beijing to the tragic accidental bombing of the PRC embassy in Belgrade. They reflect a central fact of Hong Kong's status, one which we have understood from the day the Basic Law was promulgated: Beijing retains control of defense and foreign affairs matters in the Hong Kong SAR.

I hope and, perhaps optimistically, expect that the U.S. and China will soon get past the current impasse, which led Beijing to deny our military ships and aircraft access to Hong Kong. I see no reason to conclude that these denials reflect a change in Beijing's approach to the autonomy of Hong Kong in matters other than defense and foreign policy.

CONCLUSION

Since I have not testified in front of this committee before on Hong Kong, I have taken this opportunity to present in some detail my assessment of its current situation and of U.S. interests there. As I have made clear, the challenges facing Hong Kong and our interests there are different from what I would have predicted two years ago.

Hong Kong continues to be a vibrant city, economically, socially and politically, and the United States has very significant interests in doing what we can to ensure that it remains so. We do that by treating Hong Kong separately from China in law and policy as long as it continues to exercise a high degree of autonomy. The Hong Kong Policy Act of 1992 gives us the flexible tools necessary to work with an autonomous Hong Kong under Chinese sovereignty. We also support Hong Kong's unique status through the continued presence of U.S. companies and citizens in Hong Kong. Our challenge is to stay the course and to encourage the PRC to do likewise.

Endnotes:
[1] Signed in 1984
[2] Promulgated by China in 1990

[end of document]

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