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U.S. Department of State

Great Seal Jeffrey A. Bader
Deputy Assistant Secretary for East Asian and Pacific Affairs
Testimony before the House International Relations Committee, Subcommittee on Asia and the Pacific
Washington, DC, February 13, 1997

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Mr. Chairman, in addition to my current portfolio including Hong Kong and China, I had the good fortune of living and working in Hong Kong from 1992 to 1995 as Deputy Principal Officer. So I am very pleased to have the opportunity to appear before this Subcommittee today to discuss Hong Kong.
In less than 140 days, Hong Kong will revert to Chinese sovereignty. At midnight on June 30, more than a century and a half of British colonial rule will end and Hong Kong will become a Special Administrative Region of the People's Republic of China. This transfer of sovereignty is without precedent or historic parallel, and it has commanded increasing attention around the world. Countless commentators have offered predictions about what the reversion will mean to Hong Kong and the interests of the international community. It is an opportune time to review Hong Kong's progress toward reversion and its implications for the United States.
I.
Hong Kong is one of the world's most successful societies. With a land area of only 420 square miles and a population of just 6.3 million, Hong Kong has become the world's eighth largest trading economy and a leading international financial center. Its one runway airport is among the world's top five in both passenger and cargo volume, and its container port is the world's busiest. It has Asia's second largest stock market. Over 700 foreign companies maintain regional headquarters in Hong Kong, including 85 of the world's top 100 banks.
Over the past two decades, the Hong Kong economy has more than quadrupled, and its per capita GDP has tripled to about $26,000 -- higher than that of the United Kingdom, Canada, or Australia. Unemployment at the end of last year was only 2.6 percent, regular budget surpluses have produced a secure fiscal environment, and Hong Kong has accumulated over $63 billion in foreign exchange reserves. Hong Kong is one of the safest cities in the world and is Asia's most popular travel destination, with a record 10.2 million visitors in 1995. Hong Kong is also a center for telecommunications technology and has long been a media hub for Asia, with over 700 newspapers and periodicals based there.
But numbers tell only part of the story. The reasons for Hong Kong's extraordinary success are compelling as well. Hong Kong has one of the world's most liberal trade and investment regimes; for the third year in a row, the Heritage Foundation has rated Hong Kong as the freest economy in the world. Government regulation is transparent and non-burdensome. Taxes are low and the Hong Kong dollar is freely convertible. The workforce is educated, highly motivated, and industrious, and Hong Kong's entrepreneurs are known throughout the world of business and finance.
Hong Kong people live and work within a strong framework of law and justice -- without economic, social, or political repression. Civil liberties and individual political, cultural, and academic freedoms are protected assiduously. The rule of law is well-established, and Hong Kong courts act as independent arbiters between the government and the governed. The Independent Commission Against Corruption is widely respected. And freedom of expression is effectively guaranteed.
II.
Hong Kong's intended status after reversion is spelled out in two important documents: the 1984 Sino-British Joint Declaration and the 1990 Basic Law promulgated by the People's Republic of China. Together, these documents are China's promise that, although sovereignty will change, Hong Kong's way of life will not.
The Joint Declaration provides for the transition of sovereignty from the United Kingdom to China. Unlike other areas of China, however, Hong Kong will retain a high degree of autonomy in all matters except foreign affairs and defense. The social and economic systems, lifestyle, and rights and freedoms enjoyed by the Hong Kong people in the post-July Hong Kong Special Administrative Region (HKSAR) will remain unchanged for at least fifty years. The Joint Declaration established the concept of "one country, two systems" for Hong Kong and is a treaty registered with the United Nations.
The Basic Law provides the fundamental governing framework for implementing the "one country, two systems" principle in Hong Kong consistent with China's commitments in the Joint Declaration. It says that the PRC socialist system and policies will not be extended to the territory. And the Basic Law reiterates the Joint Declaration promise to allow Hong Kong to exercise a high degree of autonomy and to exercise separate executive, legislative, and judicial power after 1997.
We believe Hong Kong's best interests would be served by faithful attention to the commitments in the Joint Declaration. In it, China has made an extraordinary series of pledges about Hong Kong's future. The Joint Declaration establishes a framework that can, if honored and effectively implemented, help assure that Hong Kong remains the vibrant and attractive place it is today. Among other things, the Joint Declaration provides that:
--Hong Kong will have independent courts, with ultimate judicial authority resting in a local Court of Final Appeal;
--Hong Kong residents, not non-Hong Kong PRC officials, will occupy all important government and civil service positions, including the Chief Executive;
--Hong Kong laws will apply;
--Hong Kong's finances will be independent of China, and no tax revenues will be collected for or sent to Beijing;
--Hong Kong will continue to maintain its own currency, the Hong Kong Dollar, which will be freely convertible;
--Hong Kong police will maintain public order;
--Hong Kong will be empowered to enter into international agreements in a wide range of areas; and
--Hong Kong people will elect their legislature.
The key questions, of course, are whether China will honor this impressive set of commitments and how it implements them. The world does not yet know the answer. China has repeatedly stated its intention to stand by its pledges and preserve Hong Kong's high degree of autonomy. The international community, which has a substantial stake in Hong Kong, is watching and expecting this to happen. More important, the people of Hong Kong will make their own decisions about the future, based in large measure on whether Hong Kong remains the kind of place to live and work it has been or whether it changes. For this reason, clear, positive signals from Beijing of its commitment to the letter and spirit of the Joint Declaration are essential to ensure Hong Kong's stability and prosperity.
China's statements and actions to date have reflected a recognition that Hong Kong's future prosperity and preservation of its dynamic capitalist system are important. As China has become Hong Kong's largest investor and set up numerous companies in Hong Kong, it has increased its commitment to the success of the economic system. It has made clear it intends to maintain Hong Kong's own currency linked to the U.S. dollar and to preserve Hong Kong's substantial foreign exchange reserves. PRC companies so far seem interested in gaining a share of the lucrative contracts tendered in Hong Kong rather than undermining the process itself. Negotiations between the UK and China on the new airport, the world's largest infrastructure project, successfully concluded last year. The preservation of Hong Kong's economic system requires that it not be tainted by corruption, rigging of the tendering process, influence-peddling, or other factors that will test the vigilance of international investors and Hong Kong officials.
China has also taken a number of encouraging steps outside the economic area. Joint PRC-Hong Kong cooperation on customs, immigration, and other law enforcement matters has been growing. China has approved Hong Kong's continued participation in international organizations and extension of most major multilateral agreements currently applied to Hong Kong through the United Kingdom. In 1995, Britain and China agreed upon, and the Hong Kong legislature approved, arrangements for a Court of Final Appeal. We believe this was a useful step in promoting confidence in the continuity of the rule of law and judicial institutions.
Significant progress has also been made with respect to the production, issuance, and control of the future Hong Kong passport. After initial anxiety, expanded and productive contacts between Hong Kong civil servants and Beijing now appear to promote confidence and mutual trust. And China has repeated the Joint Declaration assurance that all important Hong Kong Government positions will be filled by Hong Kong residents after 1997, allowing most senior civil servants to remain in place. Chief Secretary Anson Chan's decision to remain in her position after reversion is a particularly encouraging indication of continuity.
Unfortunately, Beijing has evinced less understanding of the need to provide Hong Kong with the same high degree of autonomy in the political area. Its approach to the Legislative Council, or Legco, has been particularly troubling. Democratic elections were late in coming to Hong Kong; the first direct geographic elections for any seats in the legislature were only permitted by the British in 1991, after China's military assault on Tiananmen Square. In 1994, the legislature enacted an electoral reform law proposed by Governor Patten and designed to provide a more accountable and democratic political system. China rejected the Hong Kong Government's electoral reforms as a violation of the Joint Declaration assurance that the "laws currently in force" in Hong Kong would remain unchanged. Thus, China announced it would not recognize the validity or results of the 1995 Legco elections - the first in which all 60 seats were elected.
In December, a 60-seat provisional legislature was named by a 400-person Selection Committee -- a group of Hong Kong residents appointed last year by Beijing's advisory Preparatory Committee. On July 1, the provisional legislature will replace the Legco elected in 1995, and will serve for no more than a year, when a new Legco will be elected based on a new election law. This process of selecting a provisional legislature was not based on open elections and excluded certain groups, political parties, and individuals critical of China. Critics in Hong Kong regard the provisional legislature as a violation of the Joint Declaration promise that the legislature "shall be constituted by elections." Indeed, the 19 Democratic Party members in the current Legislative Council chose not to seek seats on the provisional body for that reason.
Both British and Hong Kong Government officials have criticized China's decision to disband the current Legco as unnecessary and as a potential threat to Hong Kong's future autonomy and its continued democratic development. They have challenged Beijing to describe how a provisional legislature is consistent with the Joint Declaration requirement of an elected legislature in Hong Kong, and have invited China to allow the World Court to adjudicate the issue. For its part, Beijing points out that 33 of the 34 current legislative councilors who sought inclusion won seats on the provisional body and constitute a majority of the existing Legco. China has also said that a broad spectrum of candidates and parties will be allowed to participate in the 1998 elections, including members of the Democratic Party.
China's creation of a provisional legislature raises serious concerns. The U.S. has not endorsed any particular electoral law or set of proposals and, as a non-party, has refrained from debating the technical legal interpretation of the Joint Declaration. But we have strongly supported the development of open, accountable, and democratic institutions in Hong Kong, and believe that Hong Kong's electoral reforms were a worthy step toward a fully-elected legislative body -- an objective stated in China's own Basic Law. We have made clear our belief that China's decision to replace the current elected Legco was both unjustified and unnecessary. The provisional legislature, which includes 10 members who were defeated in the 1995 Legco elections, obviously does not reflect the representative will of the Hong Kong people. We will therefore watch closely to see what action it takes and how long it lasts; we hope its duration will be brief and its scope of activity limited. Especially significant will be the electoral laws adopted after reversion by the provisional legislature for the 1998 elections; this will be an important indication of what the promise of a high degree of autonomy for Hong Kong means in practice.
In other statements or actions on political matters, Beijing has shown insensitivity to the way in which Hong Kong works and to the wishes of its residents. In choosing the 150-person Preparatory Committee, charged with establishing the HKSAR government, Beijing pointedly excluded representatives of the Democratic Party -- the largest political party in Legco. Although the Joint Declaration says that certain international human rights covenants shall continue to apply in Hong Kong after reversion, Beijing has rejected the requirement that it submit reports to the UN on the grounds that China is not a signatory to the covenants. And the Preparatory Committee's recent recommendation to repeal selected portions of Hong Kong's 1991 Bill of Rights Ordinance fueled widespread concern in Hong Kong and abroad that Hong Kong's civil liberties and individual freedoms will be restricted after reversion.
China insists that the Basic Law will be the supreme law of Hong Kong and that certain provisions of the Bill of Rights Ordinance are inconsistent with the Basic Law or challenge its supremacy by giving it overriding status in Hong Kong jurisprudence. Here again, however, our concerns are neither technical nor legal, but straightforward and simple. The protection of civil liberties and basic freedoms is vital to Hong Kong's way of life. We are deeply concerned about any effort to weaken these rights and freedoms in Hong Kong.
Freedom of expression and of the media will provide another indication of China's intentions. Hong Kong has enjoyed a tradition of free speech and free press. Numerous views and opinions -- including those critical of the British, Hong Kong, or PRC governments -- are aired widely in the media, in public fora, and by political groups. Recent statements by PRC officials that "rumors or lies" or journalistic advocacy would not be permitted raise questions about whether China understands what freedom of speech really means. Beijing's comments drew immediate, negative reaction in Hong Kong. While few expect full-fledged censorship, these statements have raised concern that journalists, editors, and publishers may be expected to adopt informal limits in areas of particular sensitivity, such as Tibet, Taiwan, or criticism of the Communist Party or China's leadership. We hope that Hong Kong's free and open press continues and that tolerance for dissent and the right of peaceful debate is maintained. To this end, we have continued U.S.-Hong Kong journalism exchange programs and public seminars and symposia on press freedom. On a positive note, we welcomed the recent release of Hong Kong journalist Xi Yang, whose 1994 imprisonment in China for reporting activities had been a matter of special concern in Hong Kong.
III.
Hong Kong is a Chinese city, but a unique one, with an international character. Its future stability and continued prosperity are important not just to China but to the world community, including the United States.
The United States has a significant interest in Hong Kong's successful transition. United States trade, investment, and business with Hong Kong flourish in a virtually barrier-free environment. Hong Kong is our 13th largest trading partner. Our exports to Hong Kong, many of which are re-exported to China, total over $14 billion and our two-way trade is over $24 billion. U.S. companies have almost $14 billion of investment in Hong Kong. Some 1100 resident U.S. firms employ 250,000 Hong Kong workers -- almost 10% of the workforce. About 36,000 American citizens live and work in Hong Kong, the second largest foreign presence after Filipinos. U.S. Navy ships visit Hong Kong at the rate of 60-80 port calls per year. And cooperation between the Hong Kong Government and U.S. law enforcement agencies makes a real difference in our efforts to combat organized crime, drug trafficking, alien smuggling, and counterfeiting.
We also enjoy close educational and cultural relations, including a very large flow of tourists and students in both directions. Over 14,000 Hong Kong students are studying in the United States, and Hong Kong alumni of American universities number in the tens of thousands. Nearly 180,000 new business and tourist visas were issued to Hong Kong residents in 1996, and over 700,000 U.S. citizens travelled to Hong Kong last year.
Thus, we have a very significant stake in promoting economic and business relationships, preserving civil liberties and the rule of law, maintaining a cooperative law enforcement relationship, and preserving access to Hong Kong as a routine and frequent port of call for Navy ships. The breadth of these activities and interests are maintained in Hong Kong by one of our largest missions in Asia, with over 140 direct-hire U.S. officials and a dozen separate USG agencies. We want and expect to enjoy the same broad range of relations with Hong Kong after reversion as we do now, an objective made clear in the U.S.-Hong Kong Policy Act.
United States policy toward Hong Kong is therefore grounded in a determination to help preserve Hong Kong's prosperity and way of life. Let me review the basis of that policy. Like previous administrations, the Clinton Administration strongly supports the Joint Declaration. It provides a sound basis for a smooth transfer of sovereignty and a comprehensive and rational framework for Hong Kong's continued stability and prosperity. But, it is not only our policy that underscores support for the Joint Declaration. While recognizing that Hong Kong will become a part of China, the U.S.-Hong Kong Policy Act establishes domestic legal authority to treat Hong Kong as an entity distinct from the PRC after reversion. This accepts and reinforces the Joint Declaration concept of "one country, two systems."
U.S. interests -- and those of Hong Kong itself -- are best served by faithful implementation of the commitments made in the Joint Declaration. As I have stated, we are not parties to the agreement, and specific arrangements for Hong Kong's transition have been matters for the British, the Chinese, and the Hong Kong people to decide. But we do play a strong supportive role to ensure that our interests are protected.
How do we do this? We encourage both Britain and China to deal with difficult transition issues in a matter most sensitive to Hong Kong's needs. We maintain a regular dialogue with leaders in Beijing, London, and Hong Kong to provide our perspective of the transition process and to discuss areas where we believe pitfalls may lie. And we speak clearly about our expectations for Hong Kong's future and about the factors that will keep Hong Kong the attractive and prosperous place it is today. Our public and private statements reiterate the themes key to Hong Kong's continued autonomy: access to free markets and an open investment regime; a solid legal system and independent judiciary; noninterventionist economic policies; continued protection of civil liberties and cultural and academic freedoms; an open and aggressive press; and open and accountable democratic institutions. Recently, I was part of a delegation headed by NSC Senior Director Sandy Kristoff that visited Beijing and affirmed our support for these principles. And Secretary Albright will discuss Hong Kong with senior PRC officials during her upcoming trip to China.
In pursuing our commercial and law enforcement interests, we promote a framework of bilateral and multilateral agreements that support Hong Kong's autonomy from China, as called for in the Joint Declaration and the U.S.-Hong Kong Policy Act. The United States and Hong Kong have signed an extradition agreement and we will submit it soon to the Senate for its advice and consent to ratification. We have initialed an air services agreement, a prisoner transfer agreement, and a mutual legal assistance agreement with Hong Kong; they await approval by the Sino-British Joint Liaison Group. And we expect to conclude negotiations with Hong Kong on a bilateral investment agreement shortly. We will also support Hong Kong's continued participation in WTO, APEC, and other international organizations. And we have expanded our law enforcement presence in Hong Kong by adding additional FBI and INS officers and by opening an office of the U.S. Secret Service last year.
In recognition of Hong Kong's special status, and consistent with the U.S.-Hong Kong Policy Act, we intend to continue to grant Hong Kong a separate textile quota and maintain separate trade statistics for Hong Kong. We also plan to maintain a separate export control regime with Hong Kong, providing it preserves the same effective controls over sensitive technologies in the future as it does now. We are working closely with Hong Kong Government officials and with other U.S. Government agencies to help ensure that Hong Kong's autonomy in each of these areas is preserved. And we hope for early legislation that would enable the Hong Kong Economic and Trade Offices in the United States to receive certain privileges and immunities after reversion, as contemplated in the Joint Declaration and the U.S.-Hong Kong Policy Act.
We promote a variety of artistic, educational, and cultural exchange programs, including a series of activities sponsored by the Hong Kong-America Center. And, the Immigration Act of 1990 established a special "extended validity" option for immigrant visas issued to certain Hong Kong residents, allowing them until 2002 to enter the United States. This helps to stabilize Hong Kong's population as the reversion approaches.
High-level visits in both directions are another way to underscore the importance of Hong Kong to U.S. interests, and we welcome frequent visits to Hong Kong by Administration and Congressional officials. Over the last year, these visitors have included members of this Subcommittee, Cabinet officials, a plethora of sub-Cabinet officials, and prominent members of the federal judiciary. We hope to continue a steady pace of visits through the reversion, and we encourage regular official visits by members of Congress. We are especially pleased that so many of you visited Hong Kong during the recent recess; I understand that at least 75 members of Congress have visited Hong Kong during the last six months.
We also welcome the visits of Hong Kong leaders to the United States. In the past year, for example, senior Administration and Congressional officials met with Governor Patten, Chief Secretary Anson Chan, Financial Secretary Donald Tsang, Trade and Industry Secretary Denise Yue; Solicitor General Daniel Fung; Democratic Party Chairman Martin Lee; Liberal Party Chairman Allen Lee; Preparatory Committee Vice Chairman (and Chief Executive-Designate) C.H. Tung; Political Advisor Robert Peirce; and Police Commissioner Eddie Hui. We expect a similarly impressive array of visitors this spring. These visits are important to present an accurate and balanced view of Hong Kong's progress toward a smooth transition and to articulate the factors fundamental to Hong Kong's success.
Above all, Hong Kong is a place people go to do business, and the United States Government is far from the only important player that can influence Hong Kong's future stability and prosperity. The decisions and behavior of thousands of private companies and individuals from the United States and elsewhere will be at least as important in determining the Hong Kong of the future; for this reason, we encourage them to speak frankly and directly to Beijing about their expectations as they assess their future involvement in Hong Kong. Their views and actions, and those of the Hong Kong people themselves, will be important in affecting Beijing's approach.
There may be no external non-economic factor more important to Hong Kong's future than the state of U.S.-China relations. A good relationship will enhance the prospects for protecting U.S. interests in Hong Kong and positively influencing its future. Hong Kong is often described as a bridge between East and West. When there is turbulence or instability on either side of the bridge, or if the two sides move further apart, the bridge suffers. And Hong Kong is acutely sensitive to the disruptions in U.S.-China relations. When missiles are lobbed over the Taiwan Strait or whenever the recurring MFN debate approaches, the anxiety level in Hong Kong rises markedly. This does not mean, of course, that we will not speak out or will not act to advance our interests in our relationship with China, or our values. It is simply a statement of fact.
IV.
And what of the future? In the run-up to reversion, differing views on Hong Kong's future abound. Some contend that Hong Kong will be contaminated or overwhelmed by a repressive system intolerant of dissent and any form of democratic government. Others claim that nothing will change, and that Hong Kong will continue as an economic dynamo, a major center for business and finance, and an entrepot for continued economic and political liberalization in China.
Hong Kong's transition is a work in progress that will play out over many years. We should avoid either excessive optimism or excessive pessimism. On the one hand, the transition is progressing much better than most observers forecast when the Joint Declaration was signed in 1984, or after the military assault on Tiananmen Square in 1989. On both occasions, many predicted that massive emigration and capital flight would occur. Neither has. On the other hand, Beijing has made several moves or statements that could undercut Hong Kong's high degree of autonomy or its way of life.
Hong Kong's economy remains healthy and strong. Most Hong Kong businessmen view the future positively. Recent surveys by the American Chamber of Commerce, the Hong Kong Government, and the Japanese Chamber of Commerce, show that over 90 percent of international investors remain optimistic about Hong Kong's prospects after reversion. Stock market and property values are at record highs. A stable law and order situation enhances this position; Hong Kong is not a city gripped by violence, panic, or corruption. And emigration from Hong Kong has actually decreased over the past several years. On the contrary, many Hong Kongers who previously acquired foreign passports have now returned to Hong Kong.
In the end, the keys to Hong Kong's successful transition lie primarily in Hong Kong and Beijing. For its part, Hong Kong brings considerable strength to the transition -- above all the vision, vigor, talents, and resilience of its people. I disagree with those who would discount the ability or the will of Hong Kong people to play a strong role in determining their future. Hong Kong has already established political and economic success and is reaping the benefits of both. Its creative and entrepreneurial population has weathered crises of confidence in the recent past, and has come out ahead each time. But, it is also critical that Beijing adhere to its commitment to preserve Hong Kong's high degree of autonomy.
One of the most important choices in this regard has already been made. China's appointment of C.H. Tung as Hong Kong's first Chief Executive received widespread support in Hong Kong and from his many friends in Europe and the United States. We look forward to working closely with Mr. Tung to further U.S. interests in Hong Kong. We expect he will take seriously his position to preserve Hong Kong's way of life and high degree of autonomy after reversion. And we expect he will promote and protect the welfare of Hong Kong people by respecting the provisions of the Joint Declaration in carrying out his duties.
Beijing has compelling reasons to live up to its commitments; no country has benefitted more from Hong Kong's success than China itself. Hong Kong is China's largest trading partner and much of China's two-way trade uses Hong Kong as a transshipment point. Sixty-five percent of foreign direct investment in China now comes from or through Hong Kong. Over 50,000 enterprises in Guangdong Province alone use Hong Kong investment and employ over 4 million PRC workers.
Indeed, China has relied on Hong Kong's easy access to investment capital, sophisticated financial, technical and legal expertise, and entrepreneurial skills to fuel its own economic growth over the last two decades. Beijing knows that Hong Kong's vibrant service economy could quickly dissipate through steady or mass emigration if its signals or actions erode confidence. Many in Hong Kong carry a second passport to Canada, Australia, or the United States as insurance against future uncertainty. Thus, Beijing has a real interest in making its stewardship of Hong Kong a success; the issue is whether it understands what is needed to do so or whether a slow erosion of Hong Kong's vitality and autonomy will result from ill-advised actions.
V.
Hong Kong is too important for the world to give up prematurely and to retreat to fatalism when there is still much to be resolved in the transition. But given the mixed signals and controversy to date, there is hardly room for complacency about its future.
For our part, the United States will continue to support efforts to preserve Hong Kong's way of life through the change in sovereignty and beyond. The U.S.-Hong Kong Policy Act is designed to do just that. Our attention to Hong Kong did not just begin with the recent media focus on Hong Kong, nor will it end when the analysts pronounce their assessments after July 1. Our strong interests in Hong Kong mandate a policy that is not transitory, but one that looks for and reinforces the long-term implementation of the Joint Declaration. In that, we believe that China, as the United States and Hong Kong itself, has an interest in Hong Kong remaining an open, prosperous, and vibrant society. Such a future for Hong Kong is certainly our goal, and one we will work for.
Thank you, Mr. Chairman.

[end of document]

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