A Colony's Uncertain Future

By Pico Iyer

Troubled residents ask if capitalism and Communism can mix

The positioning, the sense of ceremony, even the awkward pas de deux, at the end, summed up perfectly all that had gone before, as well as apprehensions for what was to come. In a red-carpeted chamber of Peking's Great Hall of the People, the British Ambassador to China, Sir Richard Evans, sat at one end of a long table covered with a green-tasseled cloth. At the other end sat Chinese Deputy Foreign Minister Zhou Nan. Behind them, the 50 or so officials from both countries, who had endured 22 rounds and 24 months of serpentine negotiation, stood stiffly at attention. Finally, the two men appended their initials to a series of documents, smiled, stood up and, a little clumsily, embraced each other. "This," said Sir Richard, "is a solemn and important event."

It was a classic British understatement: the two had just initialed a joint declaration that defines in detail the terms under which China will recover sovereignty over the crown colony of Hong Kong in 1997, when Britain's 99-year lease on more than 90% of the territory expires. Two years and two days after China and Britain began the contentious bargaining process, both countries could join at last in a common sigh of relief: the Chinese because they had re-established their claim to the opulent, gold-plated trophy of Hong Kong, just in time to help make their National Day celebrations this week the splashiest in decades; the British because they had cut their losses by pinning their antagonists down to a highly detailed agreement that requires Peking to leave Hong Kong fundamentally unchanged at least until 2047.

There was less euphoria, however, among the 5.5 million residents of the bustling city-state, who had been compelled to look on helplessly as the two governments negotiated their future. Under the new agreement, in 1997 Hong Kong will become a "Special Administrative Region of the People's Republic of China," with "a high degree of autonomy." But for all their celebrated ingenuity and adaptability, the Hong Kong Chinese fear that their new, sometimes draconian Communist motherland might either crush or mishandle the community's laissez-faire capitalist system. In the words of James McGregor, director of the Hong Kong General Chamber of Commerce, "Prosperity, in a free-enterprise territory like ours, requires confidence, and confidence is a delicate plant. You cannot have big, heavy-booted people trampling all over it."

The 22-page treaty released last week helped allay at least some of those misgivings. It proved to be a virtual bill of rights outlining almost every feature of post-1997 Hong Kong from its life style to its bank notes. The Special Administrative Region, it declared, will be ruled by Peking only in matters of defense and foreign affairs. The thriving city-state will have its own executive, legislative and judicial powers. Its free port and international banking system will remain intact, as will the market for foreign exchange and gold that has turned Hong Kong into the world's third-largest financial center. Above all, the new "Hong Kong, China" will preserve all its rights and freedoms, including those of speech, press, movement and religion. The Sino-British agreement even went so far as to state categorically that "the socialist [i.e., Communist] system will not be practiced in the Hong Kong Special Administrative Region."

To ensure a smooth transition through the year 2000, a "joint liaison group" composed of 25 representatives from both China and Britain, will set up an office in Hong Kong in 1988. The treaty also stresses that the group cannot interfere directly in Hong Kong's affairs, thus tempering local fears that China may be tempted to tinker with the colony before it formally assumes sovereignty.

Although some sticking points remain, notably the fate of about 2.5 million residents of the colony entitled to hold Hong Kong British passports, any settlement at all was welcome after the rocky and rancorous negotiations. As the expiration date on the British lease approached, Hong Kong businesses planning 15-year loans and long-term projects grew increasingly uncomfortable. In September 1982, British Prime Minister Margaret Thatcher, fresh from her triumph in the Falkland Islands, went to Peking and, somewhat injudiciously, declared that Britain would "stick by" its treaties regarding Hong Kong. For their part, the Chinese insisted that the issue of Britain's retaining sovereignty was not even negotiable. The two countries remained effectively deadlocked, while China issued public threats and promises, and the British said nothing. All the while, the Hong Kong business community drew closer and closer to full-scale panic.

In September 1983, the Chinese attempted their boldest gambit: either an agreement would be reached by September 1984, they insisted, or they would unilaterally announce their own plans for the community. Almost immediately, the Hong Kong dollar plunged. That crisis may, ironically, have rescued the talks. As one Chinese businessman points out: "In a month when the U.S. dollar rose from six Hong Kong dollars to 7.75, the Bank of China was the biggest loser."

Finally, last April, British Foreign Secretary Sir Geoffrey Howe officially announced that Britain would have to surrender administration, but remained determined to fix terms whereby its colony could continue flourishing in the freewheeling style to which it was accustomed. That move prompted the Chinese for the first time to agree to address specific issues, and in June a "joint working group" began to thrash out the details.

Last week, grateful for even the shadow of a reassurance, the colony's residents eagerly followed the initialing ceremony on TV, then stood in line in blustery weather to snap up 1.25 million free copies of the long-awaited agreement. But their sense of relief was distinctly clouded. While presenting a confident face in public, many businessmen have already surreptitiously sent their funds and families abroad. And in response to a poll conducted by one Chinese-language newspaper, nearly 80% of the colony's residents admitted to doubts and reservations about their future freedom. "Hong Kong as it is is finished," pronounced a Chinese businessman with close ties to Peking. "Its ability to be profitable is there only because of present policies. When sovereign ty by the Chinese is proclaimed, these policies will have to be changed."

Chinese Leader Deng Xiaoping has often tried to soothe such worries with bromides to the effect that the people of Hong Kong should "put their hearts at ease." But his actions, contrary to his reassurances, have served merely to unsettle those hearts. Last May, after several Chinese officials had publicly declared that China would not station soldiers on Hong Kong soil, Deng suddenly summoned the Hong Kong press. After denouncing the claims of two of his associates as "hogwash," he instructed the astonished journalists, "You go and publish this bit of news. Troops will be stationed in Hong Kong. It is part of Chinese territory. Why shouldn't we station troops there?" Not long afterward, when three Chinese representatives of Hong Kong's executive and legislative councils visited him, they received a decidedly cold welcome. No sooner had one of them begun a ceremonial speech than Deng cut him short and launched into a six-minute harangue. His visitors did not speak for the mind of Hong Kong, he insisted, and their talk of a loss of confidence in the colony did not reflect the real situation.

Even if Deng's regime does abide by the terms of the treaty, its successors could easily reverse or rewrite it. China has proved to be singularly unpredictable in years past, with its violent and frequent pendulum swings from left to right. Clearly, the Communist nation has much to gain from protecting its capitalist jewel: the per capita gross domestic product of Hong Kong is 18 times that of China, and already the 400-sq.-mile colony supplies its colossal neighbor with up to 40% of its entire foreign-exchange earnings. Even those practical considerations, however, could be swept aside during a leftist backlash. In that event, noted a veteran China hand in the British Foreign Office, "the rational argument of the need for hard currency would go out the window. Zealots don't care about logic."

Such skepticism was voiced most angrily last week by Taiwan. The Chinese continue to hope that the breakaway Nationalists will one day follow Hong Kong's example and rejoin the mainland. At present that seems highly unlikely. In a vituperative denunciation of the agreement, Nationalist China's Premier Yu Kuohwa offered sanctuary to the people of Hong Kong, who, he said, were being forced "into a slave system of Communist totalitarianism."

Hong Kong's residents also wondered how smoothly the world's most populous Communist state could manage a capitalist enclave, half of whose citizens are refugees from Communism. Instead of satisfying both sides, the much trumpeted "one country, two systems" solution might serve only to separate the two. As it is, the Westernized Chinese of the crown colony tend to look down on their less worldly counterparts in the Middle Kingdom. Such divisions may deepen when they become compatriots.

Nonetheless, the historic new Sino-British agreement is virtually certain to be passed by Parliament in early December, and Thatcher will fly to Peking to complete the formalities, probably at year's end. It will then remain only for the Chinese to begin the arduous task of drafting and ratifying a new Basic Law to incorporate the joint declaration. Although in theory the residents of Hong Kong may challenge the terms of the treaty, in practice they can do nothing to change them. Instead, a people famous for their speculations and their love of gambling can only rely on Chinese good sense and good faith and start taking bets on their future. --By Pico Iyer.

Reported by David Aikman/Peking and Sandra Burton/Hong Kong

With reporting by DAVID AIKMAN, Sandra Burton