Pax Sinica: Geopolitics and Economics of China's Ascendance

3: Hong Kong Surviving the Open-Door, Reforming Chinese Economy

With scarcely four years to go before sovereignty reverts to China, the British enclave of Hong Kong on the South China coast has greatly beneÀtted from the open-door policy of China and its celebrated move from a centrally planned Soviet-style system to a market-type economy. Trade, investment, and Ànancial Áows across the 18-mile land border have greatly increased over the past decade or so. Particularly spectacular is the massive relocation of the colony’s manufacturing activities to the Pearl River Delta in neighbouring Guangdong province to take advantage of cheap labour and land costs. The allocative resource realignment has brought about an intricate process of “de-industrialization ” in Hong Kong in favour of the tertiary sector. But it has nonetheless hardly helped to mitigate the acute labour shortage which has faced the colony since the mid-1980s. Over the past few years, Hong Kong has thrived on the limitless opportunities offered by the hinterland, with a robust annual Gross Domestic Product (GDP) growth of 5–6% (amidst worldwide recession), against the backdrop of a mere 1% growth of labour force per year. If anything, the GDP measure only helps to conceal the real magnitude of economic gains, because proÀt repatriation and similar net capital inÁow from investment in the mainland or elsewhere cannot be adequately captured by the government’s statistical department for a Gross National Product (GNP) measure for the territory, since it is an entirely free port in the most classical sense.1 * Reprinted from “Whither Hong Kong in the open-door, reforming Chinese economy”, (coauthored with Yin-ping Ho), The PaciÀc Review, Vol. 6, No. 4 (December 1993), pp. 333–51. 3 Hong Kong Surviving the Open-Door, Reforming Chinese Economy* 48 Pax Sinica The Hong Kong-China symbiosis, which has emerged in the past decade, is beyond the wildest possible imaginings of any dependency theorists or development structuralists. For “economic integration” theorists or proponents —the late Professor Bela Balassa in particular—the bewilderment must have been compounded by the high import barriers imposed by China, which is not presently a contracting party to the General Agreement on Tariffs and Trade (GATT), and the glaring lack of labour mobility southward across the border. Free capital Áow is also basically a one-way trafÀc, notwithstanding increased illicit or semi-licit transfers from the mainland as witnessed in the recent past. The economic symbiosis represents, therefore, a rare phenomenon which deÀes any textbook elaboration, in either theoretical construct or empirical terms, of regional economic integration under a free trade regime. The question is whether the observed Hong Kong phenomenon can be sustained beyond 1997 with its conversion to a Special Administrative Region (SAR) under the People’s Republic of China. At present, the capitalist enclave enjoys a per capita GDP of US$16,380 for its 5.8 million residents who are crammed into a tiny total land area of 1,076 square kilometres with virtually no natural resources.2 By contrast, GNP per head stands at a mere US$550 for Guangdong province, or no more than US$2,500 (the highest in China) in the Special Economic Zone (SEZ) of Shenzhen, just across the border river, which is more a satellite town of Hong Kong than a Chinese economic entity.3 There is no doubt that this sharp contrast appears very odd in the light of the imminent reversion of Hong Kong’s sovereignty. The question raised about the real crux of Hong Kong’s post-1997 future appears therefore to be political rather than economic in nature. There is no point in questioning the integrity of the Dengist design for the “one country, two systems” scheme under which Hong Kong as a SAR should be allowed to retain the status quo for Àfty years. There is also no doubt that the border checkpoints would remain strictly guarded to prevent any massive inÁux of immigrants who could cause the system to disintegrate. Nonetheless, the fundamental economic question remains whether, given the present trend and pattern of economic integration with the motherland without political reuni- Àcation, the highly industrialized and commercialized Hong Kong economy would be eventually reduced to a Chinese outpost for trading, banking, shipping , telecommunication and tourist business; and how such a transformation would affect the long-term economic vitality and economic welfare of Hong Kong people. Hong Kong Surviving the Open-Door...