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Could the British have done better? Hardly had Hong Kong wound up the fanfare of celebrating its return to Chinese sovereignty, on 1 July 1997, than the Asian Ànancial crisis erupted. The next day, in a sudden collapse, the Thai baht fell precipitously in value against the US dollar. Within months, the Ànancial disaster claimed several major “dominos” in Southeast and East Asia including, notably, Malaysia, Indonesia, and South Korea.1 It spared no one, not even the newly installed Chinese Special Administrative Region (SAR) of Hong Kong. By October 1998, it became apparent that, after years of sustained growth at an annual rate of 5–6%, the SAR’s Gross Domestic Product (GDP) for the year would be curtailed by a hefty 5%. By November 1998, the unemployment rate had already reached a postwar high of 5.3%. Just a year or so before, a rigorous labour importation programme had been launched to relieve the enormous labour shortage pressures impinging on Hong Kong for over a decade, following increased economic integration with the Chinese mainland. 2 Now, how does the ongoing economic meltdown in the HKSAR stand in relation to the main theme of the book—Hong Kong the Super Paradox: Life After Return to China (edited by Professor James C. Hsiung, from which this chapter is reprinted)? While it is obvious that the drastic economic downturn had nothing whatsoever to do with the territory’s reversion, it is worth noting, however, that prior to 1997 both domestic and external apprehensions * Reprinted from “Weathering the Asian Ànancial storm in Hong Kong”, in James C. Hsiung (ed.), Hong Kong the Super Paradox: Life After Return to China, New York: St. Martin’s Press, 2000, pp. 235–64. 6 Hong Kong Weathering the Asian Financial Storm* 148 Pax Sinica about Hong Kong’s future under Chinese sovereignty generally focused on domestic affairs, rather than on its external economic relations. SpeciÀcally, there were concerns as to whether Hong Kong would truly be granted full autonomy, as promised, under the “one country, two systems” model. Another fear was whether under increased Chinese inÁuence the highly efÀcient public administration system in Hong Kong would be eroded, giving way to bureaucratic inertia, laxity, and corruption. In addition, there were also worries whether the integrity of the British common law-based legal system would be compromised by the socialist version of jurisprudence and justice, and whether press freedom would be impaired, and democracy and civic liberty (including the right of staging street demonstrations) suppressed in favour of a Chinese-style “law and social order”. While such politically inspired fears have now largely subsided, as discussed in the various chapters of this study,3 the attack from the outside by the Asian Ànancial storm caught all Hong Kong people by surprise. Prior to the sovereignty transfer, even the pessimists had foreseen Hong Kong’s future economic relations as a major bright spot that would be free of possible political interference from its new sovereign. Most people expected the economic prosperity to continue after the handover. The reasons for the optimism were manifold, some quite obvious, others not so, as I will lay them out below. 1. Being a regional business and Ànancial centre, Hong Kong would remain as an indispensable “window” for China to access the global market of information , technology, and Ànance. 2. Hong Kong, as the region’s headquarters for many major international banking corporations from advanced Western countries, would continue to be an important banking centre for making large syndicated loans to China. 3. The SAR would itself continue to be the single most important source of foreign direct investment (FDI) Áows to China, with virtually all its manufacturing plants having relocated to the Chinese hinterland in the past two decades or so. 4. While the prospects of Taiwan’s reunion with the mainland remained remote, Hong Kong would continue to serve as a natural bridge for Taiwanese compatriots investing in and trading with the mainland—a link so much treasured by Beijing. 5. By virtue of its geographic proximity and cultural afÀnity, Hong Kong, with a sizable population of 6.5 million with high income and consumption power, would remain an absolutely signiÀcant client for Chinese exports of Hong Kong Weathering the Asian Financial Storm 149 foodstuff, clothing, and similar daily necessities for local consumption—a market that has in the past several decades consistently earned China the bulk of its foreign exchange sufÀcient to pay for...


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