BANKERS TRUST SECURITIES RESEARCH
with the past. Beijing has always treated dissidents brutally, always honored its international agreements, and always protected Hong Kong.
The three continuities are not inconsistent.
The prospects for China's honoring its agreements over Hong Kong rest on three foundations. One is China's excellent record in honoring past agreements. Given the great importance of Hong Kong (and the high risks to China if Hong Kong somehow goes wrong), given the ambiguity of the agreement, and given that Hong Kong is predominantly a domestic issue for China, this pillar might reasonably regarded as weak if taken alone.
Second is China's frequently stated determination to use the success of the "one country, two systems" formula as a basis for eventual unity with Taiwan. Despite the psychological setback to this strategy after Tiananmen Square, China has stuck to it without deviation under both liberal and reactionary leaderships. And if unity is measured in broad functional terms, the strategy is working: despite Tiananmen Square, Taiwanese investment is rising, tourism is increasing, Taiwan is about to legalize two-way trade, the PRC and Taiwan are about to begin direct air service, and the Taiwanese diplomatic stance is softening almost weekly.
Third, and most important, is vital economic self-interest. Two-thirds (65.7%) of foreign direct investment in China over the decade 1978-87 has come from Hong Kong. Some 25-30% of all Chinese foreign exchange earnings come through Hong Kong, and most of China's technology purchases and managerial advice come through Hong Kong.4 Behind. China's spectacular growth in the decade after 1979 were two key trends: imports from Hong Kong grew at an 85% annual rate, and Guangdong Province, adjacent to Hong Kong, grew at a phenomenal rate of 35% real growth per year. The terms of the Joint Declaration are the minimum China needs to make Hong Kong work as an efficient enclave and relay point for capital, technology, trade, and tourism.
Finally, the post-Tiananmen Square period has severely challenged Beijing's promises to Hong Kong. The Beijing leadership was fearful of instability at home, determined to repudiate the excesses (as it saw them) of its liberal predecessors, and, not incidentally, furious at the way Hong Kong people demonstrated against the leaders. In this difficult period, Beijing took firm steps to control its own organizations in Hong Kong and to prevent subversion by Hong Kong (see below), but its senior spokesmen repeatedly promised for awhile that there would be no retribution against people who demonstrated inside Hong Kong against Beijing's policies. On April 4, 1990, the most reactionary top leader in Beijing's conservative leadership, President Yang Shangkun, affirmed in the preamble to Hong Kong's Basic Law that "the socialist system and policies
Three bases of
credibility:
...past behavior
...strategy on Taiwan
...and economic
necessity
China kept its promise
after Tiananmen
Square
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