APR 01 '92 16:21 AMCONGEN/HK/ADM 852 845 1598
P.4/8
needs more Hong Kongs and that the policy of retaining Hong Kong's capitalist system should be extended to 100 years rather than just 50.
Second, the foundation stones of the post-1997 period are now clearly in place. The Joint Declaration of 1984 established the conceptual framework of "one country, two systems" and the commitment to continuity. A British-Chinese debate in 1985-'6 established the political framework of an executive-led but consultative government. The aftermath of Tiananmen Square in 1989 established the most important rule of "one country, two systems," namely an understanding that China would not subvert Hong Kong and that Hong Kong would not subvert China. The Basic Law of 1991 provided a detailed constitutional and legal framework. And the Airport Agreement of 1991 established the rules of economic interrelations. Since the Airport Agreement, the stock and property markets have risen continuously and confidence has decisively returned. With these foundation stones in place, the post-1997 order has essentially been established in Hong Kong.
Third, the Hong Kong and Chinese economies have already achieved a high level of integration. In this sense, 1997 is an event of past history. Two-thirds of all foreign investment in China comes from Hong Kong. Conversely, China has made enormous investments in Hong Kong, including the activities of over 1,000 Chinese companies and large equity positions in Hong Kong Telecoms and Cathay Pacific; these investments demonstrate China's faith in the future of capitalist Hong Kong, because they would not spend such large sums if they expected the companies to be wrecked, or to be available free, after 1997. Eighty percent of total investment in Guangdong Province, a province the size of France just north of Hong Kong, comes from Hong Kong investors. Hong Kong factories employ between 2.7 million and 3.7 million people (up from only 0.9 million when Sino- British negotiations over Hong Kong began), of whom only 650,000 are in Hong Kong, the remainder in Guangdong. About half of all industrial workers in Guangdong, which I repeat is the size and population of France, work for Hong Kong companies. The Hong Kong dollar is the preferred currency in Guangdong. So far has the integration of the Hong Kong and coastal Chinese economy gone, and so dominant is the role of Hong Kong in the fast growing areas, that Nomura Research Institute researchers have begun to refer to Guangdong and the surrounding region as "Greater Hong Kong."1
Fourth, Chinese economic success has excited Hong Kong. Liberalization has made steady progress since 1979. Although forward movement slowed somewhat after June 1989, liberalization has continued at a rate which has few analogues in the history of the Western world. Chinese economic growth continues at a rate which has never been sustained in the entire history of the Western world; at a time when we Americans face a ceiling on sustainable growth of 2.5 percent, China is achieving 7 percent with modest inflation and
See, for instance, Shigeto Suda, "Hong Kong's Role as the Capital of the Greater Hong Kong Economic Region," mimeo, 29 February 1992. A recent conference by the Australian Chamber of Commerce was devoted to the same theme.
2