BANKERS TRUS T SECURITIES RESEARCH
The PLA should be
present but quiet
Economic subversion
is more subtle
Beijing must police its
side
Kong, or by making minor exceptions to Hong Kong rules. Without a firm policy to the contrary, and strong enforcement measures, such efforts can undermine Hong very quickly, even if unintentionally. China has taken some measures to discipline its business operations in Hong Kong. This is very auspicious. Beijing should indicate its intention to continue to insist that all its representatives respect the Hong Kong system.
To take the extreme case, Hong Kong people are very fearful of a PRC military presence. On one hand, it is foolish for Hong Kong officials to argue against having a PRC military presence in Hong Kong, since no self-respecting regime would accept a rule excluding its military from a vitally important territory and the most strategically important port of all China. But, having established its nationalistic right, Beijing could enhance the prospects for "one country, two systems" enormously by indicating that in normal times such a force would be small, elite, and rigorously limited in its authorized activities.
ECONOMIC SUBVERSION
If political tolerance is the most important issue, economic tolerance is a close second. Hong Kong's capitalism and China's socialism are radically opposite, yet the two are inextricably connected. Hong Kong businesses employ far more workers in China proper than in Hong Kong itself. Most foreign investment in China comes from Hong Kong. One quarter of China's trade squeezes through tiny Hong Kong.
The problem of “one country, two systems” in economics is more subtle than in politics. Hong Kong's successes are inherently subversive of much of the rigidity of China's socialism. But China has benefited enormously from this "subversion," and it acknowledges this. Many of China's legal and market-oriented economic reforms are based on lessons learned from Hong Kong, and China freely acknowledges that Hong Kong is enormously beneficial for China's economy. The price that China pays for these benefits is that Guangdong will always be one step ahead of the rest of China and Hong Kong will always be several steps ahead of Guangdong. Put another way, this means that Hong Kong will always appear a bit economically subversive of China.
To avoid killing the golden goose, China must deal with this "subversion” primarily by policing its own side of the border. It must not consider Hong Kong economically subversive if all Hong Kong does is to set an example of success. China seems to understand this.
In the future, a corollary will be equally important. When China is policing its own side of the border, it will have to do so in a way that does not disrupt the increasingly substantial operations of Hong Kong companies. This
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