TNAG-2119-FCO40-3025-Future-of-Hong-Kong-general-1990 — Page 30

Some issues are

beyond autonomy

PRC meddling is the

Achilles heel of Hong

Kong

means that policy changes affecting Hong Kong investors must be made gradually and consistently-not so easy a lesson for a regime that frequently tries great experiments and suddenly changes its mind. But it is noteworthy that neither the turmoil of May-June 1989 nor the subsequent reversals of political and economic policy disrupted major Hong Kong investments in southern China. This is very auspicious.

The Hong Kong side of this is that Hong Kong must fully digest its role as an outpost of southern China. When its policies will have far-reaching consequences for China, it will have to voluntarily coordinate its decisions with Beijing. There are natural limits to autonomy, and Hong Kong must recognize these. The new airport is an obvious example. Much as Hong Kong might desire complete autonomy, it will never achieve this on projects of regional significance. The financial markets will refuse to support a deal that Beijing has not endorsed, so Beijing can exercise a veto without ever opening its mouth. Such delicate negotiation transcends the legal niceties of promised autonomy.

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Failure to recognize and cope with this can only lead to financial and political embarrassment for Hong Kong and to biuter but inappropriate recriminations about “interference." What raises concern for the future is that success in such regional ventures requires a level of mutual balance and respect that will take great effort to achieve and is little in evidence today.

These aspects are important. But there is one aspect that will be decisive. This is that Beijing will have to police its own system as it affects Hong Kong. If subsidized mainland firms are allowed to undercut Hong Kong companies, or if mainland political clout is used to subvert the Hong Kong decision making process, then all the effort to create a "one country, two systems" model will have been in vain.

Among sophisticated observers, this is most commonly regarded as the Achilles heel of “one country, two systems.” When a senior official of a major Chinese company writes to the government demanding an increase in phone rates, bypassing normal channels in an apparent effort to obtain by political clout what the relevant company board could not obtain through normal procedures, the Hong Kong system shudders. When the political influence in Beijing of one airline seems to be the primary consideration in allocation of airline routes, then Hong Kong business becomes fearful.

So far, the integrity of the system is intact. But whether it can remain so is the second key question in Hong Kong's future.

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