The Curious Partnership Between Hong Kong and China

By: Lou Kren

Tuesday, July 1, 2008
This month marks the 11th anniversary of the return of Hong Kong to Chinese rule, and in the years leading to that turnover, many wondered how the union of fervently capitalistic Hong Kong and Communist China would play out. Would a successful Hong Kong push China to embrace a Western-style economy, or would the most populous Communist nation on earth revert its newly returned land back to a planned economy? Today, it appears that each system was greatly affected by the other, and in some unexpected s.

Great Britain had lorded over Hong Kong since 1841, capturing it during the First Opium War. From there, the island grew as an important East-West trading center and a link to commerce in southern China. In 1898, a treaty gave Great Britain another 99 years of rule. Trade continued to blossom, and after World War II, with China gripped in a civil war, refugees flooded Hong Kong, increasing its population from 600,000 in 1945 to more than 2 million in 1950. In time, China sealed off access to the island to prevent further loss of educated, aspiring citizenry—just one more example of how failed political systems must build fences to keep people in, not keep people out. The island kept growing and was now recognized as the financial hub of Asia.

The 1997 turnover included a pledge that China preserve Hong Kong’s capitalist system, a pledge that China essentially stuck to via the motto, “One country, two systems.” How would that work, and how would one system affect the other?

Upon reunification, Hong Kong helped lift the Chinese economy. Actually, Hong Kong’s affluence caught China’s attention much earlier, as the 1979 opening of China, economically and socially, was based on the success of the Hong Kong capitalist model And Hong Kong helped open up China to foreign investment and technology as well as business-management strategies, badly needed in a closed society increasingly pressured to provide for its huge population.

As Time magazine has reported, in 1980 as an experiment in capitalism, China set up three special economic zones—featuring liberalized business regulations and tax exemptions to attract foreign capital—in Guandong province close to Hong Kong. With land and labor costs rising on the island throughout the 1970s, Hong Kong businesses tapped into the Guandong connection. Today, the province’s Pearl River Delta is home to nearly 60,000 factories producing primarily for Hong Kong enterprises. Over the years the island also has invested in infrastructure to move goods throughout southern China. This was the seed that sprouted the Chinese economic juggernaut we see today.

But what Hong Kong once recognized as a source of cheap land and labor now is a competitor, as China churns out higher-quality, less-expensive products on its own that previously it had produced for the island. And China, in a complete turning of the tables, has become the largest investor in Hong Kong. In fact, Chinese investment pulled Hong Kong out of an economic slump in the early-2000s. Another development that no one saw coming 11 years ago: As China gains wealth, the island looks to the mainland as its greatest market.

The partnership goes beyond economics, of course. Western-style customs, ideas and entertainment have bled onto the mainland, giving Chinese people a taste of what’s out there, and Chinese leadership has no choice but to ease restrictions on its people and address social issues such as the environment.

For good or bad, Hong Kong has made China what it is today, while China goes about reshaping Hong Kong. I can’t help but think that the Hong Kong influence will ultimately lead to a transition a from Communism in China. So, perhaps we should turn Guantanamo Bay into a financial metropolis. It may be the only to turn the Castros and the Chavezes on to a new of thinking.


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