Consul General Tong June 13 speech at CSIS in Washington, DC: Risks and Opportunities in Hong Kong

Consul General Kurt W. Tong

Risks and Opportunities in Hong Kong

Kurt W. Tong, U.S. Consul General, Hong Kong and Macau

Keynote Address at a Center for Strategic and International Studies Event
“20th Anniversary of Hong Kong’s Handover: Reflections and Expectations”
June 13, 2017

Thank you for that kind introduction.  I want to express my sincere gratitude to everyone involved at the Center for Strategic and International Studies, as well as my friends and colleagues at the American Chamber of Commerce in Hong Kong, for making this event possible.  I am also delighted to be joined by Commissioner Clement Leung from the Hong Kong Economic and Trade Office based here in Washington.  It is wonderful to have such thoughtful leaders at today’s event.

Issues surrounding the status of Hong Kong get less attention these days in Washington than other, more pressing matters.  And for sure, Hong Kong is not a crisis.  The unique form of governance that is exercised in the Hong Kong Special Administrative Region has been largely successful.  China, the United States, and other nations – but most importantly, the people of Hong Kong – continue to benefit from the unique “One Country, Two Systems” framework that allows Hong Kong to be special and different, while still being part of China.  The people of Hong Kong are prosperous and safe and enjoy important fundamental freedoms, including in many ways that are not possible in Mainland China.

That said, I am very glad that CSIS chose to highlight Hong Kong this morning here on Scott Circle.

For one thing, with the upcoming 20th anniversary of the establishment of the Hong Kong Special Administrative Region on July 1, there will be more than the usual amount of journalistic ink spilled in the coming days about issues related to Hong Kong.  That makes today a good time to take a calm and cool look at what is working, and not working, in the city.

Even beyond the upcoming anniversary, however, Hong Kong continues to be – sometimes quietly, sometimes more visibly – an essential element of the overall Asia-Pacific region writ large, including by serving as a positive example to the rest of the Chinese-speaking world about how much can be achieved by an open and fair society, which cherishes both economic freedom and freedom of expression.  Hong Kong also continues to serve as a pivotal nexus for regional commercial activity.  And it remains a vital economic bridge between China and the rest of the global economy.  In reality, we all have an important stake in Hong Kong’s future.

Last week the State Department issued a document describing the current situation and recent developments in Hong Kong in some detail.  The document is available on the State Department and Consulate General websites.  I won’t repeat all of that document’s findings today, of course, but I think some of the main conclusions are useful to note:

  • First, the State Department concludes that the foundational “One Country, Two Systems” framework, as implemented through the Basic Law that establishes the rules for the Special Administrative Region, is generally working reasonably well. The key institutions that reflect and sustain Hong Kong’s “specialness” – its independent judiciary, its well-respected regulatory system, its vibrant freedom of expression, and its largely free media environment – remain strong.
  • Second, however, the review also notes that there are important risks to this framework. Perhaps most important, certain recent actions and statements by the Chinese Central Government are inconsistent with China’s important commitment, as reflected in the Basic Law, to allow Hong Kong to exercise a high degree of autonomy.  But there are other risks evident as well, including the possibility that Hong Kong society will allow its anxiety about the future stand in the way of confident and bold action in the present.
  • Third, even while citing these risks, the State Department statement also flags that Hong Kong presents significant opportunities going forward, for the United States, for China, and also for the Hong Kong people. Cooperation between the U.S. Government and the Hong Kong Government is broad, effective, and mutually beneficial.  But there is an opportunity to do much more, particularly given the inauguration next month of a new Chief Executive in Hong Kong.  And there are important emerging opportunities for the U.S. private sector in Hong Kong reflected in the document, as well.

So, since the State Department assessment is available for you to peruse at your leisure, today please allow me to be a bit more analytical than purely descriptive.  I will do so by teeing off from the two key points I just mentioned, regarding the “risks” and “opportunities” in Hong Kong.

Risks in Hong Kong

First, about the risks.  Every society faces risks.  External risks and internal risks.  Risks of not staying competitive, or of making bad investments, or of political failure or turmoil.  Every place on Earth faces those types of concerns.

In discussing Hong Kong, however, the risk of greatest relevance is the concern that the “One Country, Two Systems” framework – which is, after all, unique globally – will somehow erode, and no longer work as well as it has for the past twenty years.

Concern about possible eroding autonomy is a major issue for Hong Kong, of course, because maintaining Hong Kong’s high degree of autonomy, as enshrined in the Basic Law, is the lifeblood of the city.

This is very important to remember:  Autonomy is the key to Hong Kong’s success.  Hong Kong’s most influential enterprises, and its status as a global financial center, and its role as a major regional services provider for activities such as accounting and deal-making, are all based on the prevalence of rule of law in Hong Kong, along with a solid and reliable common law judiciary to back that up.  Having autonomy, and being different from the rest of China, is why, for example, Hong Kong was ranked at the top of the International Institute for Management and Development’s World Competitiveness Index again this year.  Hong Kongers know better than anyone that becoming “just another Chinese city” is a recipe for irrelevancy.  It is the high degree of autonomy that sets Hong Kong apart.

Which brings me back to the risks.  Although the Chinese Central Government promised Hong Kong a high degree of autonomy, twenty years have now passed under “One Country, Two Systems,” and some observers now see increasing risk that Beijing will become less tolerant of Hong Kong’s differences, and therefore will seek to make Hong Kong more like the rest of China.

Indeed, certain events and public statements over the last couple of years have raised concerns that the Central Government has become willing, at times, to pressure Hong Kong’s institutions in ways that are inconsistent with its commitments under the Basic Law.

In the latter part of 2015, as many of you will recall, five Hong Kong booksellers were detained in the Mainland, at least one of whom appeared to have been taken involuntarily from Hong Kong to the Mainland.  The United Kingdom described this incident as a “serious breach” of the 1984 Sino-British Joint Declaration.  The same could also be said with respect to the Basic Law, which states in Article 22 that “No department of the Central People’s Government … may interfere in the affairs [which] the Hong Kong Special Administrative Region administers on its own in accordance with this Law.”  This was a blatant violation.

Then last November, in 2016, the National People’s Congress issued an unnecessary and preemptive interpretation of the Basic Law, speaking to the matter of proper Legislative Council oath-taking, even as relevant cases were still pending before the Hong Kong courts.  It was clear that the Hong Kong courts were more than capable of handling the matter on their own.  This action provoked outcry from the entire Hong Kong legal community, among others.

At the same time, missteps such as these have been accompanied by some increasingly tough rhetoric out of Beijing.  On May 27, for example, National People’s Congress Standing Committee Chairman Zhang Dejiang used a major speech in Beijing to publicly call for the formulation of “detailed” new regulations regarding how the Central Government can better exercise its powers under the Basic Law.  Mr. Zhang added:  “Under no circumstances should anyone be allowed to challenge the power of the central government in the name of a high degree of autonomy.”  The thrust of Mr. Zhang’s speech was that Beijing needs to exert more control.  Indeed, examining this speech as a Word Cloud is revealing.  Mr. Zhang referred to “sovereignty” eleven times during his speech, while the word “freedoms” appeared only once.

I do not want to exaggerate the risk here.  Hong Kong is still very much a success story, and Hong Kong still enjoys a high degree of autonomy.  Indeed, by focusing on the risk of eroding autonomy, there is also another collateral risk, which is that people in the United States and other international partners will come to view Hong Kong – incorrectly – as indistinguishable from China.  That would be a mistake.  And certainly we need to be careful not to hold the Hong Kong people or the Special Administrative Region authorities to account for any transgressions of the Mainland government.

But my main message for this Washington audience is this:  the maintenance of Hong Kong’s “specialness” within the Chinese system bears close watching, lest various pressures slowly chip away at Hong Kong’s autonomy, which is the bedrock upon which Hong Kong’s stability and prosperity are built.

Now, if you are willing, before moving on to a more positive discussion of opportunities, please allow me now to raise one other, somewhat related area of risk.  I promise to be brief.

This risk is a bit more subtle, but also very important.  And the concern is this:  that Hong Kongers, inside and outside government, will allow their anxieties about the city’s unusual political status, and the complexities of Hong Kong’s “One Country, Two Systems” governance arrangements, to stand in the way of bold and confident action to reinforce the city’s strengths, and to leverage Hong Kong’s autonomy to build and maintain its competitiveness.

Hong Kongers, of course, face similar economic and social pressures to those that are common in many high-income economies these days.  Prominent among these concerns are the rising cost of living, especially the high cost of housing and education; and uncertainty about future economic competitiveness and individual job security, particularly due to the increasing speed of global technological change.

Polling of the Hong Kong public reflects these realities.  Hong Kong citizens say that their most pressing concern is the city’s housing crunch, closely followed by issues related to Hong Kong’s medical care system and social welfare.  Political system questions such as the introduction of universal suffrage also score as important priorities, although lower down the ranks of relative urgency.

Like people in other open and networked societies, Hong Kongers also worry about political polarization, and the apparently increasing difficulty of forging political consensus around solutions to key social problems like the ones I just mentioned.

But there is another, unique aspect to Hong Kong’s sources of anxiety, not necessarily seen in other societies, which again relates to Hong Kong’s unusual status as a Special Administrative Region.

Here’s the concern:  Because Hong Kong is distinct from China, but also a part of China, there is an inherent danger that Hong Kong’s people and leaders will feel disempowered, or marginalized, in their own city.

This sense of powerlessness is exacerbated by Hong Kong’s political shortcomings, such as the continued lack of universal suffrage in the process of choosing the Chief Executive.  But it is also fed by other concerns, such as the fact that Mainland tycoons are buying big chunks of scarce Hong Kong land.  Meanwhile, Hong Kong young people worry that they now sometimes find themselves competing with talented Mainlanders for the best Hong Kong jobs.  And Hong Kongers ask themselves, “If Hong Kong’s share of China’s economy has already shrunk from 15% to 3% over the past twenty years, what will our future hold?”  “Will China just overwhelm us?”  Statements out of Beijing that emphasize sovereignty and control, and call for greater “patriotism” from Hong Kongers, without also celebrating Hong Kong’s special and distinct attributes, can exacerbate that anxiety.

Once anxious, people can become more anxious.  Anxiety can breed anxiety.

But the good news is that confidence can also breed confidence.

Think about the fact that Mainland money is pouring into Hong Kong these days.

There are good reasons for that trend.  Mainland money wants to be in Hong Kong because Hong Kong has rule of law, stable and transparent financial markets, a stable and fully convertible currency, steady and large fiscal surpluses – not to mention a fine standard of living, great culture, awesome food, freedom of religion, an unfettered Internet, and the world’s longest life expectancy.

I am actually quite optimistic that Hong Kong will seize the opportunity of the coming years to leverage its autonomy, and use that autonomy to maintain and reinforce its global standing.

Autonomy, of course, needs to be exercised to stay strong.  It is a “Use it or lose it” proposition.  I think that Hong Kong will “use it.”

To reference yet another cliché, based on her statements, I think it is clear that Hong Kong’s next Chief Executive understands that when it comes to maintaining the city’s competitiveness, the “best defense is a good offense.”

Opportunities in Hong Kong, and U.S.-Hong Kong Relations

This brings me to the opportunities presented by Hong Kong, including the opportunity that the United States has now to expand and enhance its already strong relationship with the people and government of Hong Kong.

It is clear that Hong Kong works well for China, by attracting investment and trade to China and the region, and by contributing mightily to the full range of efforts to upgrade the Chinese economy.

But Hong Kong also works for the United States.  For our private sector, Hong Kong provides a vibrant rule-of-law outpost for accessing the Chinese market, as well as a useful location for U.S. companies to base their regional trade and investment operations.  Hong Kong is also renowned as a global financial center – but it is a global financial center that is fluent in Chinese.  When one strolls down the street from our Consulate, one could be forgiven for thinking that Garden Road is actually Wall Street.  Indeed, all the big U.S. financial firms are prominently represented in Hong Kong’s Central District high rises – the only difference from Wall Street being that many of the most important customers care more about dim sum than baseball.

Indeed, as one of the world’s freest and most competitive economies, Hong Kong provides a powerful example to China and the rest of the region regarding how open markets create growth and prosperity.  At a time when the Mainland is tightening capital controls, turning away from structural reform, and narrowing the space for competition in emerging technologies, Hong Kong proves the case for unbounded capital flows and the power of entrepreneurship driven by genuine competition.

I believe that one cannot overemphasize the importance of Hong Kong’s autonomous and transparent regulatory regime, and its independent courts and common law-based, rule-of-law-oriented judiciary, to Hong Kong’s success.  It may seem quaint to Americans that Hong Kong judges still wear wigs and speak in clipped, British accents that they picked up at the best law schools in the United Kingdom.  But what is important is what goes on inside the legal minds underneath those wigs.  Because Hong Kong is a highly reliable legal jurisdiction, companies from around the region go out of their way to book deals using Hong Kong-based contracts.  This in turn feeds Hong Kong’s impressive services industry, including legal services, accounting, consulting, engineering and architecture.  It is no mistake that 60% of China’s outward investment traverses Hong Kong.

But in addition to traditional capitalist activities, Hong Kong is also an excellent platform for non-profit work, or information-based media activities.  U.S. universities are discovering that Hong Kong is a great place for accessing Chinese culture and society, requiring fewer compromises to accommodate Mainland China’s lack of respect for freedom of expression.  Journalists and media outlets continue to use Hong Kong extensively, because of its open society as well as its open Internet.  And purely non-profit, non-government organizations operate very effectively in Hong Kong.

As for government work, such as the services provided by the U.S. Consulate, Hong Kong is an outstanding location for the promotion of cultural and educational exchanges, particularly given the richness of Hong Kong’s academic environment.  Hong Kong is a vital cooperative partner for the United States on law enforcement.  And of course it is an excellent base from which our government, working with excellent partners such as the American Chamber of Commerce, can help to promote American commercial interests.

So with that in mind, let me say a few words, finally, about the U.S. Government agenda in Hong Kong going forward.

In the coming years, the United States will look to partner most aggressively with Hong Kong in complementary areas.  In technology, for example, where Hong Kong has sound policies, but also lags somewhat behind other jurisdictions, we will aim to encourage more exchanges with U.S. education institutions and firms to help incubate Hong Kong’s talent.  We will also redouble our efforts to promote reciprocal exchanges on “smart cities” technologies and regulations.

We know that Hong Kong wants to be a leading platform for financing in the “Belt and Road” initiative.  The demands for infrastructure development in emerging economies are self-evident.  U.S. firms, meanwhile, can add real value in both engineering and financing.  We see real opportunities for partnership here, since Hong Kong has the right legal and regulatory framework to make it an important financing conduit.  Also, Mainland China cannot carry the financial burden alone.

There are other important natural synergies to explore.  Hong Kong is the world’s busiest air cargo transit point, and a leading hub for regional passenger air travel.  But it is fighting to retain market share in an increasingly competitive sector.  The United States would like to see greater partnership between Hong Kong and American carriers, as well as progress toward an Open Skies agreement that would help keep Hong Kong relevant and competitive as a hub for aviation.

In the area of trade policy, we will aim to step up our dialogue and cooperation with Hong Kong to help shape trade and investment policy in the region and globally.  Hong Kong is a very open economy, as evidenced by our close to $30 billion bilateral trade surplus with Hong Kong, the largest U.S. trade surplus with any jurisdiction.  By working together – bilaterally as well as in the venues where Hong Kong is a full member such as APEC and the World Trade Organization – we can amplify the positive lessons of Hong Kong’s openness, and help point China and the region in the right direction.

Yet another really useful area for U.S.-Hong Kong cooperation is in facilitating travel and tourism.  Well over 100,000 Hong Kongers visit the United States each year, but I feel certain that we can find ways to double that, including by making people more aware of the many tourism options in the USA beyond the major entry point cities.

I also believe we should explore doing what it takes to apply the Visa Waiver Program for Hong Kong.  By the usual metrics, Hong Kong should more than qualify for the Program.  We are currently not able to proceed with negotiating the necessary government-to-government arrangements, however, including the enhanced law enforcement cooperation mechanisms required by the Program, because of the absence of legislation that would allow the Program to be applied to a sub-national jurisdiction which issues its own passports, such as the Hong Kong Special Administrative Region.  Nothing would send a stronger signal of the high value we place on Hong Kong’s superior rule-of-law and governance, than providing this privilege to the Hong Kong people.  The Visa Waiver Program would of course also provide an important boost to tourism and other U.S. businesses, increasing travel to the United States as well as job-creating investment in the United States.  It would be good to have more pocketbook-toting Hong Kongers traveling to the United States rather than other destinations like Europe or Canada, where they don’t need visas.

Finally, although this is a matter as much for the Judicial Branch of government as it is for Executive Branch agencies, my Consulate team is keen to deepen communication and cooperation between American and Hong Kong judges and legal experts.  Our judiciaries have a lot to learn from each other, even as they each seek to reinforce their own capabilities.  This kind of dialogue will also benefit the excellent law enforcement cooperation between the United States and Hong Kong.

Conclusion

Ladies and gentlemen, even though Hong Kong is part of China, which is a famously top-down country, Hong Kong has many areas where it can continue to lead and innovate without waiting for a command decision.

Every act of cooperation and exchange between Hong Kong and the United States, or other international partners, serves to reinforce the success of the “Two Systems,” and contributes to the overall success of Hong Kong.  And maintaining Hong Kong as an autonomous player in the global system, and working in partnership with it, is an investment for all of us for a better future for Hong Kong, China and the United States.

We are in a consequential time for this endeavor.  The United States has a new administration.  Hong Kong has a new Legislative Council, and as of July 1 it will have a new Chief Executive.

Back in Hong Kong, Chief Executive-elect Lam is off to a great start.  She is consulting with people from across the political spectrum and she is talking to the foreign and local business community.  She has signaled that she will initially focus on the issues that Hong Kongers say they want addressed, including housing, education, and economic opportunity.  Mrs. Lam has said that she will try hard to build bridges across Hong Kong’s political divides.  And once she is Chief Executive Lam will also be able to draw upon Hong Kong’s very strong social fabric, which is sometimes taken for granted but is a real asset for the city.

So, today I have outlined some of the risks facing Hong Kong, which are important but far from insurmountable.  And I have described some of the opportunities there, which are manifold.  Most of all, I hope that based on what I have said today, that you will now see Hong Kong as more than just a barometer to measure Mainland China’s intentions.  I hope that you will see it as a success story that deserves to be bolstered and supported by friends here in the United States.

Thank you for your time today and I look forward to your questions.