Spiritual Opium
Hong Kong. Did you know that
Hong Kong leads the world in per capita consumption of oranges? That it has the
world's biggest neon sign, is home to 25 of the world's 50 busiest McDonald's,
and boasts the world's highest number of Rolls-Royces relative to
population?
If you
didn't, you will. Well in advance of the mobs of reporters, editors, film
crews, radio disc jockeys, news anchors, and photographers now descending on
the territory to cover the July 1 transfer of power--8,400 at last count--the
press handlers in the Hong Kong government wisely assembled mounds of
prepackaged material. The result: a journalistic Gresham's law, whereby hard
news is driven out by the sheer volume of fluff and clichés. Time , for
example, not only availed itself of much of the government bumph in its
special 1997 issue, but also added fun facts of its own (e.g., "most
breathtaking bathroom view"). Newsweek trotted out not one but two
illustrations of old opium smokers. And TV-network crews have been parked
beside the territory's flagpoles, waiting to stock up on footage of the British
standard being lowered against a dusk-lit sky.
Still, the arrival of foreign newspeople has not been
without its headaches for Hong Kong's business and political establishments.
They are now complaining about negative coverage that focuses on disputes over
the electoral arrangements for Hong Kong's legislature and the fate of civil
rights. That is only to be expected, inasmuch as most of the aforementioned
8,400 reporters are interviewing the same three or four people--democrats
Martin Lee, Emily Lau, and Christine Loh. But Hong Kong's wheelers and dealers
should consider themselves fortunate. Because if the press ever did decide to
move seriously past politics, it would discover that the real threat to Hong
Kong's future may have as much to do with Chinese-style capitalism as with
Chinese-style communism.
That
threat arises from the blurring of lines between the kind of pro-business
regimes (with all the attendant corruption) that characterize the rest of Asia
and the pro-market regime that has distinguished Hong Kong until now. When Gov.
Chris Patten, who himself comes from the "wet" side of the Tory fence, sharply
increased social spending in his budgets, the business community thundered
(rightly, I happen to think) that the proposals had been introduced with scant
regard for long-term implications. Mainland officials were livid, seeing the
initiatives as a last-minute British effort to rob the territory of its riches
by saddling it with a European welfare system. "Spiritual opium," Beijing
called it.
Yet Hong Kong's champions of laissez faire and
low government spending have been curiously silent in response to the new
signals coming from the top. Just the other day, Chief Executive-designate Tung
Chee-hwa--who will take over from Patten come July 1--sent a very loud official
signal by declaring that "a noninterference policy would not meet the needs and
strengthen the competitiveness" of today's Hong Kong. The remarks echo a
similar speech Tung made in December to the Chinese General Chamber of Commerce
in favor of a "new industrial direction" that would look more kindly upon state
subsidies for preferred businesses.
In this
Tung has been supported by a large number of Hong Kong businessmen, many of
whom oddly--and despite their success--see Singapore as a better model for Hong
Kong than Hong Kong. Were the legions of reporters to look as closely at Tung's
business as they do his politics, moreover, they might discover that he is
closer to a Korean chaebol chieftain than to a Hong Kong entrepreneur.
Not only does Tung's container-shipping line operate within a cartel market
where routes and quotas are routinely carved out, but it was bailed out, as he
acknowledged last year, by the Chinese government in 1985 when on the brink of
bankruptcy.
Tung's fellow businessmen have not been shy about taking
him up on his new offer. Just recently, the International Herald Tribune
carried an alarming piece in which Henry Tang, a prominent local industrialist
and member of Tung's Cabinet, suggested tapping Hong Kong's considerable
foreign exchange (some $69 billion in reserves, plus another $22 billion in a
special fund from land sales) to develop southern China. Given that there is no
genuine infrastructure need for which China could not easily find private
sourcing--of which Hong Kong accounts for the lion's share--the suggestion by a
Cabinet member to raid the reserves is a virtual invitation for scam and graft.
"It's why I always told the democrats to oppose the Provident Fund [a
government pension scheme]," says a director of one of the territory's oldest
hongs (as firms are still called here). "You put a pile of money out
there and there's every chance it will end up in some Chinese dam."
And
raiding of the reserves is only one worry. Although hailed by no less than the
Heritage Foundation as the world's most open economy, colonial Hong Kong has
retained many notable exceptions to the rule, exceptions that may prove more
costly after July 1. The banking industry, for example, is run by a cartel that
until recently fixed interest rates every Friday. The same insulation from
market forces prevails elsewhere in the non-traded sector. Even today,
everything from legal and medical services to airlines and utilities is almost
immune from market competition thought good for everyone else. About a year ago
the chairman of Cathay Pacific, Peter Sutch, defended such arrangements, saying
that "unfettered competition" would destroy the "stability" of the market.
Over the past two years or so, Chinese
interests have been buying into these companies, usually at a substantial
discount to the market. This is not simply a matter of substituting Chinese for
British vested interests. For one thing, the British vested interests didn't
also regulate their own industries, as the Chinese state firms frequently do.
For another, mainland-connected players generally are able to buy in at much
better terms than anyone else--certainly at terms better than their balance
sheets suggest they deserve. And so the Hong Kong we have on the eve of the
handover is one where Jimmy Lai's Next Group--the most popular Chinese media
group in Hong Kong--cannot find an underwriter to take it public. Yet when
Beijing Enterprises, a company with nothing to show but its connection as the
investment arm of the Beijing mayor's office, made an initial public offering
in Hong Kong last week, there were almost 1,300 applications for each available
share.
None of this means that Hong
Kong is about to go bust. So long as China continues to develop, Hong Kong will
get a substantial chunk of that growth. But the market has clearly signaled a
future in which guanxi , or connections, will count as much as
traditional pluck and enterprise. Such an outcome invites an irony that would
be appreciated as much by Lenin as by Adam Smith: that the same businesses
whose investments have done so much to undermine communism in China may be
responsible for bringing down capitalism in Hong Kong.
