[Congressional Record Volume 143, Number 159 (Wednesday, November 12, 1997)]
[Extensions of Remarks]
[Pages E2323-E2325]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]






  FIRST QUARTERLY REPORT BY THE UNITED STATES HOUSE TASK FORCE ON THE 
                          HONG KONG TRANSITION

                                 ______
                                 

                           HON. DOUG BEREUTER

                              of nebraska

                    in the house of representatives

                      Wednesday, November 12, 1997

  Mr. BEREUTER. Mr. Speaker, in response to your directions, I have 
prepared the following report, the first in a series of quarterly 
reports by the U.S. House Task Force on the Hong Kong Transition on the 
status of Hong Kong following its return to the People's Republic of 
China. It was completed, effective October 1, 1997.
  Also at your request, I have formed the House Task Force on Hong 
Kong's Transition to observe and report on Hong Kong's status following 
its reversion to China. In addition to myself as chairman, the task 
force will be bipartisanly balanced and will include Representative 
Howard Berman, D-CA; Representative Sherrod Brown, D-OH; Representative 
Eni Faleomavaega, D-AS; Representative Alcee Hastings, D-FL; 
Representative Jay Kim, R-CA; Representative Donald Manzullo, R-IL; and 
Representative Matt Salmon, R-AZ. As you requested, the task force 
expects to travel to Hong Kong, Beijing, and other relevant 
destinations at least every 6 months for the foreseeable future to 
examine how reversion has affected Hong Kong. The first such visit is 
expected to take place after the adjournment of the 1997 session but 
before the end of the calendar year.***HD***Concerns Prior to Reversion
  Prior to Hong Kong's July 1, 1997, reversion to Chinese sovereignty, 
many observers expressed skepticism over Beijing's assurances that it 
would allow Hong Kong full autonomy in matters other than foreign 
policy and defense. Skeptics questioned whether Beijing could resist 
the temptation to meddle in matters related to freedom of expression, 
for example. They were also concerned about indications that the 
Beijing-sponsored provisional legislature would roll back forward-
looking measures taken by the last colonial Legislative Council [LEGCO] 
and that the new provisional council would institute election rules 
less representative than those put into place by Governor Patten in 
1995. Businessmen wondered whether China could refrain from meddling in 
Hong Kong's affairs, either intentionally or otherwise. Maintaining the 
rule of law and resisting the lure of corruption, so common in China, 
were key commercial concerns. On the security side, skeptics questioned 
Hong Kong's continued ability to maintain effective export controls. 
The future of U.S. ship visits was also in doubt.


                      in general: so far, so good

  While Hong Kong has been under Chinese sovereignty for only 3 months, 
public confidence is high. Hong Kongers are close to unanimous in 
expressing relief and pleasure that life has not changed after 
reversion. The press and media continue to be open, free, and full of 
criticism and analysis of both the Hong Kong and Beijing governments. 
Journalists, while wary and suspicious about China's long-term 
intentions, continue to cover the news much as they did before July 1, 
1997. For example, the recent Chinese Communist Party Congress drew 
extensive commentary. Journalists displayed no hesitancy in voicing 
views not welcome in Beijing. Nonetheless, the self-censorship that 
began to creep into coverage in some papers prior to reversion has 
continued.
  Demonstrations--by pro-democracy and pro-Beijing groups and a myriad 
of local organizations--continue without interference or restriction. 
More than 150 demonstrations have taken place since the July 1 
turnover. Indeed, in an upturn in the number of demonstrations, a 
gauntlet of demonstrators regularly greets Hong Kong Chief Executive 
C.H. Tung when he arrives for weekly executive council sessions. 
However, in a typical Hong Kong twist, Tung invariably trades 
handshakes and smiles with his critics, who line up behind the waist-
high barricades flanking the entry to Central Government Offices as he 
walks past.
  NGO's, including those harshly critical of China, continue to operate 
freely. Han Dongfan, exiled PRC dissident and leader of workers' groups 
during the 1989 Tiananmen demonstrations, reports no problems 
continuing his work in Hong Kong thus far. Commenting in a local 
newspaper, Han said it was too early to tell what Beijing would 
eventually do, but ``as far as I can see with all the demonstrations by 
Democrats and others--there is hope for democracy here.'' Han continues 
to broadcast regularly from Hong Kong via Radio Free Asia on one of its 
most popular programs, ``The Labor Corner.'' Amnesty International, 
Human Rights Watch and Human Rights in China representatives in Hong 
Kong are encouraged by the continued demonstrations and absence of any 
Hong Kong Government moves to restrict their operations. Meanwhile, 
democrats say that the threat to Hong Kong would come from a very slow 
erosion of the rule of law, not a sudden crackdown on civil liberties 
or freedom of speech.
  Concern arose in mid-September, however, when both the Chinese and 
the Hong Kong governments objected to the credentialing of two human 
rights groups to the recent IMF/World Bank meeting in Hong Kong. Since 
human rights is in the lending guidelines of these financial 
institutions, participation by the human rights groups was appropriate. 
The objections of the Hong Kong government are troubling. Ten Members 
of Congress, led by Congressman Berman, wrote to Secretary of the 
Treasury, Robert Rubin, to express their concern.


                         approval ratings high

  Reflecting locals' belief that life goes on as usual, Tung's approval 
ratings have continued to climb since mid-June, when only 57 percent of 
Hong Kongers reported they were satisfied with his performance. By 
early August, a reliable local poll showed 78 percent of Hong Kongers 
were satisfied with Tung. That number rose to 82 percent in early 
September. Even among survey respondents who said they would vote for 
pro-democracy parties, 80 percent indicated they were satisfied with 
the chief executive, rivaling prominent pro-democracy advocate Martin 
Lee's 82 percent rating.


                        local autonomy respected

  The central Chinese Government appears to be taking seriously 
President Jiang Zemin's pledge at the handover that no mainland 
government officials ``may or will be allowed to interfere'' in the 
affairs which Hong Kong should administer on its own. Premier Li Peng 
reiterated that pledge and gave a strong vote of confidence to Tung in 
mid-September while hosting the IMF and World Bank meetings in Hong 
Kong. Far from being heavy-handed or insensitive, Bejing appears to 
have absented itself from active involvement in Hong Kong affairs since 
the handover. Again and again, China has gone out of its way to project 
a benign ``smiling face'' image on Hong Kong-related matters.


                            low-key approach

  After installing the urbane Ma Yuzhen as head of the Ministry of 
Foreign Affairs [MFA] office in Hong Kong, and the low-key diplomat 
Jiang Enzhu to replace the always pugnacious Zhou Nan at the Xinhua 
News Agency, the de facto MFA representative in Hong Kong prior to 
reversion, China has stood back and refused to become embroiled in 
local issues. Xinhua, once a source of constant criticism and 
commentary on Hong Kong Government policy, has fallen silent. MFA head 
Ma Yuzhen has deferred to the Hong Kong Government on virtually all 
matters. His contacts with Hong Kong Government officials have 
reportedly been strictly limited to protocol matters.
  If China is attempting to influence certain issues, it is doing so in 
a manner that is not public. Political debates China has avoided 
commenting on or attempting to influence publicly include:
  The plight of illegal immigrant children with the right of abode in 
Hong Kong. China has allowed the Hong Kong courts and government to 
interpret the Basic Law's provision of the right of abode in Hong Kong 
to certain Chinese nationals. Citing administrative efficiency and 
preventing overcrowding in schools, Hong Kong will not 
allow unrestricted entry of PRC nationals who received the right to 
live in Hong Kong when the Basic Law comes into force on July 1.

  Displaying the ``Republic of China'' Taiwan flag in Hong Kong. Ma 
Yuzhen, when pressed by a reporter, said the issue would be for Hong 
Kong to decide.
  Hong Kong Government spending. Hong Kong pledged one billion United 
States dollars to the IMF Thailand bail-out and committed over seven 
billion United States dollars to a railway construction project. 
Chinese scrutiny of government spending under the British was intense, 
usually hostile, and raised fears that China would not stay out of Hong 
Kong's affairs after reversion. The IMF pledge and the

[[Page E2324]]

rail project are early indications that China does not always act like 
a ``control freak''--one of Governor Patten's favorite descriptions--
and will honor the pledge to respect Hong Kong's autonomy. It should be 
noted, however, that China also pledged one billion United States 
dollars to Thailand and therefore would not likely be opposed to Hong 
Kong's assistance.


                         Sino-U.S. cooperation

  In one of the most notable examples of China's smiling face approach 
to Hong Kong, China outdid itself both in making arrangements for the 
first visit of a U.S. naval ship to Hong Kong after the handover and in 
projecting an image of friendliness when the U.S.S. Blue Ridge and 
Seventh Fleet Commander Natter were in town. Subsequent visits by other 
ships, including nuclear powered ships, were equally successful. No 
effort was spared to demonstrate China welcomed ship visits as much as 
British forces did. Appearing conscious that their presence raises the 
anxiety level in Hong Kong, the PLA garrison has stayed out of sight--
and even reduced its numbers--except for carefully scripted appearances 
by smiling senior officers.


                           Business as usual

  Reflecting business confidence that Hong Kong's economy will continue 
to prosper after reversion, Hong Kong's first and second quarter 1997 
real gross domestic product growth reached 6.0 percent and 6.1 percent, 
respectively, thus out-pacing analysts' forecasts for the year of 5.5 
percent. This compares to real gross domestic product growth figures 
for 1996 and 1995 of 4.7 and 4.8 percent, respectively. The Hong Kong 
Government attributes the first half improvement to a revival of 
domestic demand, reflected in buoyant stock and property markets, 
modest improvement in exports, especially services, and increased 
investment, some of it related to construction of the new Chek Lap Kok 
Airport. The inflation picture has also somewhat improved in 1997. 
Consumer price increases declined from 6.0 percent in 1996 to 5.9 
percent in the first half of 1997. Unemployment dropped from 3.2 
percent in 1995 to 2.8 percent in 1996 and recently stood at just 2.4 
percent, May-July 1997, largely due to recovery in the retail sector.
  Hong Kong's normally strong financial markets weathered recent 
currency and stock turmoil during this period but demonstrated they are 
not immune from shocks. While the Hong Kong dollar remains strong, in 
late July, the government felt compelled to vigorously defend a brief 
attack on its dollar by expending 1.0 billion United States dollars of 
its reserves and jacking up interest rates. Some believe the real 
target was not the dollar, but an attempt to influence the Hong Kong 
stock market. Hovering around 14,500 in mid-September, the stock market 
was volatile in recent months, scoring a record high in August of 
16,802, while registering record turnover. The sell-off of Hong Kong 
shares is partly attributed to meeting cash margin calls in other 
markets such as those in Thailand and the Philippines. Another major 
contributor, however, was a feeling that the prices of China-related 
shares were badly inflated. Most applaud Hong Kong's one billion United 
States dollar commitment and its leadership in the Thai recovery 
program, citing the need to help neighbors while simultaneously 
strengthening its own defenses.
  Assessments of the recent regional currency turmoil on Hong Kong 
suggest modest nearterm costs. One observable increased cost was the 
rise by 30 to 50 basis points above regular levels of 20 points in Hong 
Kong's interest rate risk premium. Long-term concerns include potential 
shifts in trade and investment as Hong Kong's goods/services become 
relatively dearer. This is also true of Hong Kong's important re-export 
trade to/from China. Analysts say currency problems might shave just 
one-tenth to one-half a point off gross domestic product growth next 
year, while a greater concern might be reduced commitment from China to 
reforming its financial system.
  Despite regional currency turbulence and stock market volatility, 
monetary figures show no signs of capital flight or panic. Total 
deposits in all institutions in July 1997 stood at 343 billion U.S. 
dollars, up 15.9 percent from a year earlier, with Hong Kong dollar 
deposits exceeding foreign currency deposits 59.6 to 40.4 percent, 
respectively. The Hong Kong dollar, pegged to the United States dollar, 
has been steady at around 7.74 Hong Kong dollars per United States 
dollar and the Hong Kong Monetary Authority is confident it can 
effectively defend the peg.
  The fact that things remain relatively stable despite regional 
turbulence does not guarantee that there will not be continued rough 
going ahead, particularly if the currency situation in Southeast Asia 
remains volatile. The continued overinflated value of Hong Kong real 
estate could also contribute to currency instability. A certain amount 
of volatility, of course, is a part of any mature economy. This should 
not affect Hong Kong's democratic process.
  Signs so far indicate that America's substantial commercial interests 
in Hong Kong are benefiting from Hong Kong's continued post-reversion 
prosperity. U.S. companies have 16 billion U.S. dollars in direct 
investment and billions more in portfolio investments. The United 
States exports to Hong Kong totaled 14 billion United States dollars in 
1996 and 7.5 billion United States dollars in the first half of 1997. 
U.S. Department of Commerce figures showed an estimated 4.1 billion 
U.S. dollar U.S. trade surplus with Hong Kong in 1996. The first 
quarter 1997 U.S. surplus reached 1.4 U.S. dollars. The American 
Chamber of Commerce's recent Annual Business Confidence Survey showed 
confidence in Hong Kong's future up and high--95 percent--though 
tempered by concerns about prospects for the rule of law, the free flow 
of information and corruption. Specifically, many businessmen, both 
foreign and local, fear that as the mainland's influence in Hong Kong 
increases, so will the corruption which has become endemic in many 
parts of China.


                            Concerns Remain

                            a. Election law

  Despite indications that China is refraining from interfering in Hong 
Kong affairs, a number of serious concerns remain. One primary concern 
is proposed changes to electoral laws. On July 8, the government of the 
Hong Kong Special Administrative Region released proposals, prepared by 
the Beijing-appointed Preparatory Committee, for new electoral 
arrangements to govern the spring 1998 elections which, while adhering 
to the major electoral requirements set forward in Sino-British 
agreements on Hong Kong, are controversial because they dismantle key 
portions of the electoral reforms put into place by Governor Patten in 
1995. The proposals maintain the original formula of 20 Legco members 
to be directly elected by popular vote, 30 to be elected by 
``functional constituencies''--initiated by the British in 1985--and 10 
to be chosen by a special Election Committee. However, the proposals 
would shrink the ``functional constituent'' electorate from 
approximately 2.7 million voters under the 1995 British electoral 
reforms to as low as approximately 180,000, according to some 
estimates. For the 20 directly elected seats, the proposals would also 
scrap the United States-style ``winner-take-all'' style system 
introduced by the British in 1995 and substitute a European-style 
``proportional representation'' system. Critics fear that the new 
arrangements will dilute the political power of the Hong Kong's 
Democratic Party and favor pro-China candidates and that seems likely 
to be the case. Aware of this criticism, C.H. Tung, during his 
September visit to the United States, outlined his plans over the next 
decade gradually to expand to 50 percent the number of directly elected 
Legco seats--now one-third--and to expand the size of the committee 
which will select a new chief executive.

                           b. Export controls

  Another area of concern is Hong Kong's ability to maintain its high 
regulatory and monitoring standards in controlling the transfer of 
sensitive technologies. Currently, United States export control policy 
toward Hong Kong is less restrictive than that applied to China, based 
on Hong Kong's past demonstration that its export control policies were 
sufficiently effective. This policy is based on the Hong Kong Policy 
Act, which calls for continued separate treatment of Hong Kong in 
export controls as long as it is able to protect United States 
technology and equipment. Of course, monitoring Hong Kong's continued 
autonomy in this field is critical to assessing the risk to United 
States nonproliferation interests. The General Accounting Office points 
out that key indicators to watch will include changes in the 
composition and volume of United States exports of controlled items to 
Hong Kong, which could signal efforts by China to obtain 
sensitive technology such as the optical sensors that it has previously 
been denied. Hong Kong officials maintain that China's desire to see 
Hong Kong continue to succeed economically will restrain such activity. 
To date, United States officials report no change in the performance of 
Hong Kong customs officials in both pre- and post-license checks.

                               c. Customs

  Hong Kong cooperation in customs enforcement is another issue that 
bears watching. Increased instances of textile transhipment through 
Hong Kong led United States Customs to impose special administrative 
restrictions on textiles from Hong Kong in June 1996. This ``wake up 
call'' pressured the Hong Kong customs authorities to crack-down on 
transhipments and institute new procedures. By June 1997, Hong Kong had 
made enough progress to persuade United States Customs to lift their 
special administrative restrictions. Observers see no change to date 
between pre- and post-reversion performance on the part on Hong Kong 
customs authorities.
  Mr. Speaker, in conclusion, Hong Kong has been under China's 
sovereignty for only 3

[[Page E2325]]

months. It is too early to judge the reversion. Nonetheless, 
indications to date are hopeful. Civil liberties continue largely 
unaffected. The economy continues to thrive. U.S. ship visits continue 
with little change and are indeed, welcomed with open arms. However, we 
continue to be concerned about the potential over time for the 
constriction of democracy, media self-censorship and the loss of hard-
won rights. Chinese and Hong Kong authorities are acutely aware that 
the eyes of the world continue to scrutinize their post-reversion 
actions. That continued scrutiny is well warranted and will help ensure 
that all concerned continue to value and maintain Hong Kong's autonomy.

                          ____________________