[Congressional Record Volume 144, Number 19 (Tuesday, March 3, 1998)]
[Extensions of Remarks]
[Pages E263-E264]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          THE SPEAKER'S TASK FORCE ON THE HONG KONG TRANSITION

                                 ______
                                 

                           HON. DOUG BEREUTER

                              of nebraska

                    in the house of representatives

                         Tuesday, March 3, 1998

  Mr. BEREUTER. Mr. Speaker, the following is the second quarterly 
report of the Task Force on the Hong Kong Transition. It follows the 
first report dated October 1, 1997, and it was prepared and compiled by 
those Members of Congress (Representative Doug Bereuter, Representative 
Alcee Hastings, and Representative Donald Manzullo) who traveled to 
Hong Kong, Macau, Shenzhen, and Beijing from December 13-20 as part of 
their responsibilities as Members of the Task Force. The report 
reflects the observations of the Task Force during the trip but also 
includes other information compiled before and after the trip up to 
December 31, 1997.

                        Summary of Second Report

       In the first report of the Speaker's Task Force on the Hong 
     Kong Transition, Hong Kong's reversion to China was 
     characterized as ``so far, so good.'' Six months after the 
     official reversion that characterization still applies. 
     However, nearly all observers agree it is ``too early to 
     tell'' whether Hong Kong will be greatly affected by the 
     transition and/or whether the United States' significant 
     interests in Hong Kong will be adversely affected. From all 
     perspectives both within and outside of Hong Kong, the very 
     negative scenarios for Hong Kong, which many had predicted 
     thus far, have not occurred. Undoubtedly, this is due in part 
     to a determined effort by officials from the People's 
     Republic of China (PRC) to respect Hong Kong's autonomy under 
     the ``one-country, two-systems'' formula. Despite the fact 
     that the fundamental underlying reasons for China's stance 
     remain the same, there is no assurance that the outcome from 
     those objectives will still prevail.
       To date, the Hong Kong people seem to enjoy the same basic 
     liberties and rights they enjoyed prior to the reversion. 
     However, this is tempered by the abolition of the Legislative 
     Council and its replacement by a provisional legislature 
     which was ``selected,'' but not elected, by the people of 
     Hong Kong. Most observers agree that Hong Kong and Beijing 
     officials responsible for implementing the ``one-country, 
     two-systems'' framework are ``on their best behavior.'' Yet, 
     one overriding concern remains: Are Hong Kong officials 
     subtly anticipating what Beijing desires and not in all 
     instances vigorously pursuing the autonomy they have out of 
     fear they will upset Beijing? At least with regard to routine 
     matters, Hong Kong government officials seem quick to assert 
     their own autonomy. There also is some evidence that Hong 
     Kong officials may be seeking to influence policies on the 
     ``mainland.'' But on more sensitive issues such as 
     President Jiang's interaction with protesters, Hong Kong 
     officials may be attempting to put on a good face for 
     Beijing. If such attempts to ``out royal the queen'' are 
     really occurring in Hong Kong, a subtle and seemingly 
     invisible erosion of Hong Kong's autonomy could be 
     happening without being fully discernible.


                   Beijing: Honoring Its Commitments

       Chinese officials in Beijing and Hong Kong who are 
     responsible for implementing the ``one-country, two-systems'' 
     legal framework are clearly bending over backwards to 
     demonstrate a policy of non-interference in the areas of Hong 
     Kong's autonomy (every aspect of governance except, as 
     specified, foreign affairs and defense). In meeting after 
     meeting, officials of Hong Kong and China reiterated the 
     ``one-country, two-systems'' framework and provided anecdotes 
     of decisions with which Beijing or its representatives in 
     Hong Kong were not involved--like Hong Kong's defense of its 
     own currency during the monetary crisis. In one instance, a 
     Chinese official recounted that he was informally approached 
     by a Hong Kong official about an issue falling in the 
     monetary policy arena. That official recounted declining to 
     offer an opinion because it was in Hong Kong's own autonomy. 
     Another example of deference occurred when PRC officials 
     reportedly approached Hong Kong officials regarding South 
     Africa's mission to Hong Kong (a matter all parties agree 
     lies within Beijing's sole authority for foreign affairs).
       One good test of the non-interference of PRC officials is 
     Hong Kong's self-reporting under two key international 
     covenants on human rights. When pressed on the issue, Ma 
     Yuzhen, PRC Ministry of Foreign Affairs Commissioner, stated 
     that his office intends to function only as a ``conveyor 
     belt'' transferring the reports from Hong Kong to the United 
     Nations in New York without suggested changes or even 
     recommendations.
       One example of Hong Kong's continued autonomy involves the 
     decision to let British expatriates in the Hong Kong 
     government join the official PRC delegation to such 
     international organizations as the World Intellectual 
     Property Organization. Moreover, Hong Kong officials 
     demonstrated their autonomy at the last Working Group meeting 
     in Geneva on China's accession to the World Trade 
     Organization by submitting seventeen questions in China's new 
     services offer.
       But the question remains as to whether Hong Kong officials 
     are altering their actions so as to please Beijing on certain 
     matters. One Hong Kong journalist termed this practice the 
     new ``political correctness.'' This practice could greatly 
     influence how the Hong Kong government handles the 
     requirement in Article 23 of the Basic Law that it enact laws 
     prohibiting acts of treason, secession, sedition, subversion 
     against the Central Government, and theft of state secrets. 
     However, while many people accuse Hong Kong officials of this 
     ``political correctness'' toward Beijing, the only evidence 
     of such actions occurring involves the Hong Kong government's 
     alleged movement of protesters away from a site where 
     President Jiang Zemin was to be during his visit to Hong 
     Kong, the removal of Taiwan flags from a public bridge during 
     that Taiwan's national day, and also an alleged informal 
     request from the PRC for an opinion by a Hong Kong official 
     on an international monetary policy issue.
       Many other controversial issues are labeled by various 
     government opposition groups as falling within this category 
     of ``political correctness'' on the part of Hong Kong 
     officials, but it is often impossible to discern the motives 
     behind the policy. For example, the Hong Kong government's 
     decision to require more than three hundred schools to comply 
     with a directive to use Cantonese as the medium of 
     instruction in secondary schools (while allowing more than 
     one hundred schools to continue to teach English) could 
     either be a ``practical'' decision to improve understanding 
     and instruction in the schools or a ``patriotic'' move.
       Similarly, opposition politicians in Hong Kong have 
     vigorously criticized the Hong Kong government for its 
     handling of the Avian flu crisis, arguing that an embargo was 
     not placed on birds from China for fear of angering Chinese 
     officials. However, the Hong Kong government quickly 
     consulted and cooperated with international health official 
     in an attempt to contain the flu. They also eventually and 
     completely banned the importation of chickens from China, 
     thereby placing significant economic hardship on local 
     producers in China, and slaughtered and discarded all 
     chickens in Hong Kong.


                   Political and Legislative Activity

       One real caveat to the ``so far, so good'' characterization 
     of the Hong Kong transition is the roll back of democratic 
     reforms in Hong Kong. Though Chief Executive Tung Chee-hwa 
     argues that the number of directly elected seats of the 
     Legislative Council (Legco) will increase to thirty by the 
     year 2004, he bluntly admits that democratic reform in Hong 
     Kong is ``not a priority at this moment.'' He says that he 
     will do ``what is right for Hong Kong'' and that, he makes 
     clear, is to let democracy mature slowly.
       The Task Force's initial report characterized the changes 
     in Hong Kong's elections laws as a ``remaining concern.'' 
     While it appears that all major political parties in Hong 
     Kong are active in preparing for the May 1998 Legco 
     elections, the number of votes cast will diminish because of 
     changes to Hong Kong's Electoral Law which abolished mass-
     membership functional constituencies and restricted the 
     numbers of Hong Kongers eligible to vote in the thirty 
     functional seat contests. Unlike the September 1995 
     Legislative elections, when more than two million Hong 
     Kongers had votes in functional constituencies in addition to 
     their votes in the districts where they lived, in 1998 only 
     200,000 voters will be eligible to pick the 30 legislators 
     representing functional constituencies. (News reports show 
     registration of functional constituencies to be very low but 
     it is difficult to determine whether general apathy or apathy 
     created by electoral law changes have caused this low 
     registration turnout.)
       Moreover, while it is impossible to prove the motive for 
     the election law changes, it is clear that the Democratic 
     Party will lose representation in the newly constituted Legco 
     because of the aforementioned changes and because of the 
     additional election law changes requiring use of a 
     ``proportional representation'' system to determine election 
     winners. Martin Lee, Democratic Party Chairman, predicts that 
     the representation of ``Democratic Party and friends'' will 
     fall from twenty-six in the abolished legislature to fifteen 
     in the newly elected legislature in May of 1998.
       Most political observers in Hong Kong have welcomed the 
     Provisional Legislature's adoption of a doctrine of 
     `essentiality,'' i.e., only considering and approving 
     legislation that is absolutely essential during its 
     transition period until an elected legislature is put into 
     place. However, it is unclear whether the Hong Kong 
     government's decision to postpone consideration of a bill 
     prohibiting acts of treason, secession, sedition, subversion 
     against the Central Government, and

[[Page E264]]

     theft of state secrets means that the legislation will be 
     more or less restrictive of the Hong Kong peoples' basic 
     rights. Clearly, this issue will be one of the first 
     important tests of the newly elected Hong Kong legislature 
     and current government. Future benchmarks include the 
     government's responsiveness to Hong Kong public opinion when 
     formulating legislation (as it appeared to do in the 
     formulation of the societies ordinance) and whether the Hong 
     Kong government strictly enforces the legislation, once 
     enacted.


 hong kong's customs autonomy: a promising start but too early to judge

       Indicators suggest that Hong Kong is fully exercising its 
     autonomy as a separate customs territory within China. Law 
     enforcement cooperation between Hong Kong police and Customs 
     and U.S. Customs remains ``much the same'' and, according to 
     U.S. officials, there appears to be ``no change in the 
     working relationship.'' Nevertheless, it is ``too early to 
     judge'' whether long-term U.S. trade, security, and law 
     enforcement interests in Hong Kong ultimately will be 
     affected by the transition.
       To prevent smuggling through its port, Hong Kong Customs 
     employs four hundred people but is only able to examine 
     approximately 1300 of the 13.5 million containers per year 
     which move throughout the entrepot territory. In addition, 
     the border between Hong Kong and Shenzhen currently handles 
     14,000 vehicles per day, and that number is increasing daily. 
     ``Without good intelligence,'' U.S. officials say, Hong Kong 
     custom's task in finding smuggling is like ``looking for a 
     needle in the haystack.'' American officials acknowledge, 
     however, that their Hong Kong counterparts ``do as good a job 
     as anyone.''
       In November, the U.S. Foreign Commercial Service performed 
     thirty post-shipment verifications on export licenses and 
     found only one or two questionable situations. Moreover, 
     those questions were resolved upon further inspection. A U.S. 
     interagency team on export controls traveled to Hong Kong on 
     January 12, 1998, as part of a bilateral cooperation 
     agreement between Secretary of Commerce William Daley and 
     Hong Kong Trade and Industry Secretary Denise Yue. The 
     conclusions of that meeting were not available for this 
     report. Hong Kong's customs service has demonstrated 
     continued diligence and quick response on two potentially 
     serious diversions from North Korea of unmilled tank barrels 
     and rocket fuel. The customs service now has legislation to 
     catch ``middle men'' in Hong Kong who facilitate diversions 
     not actually involving the Hong Kong port. In this respect it 
     is similar to the United States and a leader in the world.
       One continuing complaint by U.S. law enforcement officials 
     involves Hong Kong's laissez faire approach to money being 
     personally carried in and out of Hong Kong. There is no 
     reporting requirement for travelers doing this, and Hong Kong 
     is therefore an ideal place for laundering money. Note: 
     This situation existed in Hong Kong prior to the 
     transition and therefore is not a resulting problem. 
     Nevertheless, it would seem desirable for the U.S. 
     Government to recommend that the Hong Kong government 
     mirror U.S. reporting requirements in order to stem the 
     flow of money laundering.
       U.S. officials give Hong Kong Customs high marks for recent 
     stepped-up efforts on textile transhipments, but lower marks 
     for their enforcement of intellectual property rights 
     violations. Hong Kong Customs claims difficulty in ``going 
     after the kingpins'' and, instead, arrests the sellers at the 
     retail level of pirated material. More blatantly, some well-
     known arcades certainly do rather openly market pirated 
     software and compact discs. Some Hong Kong officials complain 
     that the reason that pirated products remain on sale in 
     legitimate retail stores is that ``there is no deterrent''--
     judges are too lenient. However, recent increases in jail 
     terms along with expanded enforcement powers for Customs 
     officers may have a positive effect in reducing piracy. Also, 
     the government has introduced legislation that should help 
     enable Customs to control illicit production.


                    Economic Conditions in Hong Kong

       If one were only to examine the Heritage Foundation's 
     annual Index of Economic Freedom or the American Chamber of 
     Commerce in Hong Kong's annual confidence survey, one might 
     wrongly conclude that Hong Kong's economic outlook remains 
     unchanged from last year. However, regional economic woes 
     beginning in the summer of 1997 have had a significant impact 
     on Hong Kong.
       Drawing on large international currency reserves and a 
     strong determination to defend the HK$-US$ peg, Hong Kong was 
     able to weather an initial attack on its currency caused by 
     the financial turmoil throughout Asia. This led, however, to 
     a sharp rise in interest rates as well as large drops in the 
     stock and property markets. After rising to a new high in 
     August, the stock market fell almost 40% during the last week 
     of October. Since bottoming out in November of 1997, however, 
     the Hang Seng index has battled back to levels recorded in 
     April of 1997. (Information compiled after January 1, 1998) 
     The real estate market is important to Hong Kong's economic 
     viability and stability, and it certainly has an important 
     effect on U.S. firms and citizens residing there. Residential 
     property prices have been trimmed by 20%-30% in recent 
     months.
       Tourism in Hong Kong also has noticeably declined and it is 
     difficult to predict how significantly the region-wide 
     financial crisis will further affect this key industry. An 
     additional issue of concern is the fact that the Peregrine 
     Investment Corporation, Hong Kong's largest investment firm, 
     declared bankruptcy on January 12, 1998. (Information 
     compiled after January 1, 1998)
       Despite recent difficulties, short-term confidence in the 
     Hong Kong dollar seems strong, and policy makers express a 
     continuing determination to defend the peg. (There are, 
     however, a growing number of dissenters who maintain that 
     Hong Kong will not be able to maintain the peg in  the long 
     term, principally because they predict China will 
     eventually devalue the renminbi.) Hong Kong's banking 
     sector and its regulatory regime are strong. Monetary 
     figures show no sign of capital flight or panic. Hong 
     Kong's foreign exchange reserves reached U.S. $96.5 
     billion in November 1997.


                                 Macau

       Macau will revert to China on December 20, 1999, and become 
     yet another Special Administrative Region. Like the British, 
     Portugal negotiated a Joint Declaration with the PRC 
     government that establishes a ``one-country, two systems'' 
     formula for Macau. Although there are many similarities 
     between the imminent Macau reversion to China and that of 
     Hong Kong, there are several key differences.
       If for no reason other than size, Macau has only a modest 
     effect upon U.S. vital interests. Macau buys only one percent 
     of the total exports which the U.S. sends to Hong Kong, and 
     it houses only 1% of the number of Americans as reside in 
     Hong Kong. Nevertheless, there are legitimate U.S. concerns 
     in the areas of drug smuggling and intellectual property 
     rights violations. For example, it is believed that a 
     considerable portion of the region's illicit compact disc and 
     videotape production lines may have moved to Macau. Estimates 
     suggest that a hundred million or more illegal compact discs 
     and movies per annum may now be produced in Macau. 
     Exacerbating the illicit production problems in Macau are 
     contradictory actions taken by the local courts concerning 
     the government's seizure of equipment used in the illegal 
     production lines.
       Organized gang warfare is also a matter of legitimate 
     concern. Early in 1997, Macau was featured in the news by 
     reports about gang fighting or turf wars. Macau officials 
     argue that the overall crime rate in Macau has been 
     exaggerated by the sensational nature of the stories.
       Macau's reversion to China presents several other key 
     differences from Hong Kong's reversion to China. For example, 
     Macau has a ``through train'' for its Legislative Assembly 
     and therefore will not have to cope with the provisional 
     legislature scenario currently existing in Hong Kong. This 
     body currently has twenty-three assembly members of which 
     two-thirds are elected. It also has an ambitious legislative 
     agenda for 1998 that includes localization of the major 
     Portuguese codes and human rights initiatives. Of concern is 
     the fact that the Macau Legislative Assembly was unable in 
     1997 to pass several human rights initiatives. Other key 
     issues for Macau which pose difficult transition issues 
     include localization of the civil service and nationality 
     issues. With the approval of the Speaker for an expanded area 
     of responsibility because of Macau's relevance to the Hong 
     Kong transition and its proximity, the Task Force would 
     propose to similarly observe and report on the Macau 
     transition.


                            Additional Note

       Although there have been many economic developments in Hong 
     Kong after December 31, 1997, this report generally reflects 
     those developments occurring before that date. There are 
     limited exceptions where the report comments on events 
     occurring after December 31, 1997, and they are indicated 
     appropriately.

     

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