[Congressional Record Volume 144, Number 70 (Wednesday, June 3, 1998)]
[Extensions of Remarks]
[Pages E987-E989]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page E987]]
THE THIRD QUARTERLY REPORT OF THE SPEAKER'S TASK FORCE ON THE HONG KONG 
                               TRANSITION

                                 ______
                                 

                           HON. DOUG BEREUTER

                              of nebraska

                    in the house of representatives

                        Wednesday, June 3, 1998

  Mr. BEREUTER. Mr. Speaker, this Member rises today to submit the 
Third Quarterly Report of the Speaker's Task Force on the Hong Kong 
Transition. It has been nearly one year since Hong Kong reverted to 
Chinese sovereignty on July 1, 1997. Prior to that historic event, and 
at your request, Mr. Speaker, this Member formed the House Task Force 
on Hong Kong's Transition. In addition to myself as Chairman, the Task 
Force is bipartisanly balanced and includes Representative Howard 
Berman (D-CA), Representative Sherrod Brown (D-OH,), Represenative 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).
  Mr. Speaker, as you requested, the Task Force expects to travel to 
Hong Kong, and other relevant destinations at least every six months 
for the foreseeable future to examine how the reversion has affected 
Hong Kong. The first such visit took place in December, 1997. The 
second is tentatively scheduled for early July of this year--one year 
after reversion. To day, the task force has prepared three quarterly 
reports accessing how the reversion has affected Hong Kong. The third 
report, which I submit today, covers the alternating quarter--January 
through March, 1998--in which there was no actual visit to Hong Kong by 
the Task Force. Despite a number of concerns in the areas of freedom of 
expression, the independence of the judiciary, the development of 
democratic institutions and the protection of intellectual property 
rights, we continue to describe the situation as ``so far so good.'' 
Mr. Speaker, this Member submits the Task Force report to be printed in 
the Congressional Record.

          The Speaker's Task Force on the Hong Kong Transition


                              Third Report

            (Presented by the Hon. Doug Bereuter, Chairman)

       The following is the third quarterly report of the Task 
     Force on the Hong Kong Transition. If follows the first 
     report dated October 1, 1997, and the second report dated 
     February 25, 1998. This report focuses on events and 
     developments relevant to United States interests in Hong Kong 
     between January 1, 1998 and March 31, 1998--the third quarter 
     following Hong Kong's reversion to China. (This is the 
     alternating quarter in which there was no actual visit to 
     Hong Kong by the Task Force since the mandate given to the 
     Task Force by the Speaker is to visit Hong Kong only every 
     six months. Therefore, the finding of this report are based 
     upon indirect sources.)


                          Beijing Commitments

       The Hong Kong Special Administrative Region (HKSAR) has now 
     been under Chinese sovereignty for over nine months. 
     Concerned observes both inside and outside Hong Kong continue 
     to scrutinize the decisions and behavior of Chinese and Hong 
     Kong authorities for evidence that China is maintaining its 
     commitment to the ``one-country, two systems'' formula 
     spelled out in the Joint Declaration of 1984 which allows 
     Hong Kong full autonomy in matters other than foreign policy 
     and defense. As a dynamic regional financial and economic 
     center, Hong Kong's continued autonomy is viewed as vital to 
     the continuing economic health of the entire region.
       The people of Hong Kong continue to maintain a high degree 
     of confidence in the Hong Kong government. Confidence in 
     Chief Executive C.H. Tung ebbed somewhat in January, as the 
     effects of the Asian financial crisis rippled into Hong Kong 
     and the public voiced its dissatisfaction with the 
     government's handling of the ``avian flu'' problem. By late 
     February, however, opinion polls showed a bounce back. Tung's 
     overall approval rating rose to 63 percent--a four percent 
     increase over the late-January figure. The polls also 
     continue to show strong popular support for the 
     ``democratic'' political parties, which are expected to do 
     well in the May election in the seats open to universal 
     suffrage.
       Following Hong Kong's reversion to Chinese rule, we find 
     that Chinese authorities continue to refrain from direct 
     involvement in Hong Kong affairs. To date, there is no 
     evidence of explicit Chinese interference in Hong Kong 
     affairs. Our First Quarterly Report on Hong Kong described 
     the situation in this regard as ``so far, so good.'' The 
     Second Quarterly Report echoed this judgment, with a slightly 
     stronger caveat that the areas of concern--freedom of 
     expression, rule of law, and protection of intellectual 
     property rights, among others--warranted closer attention. In 
     this report, we reaffirm or continue this assessment.
       We see no clear threat to Hong Kong's autonomy. Chinese 
     officials, both in Beijing and Hong Kong, scrupulously 
     refrain from interference--at least in public. For example, 
     five members of China's world-class swim team were unable to 
     wangle their way into Hong Kong for an important meet after 
     they neglected to apply for visas in time. Separately, the 
     small People's Liberation Army garrison also continues to 
     maintain a low-profile. However, several relatively isolated 
     decisions and statements by Hong Kong officials, described 
     below, have heightened anxieties concerning the apparent 
     spread of a new concept of ``political correctness.'' There 
     is a small but growing concern that some Hong Kong 
     authorities are giving undue consideration to Beijing's 
     possible reaction before making decisions affecting Chinese 
     interests in Hong Kong.


              Rule of Law Concerns--Freedom of Expression

       International confidence in Hong Kong is based on the 
     commitment of the Hong Kong authorities to the rule of law 
     which it inherited from the British. An integral part of this 
     is the ``check'' on abuse of authority provided by the free 
     expression of opinion. We find that political protesters and 
     demonstrators continue to carry out their activities without 
     restraint. One minor exception during the first three months 
     of 1998 occurred during the January visit to Hong Kong of 
     Chinese President Jiang Zemin. Hong Kong police kept anti-
     Jiang demonstrators at a considerable distance from the 
     Chinese leader, thus drawing criticism for pandering to 
     Chinese sensitivities. In response, Hong Kong authorities 
     argued that it was important to demonstrate to the Chinese 
     that they were capable of providing adequate security, lest 
     the Chinese feel compelled to provide their own.
       Hong Kong has traditionally enjoyed a free and vibrant 
     press. The Hong Kong media continues to operate freely. There 
     are no taboo subjects. Newspapers that appear to tread 
     lightly on issues of concern to China or Hong Kong 
     authorities one day may harshly criticize them the next. 
     There have been no reports of interference with the press by 
     Chinese officials based in Hong Kong, nor by Hong Kong 
     authorities. Nonetheless, self-censorship is widely perceived 
     to exist. A February 1998 survey conducted by the Social 
     Science Research Center of the University of Hong Kong showed 
     that about 43 percent of those interviewed thought the media 
     practiced self-censorship (down from 50.3 percent in December 
     1997), while 54 percent praised the media for fully 
     exercising freedom of speech (slightly down from 57.5 percent 
     in December).
       Self-censorship is a subtle and insidious influence which 
     is difficult to document and impossible to quantify. Official 
     interference in or guidance of the media is a separate and 
     more disturbing matter. The specter of official interference 
     arose on March 4 when Hong Kong media magnate, Xu Simin, 
     while in Beijing as a delegate to the Chinese People's 
     Political Consultative Conference meeting, criticized the 
     Hong Kong government-funded Radio-Television Hong Kong (RTHK) 
     for airing shows critical of Hong Kong policies. Rather than 
     refute Xu's remarks, Hong Kong Chief Executive Tung Chee-hwa, 
     also on March 4 remarked that ``while freedom of speech is 
     important, it is also important for government policies to be 
     positively presented.''
       Tung's statement sent shudders through many concerned 
     observers in Hong Kong. However, Hong Kong Chief Secretary 
     Anson Chan, who heads Hong Kong's bureaucracy, immediately 
     expressed ``deep regret'' at Xu's remarks, which she branded 
     as ``improper.'' Tung subsequently reassured the public, 
     saying on March 6, ``Of course RTHK has editorial 
     independence. The government and I welcome criticism from the 
     news media, and I think the news media has played a very 
     important role in monitoring the activities of the 
     government.'' We hope that Chief Secretary Chan's defense of 
     RTHK prevails. [In a statement clearly intended to reassure 
     the Hong Kong public, Chinese President Jiang Zemin followed 
     with remarks to the effect that discussion of Hong Kong-
     related issues should take place in Hong Kong, not Beijing.]


          Rule of Law Concerns--Independence of the Judiciary

       A fair and independent judiciary is another critical 
     element of international confidence in Hong Kong's commitment 
     to the rule of law and to its ability to maintain a high 
     degree of autonomy. In general, the Hong Kong judiciary 
     continues to operate independently and without taint of 
     political influence. Judges continue to rule against the new 
     HKSAR government. For example, in a highly publicized case, 
     the courts ruled that the Hong Kong law denying right of 
     abode to illegitimate children of Hong Kong resident fathers 
     (but not mothers) violated Article 24 of the Basic Law, which 
     grants rights of abode without reference to legitimacy or the 
     sex of either parent.
       Within the past three months, however, several incidents 
     have focused attention on the possibility that Hong Kong's 
     highly regarded legal institutions may be vulnerable to 
     Chinese influence. In one case, the government's top legal 
     officer decided not to prosecute a newspaper publisher who 
     was politically well-connected to the mainland, despite the 
     fact that three of the publisher's deputies were charged with 
     fraud and that the publisher herself had been named in a 
     report by Hong Kong's anti-corruption commission. Separately, 
     the Hong Kong government decided not to prosecute the New 
     China News Agency, or Xinhua, for violating Hong Kong's 
     privacy statute, when it failed to respond by the legal 
     deadline to a request

[[Page E988]]

     under Hong Kong's privacy law by a politician for a copy of 
     Xinhua's file on her. Xinhua subsequently asserted that it 
     had no information on the politician, a claim that left 
     most observers incredulous, in view of the intelligence-
     gathering role widely attributed to Xinhua. Chief 
     Executive Tung justified the government's decision not to 
     prosecute Xinhua by saying that Xinhua's actions were only 
     a ``technical breach'' of the statute. [Note: In early 
     April, the Beijing-appointed Provisional Legislature, in 
     one of its last acts before being dissolved, passed a law 
     which classified Xinhua as a body of the ``state'' and 
     thus exempt from certain Hong Kong laws. The implications 
     of this action will be discussed in the Fourth Quarterly 
     Report.]


               The Development of Democratic Institutions

       Hong Kong authorities and political parties continue their 
     preparations for the May 24 election of a new Legislative 
     Council (LegCo). The May elections will be carried out under 
     a new law established under the HKSAR. The new law is 
     controversial because it dismantles key provisions of the 
     electoral reforms put into place by former Governor Patten in 
     1995. For example, it maintains the original formula of 
     twenty LegCo members to be directly elected by popular vote, 
     thirty to be elected by ``functional constituencies'' 
     (initiated by the British in 1985), and ten to be chosen by a 
     special Election Committee. However, the ``functional 
     constituent'' electorate is reduced from approximately 2.7 
     million votes under the 1995 British reforms to about 180,000 
     voters. A voter registration campaign to expand the 
     electorate for the 20 seats subject to popular vote was 
     rather disappointing. A door-to-door campaign resulted in 
     264,000 new voters, but roughly 30 percent of those eligible 
     declined to register. The disappointing response has been 
     attributed to several factors. The complexity of the election 
     system has discouraged many potential voters. Others are 
     simply unfamiliar with or distrust elections. Still others 
     are cynical about their ability to affect the eventual 
     outcome. While others--reflecting Hong Kong's notorious 
     preoccupation with making money--are simply not interested. 
     Despite the widespread dissatisfaction among the political 
     parties with the new election law, none has advocated 
     boycotting the election.


                  Economic and Commercial Developments

       The United States has significant economic interests in 
     Hong Kong. Hong Kong is the home of over 50,000 U.S. 
     citizens. Over 1,100 resident American firms employ 250,000 
     Hong Kong workers, or 10 percent of the workforce. The 
     financial crisis which has buffeted Southeast and East Asia 
     starting in mid-1997 has not left Hong Kong unscathed. 
     Nonetheless, Hong Kong's economy continues to grow, albeit at 
     a slower rate than before. By the end of March 1998, deposits 
     in banking institutions has increased, as has the ratio 
     between the Hong Kong dollar and foreign currency deposits, 
     suggesting that confidence in Hong Kong's dollar and banking 
     system continues to recover unabated. The Hang Seng index 
     remained relatively stable through the first quarter, while 
     inching slowly upward. And, in a further show of confidence 
     in the Hong Kong economy, new residential mortgage loans 
     began to edge back up in January, in both number and value, 
     and positively surged in March.
       Nonetheless, most economic indicators have not returned to 
     their pre-Asian financial crisis levels. Most analysts 
     believe Hong Kong's gross domestic product will grow by only 
     two percent in 1998, compared to the 3.5 percent predicted by 
     the government--and the 5.0 percent and 5.2 percent it grew 
     in 1996 and 1997, respectively. Another trend that bears 
     watching is Hong Kong's growing role as a channel for foreign 
     capital to China. The Chinese companies listed on Hong Kong's 
     stock exchange, which now account for roughly nine percent of 
     Hong Kong's market capitalization, seldom meet international 
     corporate-governance standards. This growing segment of the 
     Hong Kong capital market is expected by some to double in the 
     next ten years. The lack of transparency of these Chinese 
     companies is likely to add further volatility to the market.
       Jeffrey Lam, Chairman of the Hong Kong Exporters' 
     Association, stated that Hong Kong's manufacturing industry 
     still maintains competitive advantages over Asian countries 
     despite those countries' currency depreciations. The 
     financial turmoil has not changed the volume of orders coming 
     to Hong Kong. Despite this good news, however, the 
     unemployment rate for the period December 1997-February 1998, 
     rose to 2.9 percent, the highest in the last 18 months. The 
     total number of unemployed reached 85,000, with the retail 
     trade, hotel, property, construction and garments sectors the 
     hardest hit. The government is considering setting up a 
     retraining program for those laid off. Tourism, which has 
     traditionally depended to a large extent on the growing 
     Southeast Asian middle- and upper classes, has also suffered 
     from the regional financial crisis. Furthermore, if China 
     should succumb to the temptation to devalue its currency, as 
     some skeptics have darkly predicted, Hong Kong would find it 
     very difficult to maintain its current Hong Kong dollar-U.S. 
     dollar peg.


            Intellectual Property Rights and other Concerns

       The most serious U.S.-Hong Kong bilateral trade issue is 
     the continued wide availability of pirated movie, audio and 
     software compact discs and pirated trademark goods. This 
     situation led the U.S. Trade Representative to place Hong 
     Kong on the Special 301 Watchlist in April 1996. One 
     disturbing development in the past year has been a change in 
     the nature of intellectual property rights (IPR) violations 
     in Hong Kong. While retail sales of pirated goods were the 
     primary problem in the past, in recent months, the 
     manufacturing of pirated compact discs has become a 
     significant problem. (Some people speculate that this 
     development is a result of greater IPR enforcement in 
     mainland China.) Hong Kong officials have reiterated their 
     commitment to combating piracy. In addition to stepping up 
     Custom's raids on retail outlets, on March 25, 1998, they 
     passed a new copyright law which, among other things, gives 
     enforcement officials greater ability to control illicit 
     production. [Note: Despite these efforts, the IPS situation 
     in Hong Kong remained sufficiently troublesome to warrant its 
     designation on May 1, 1998 by USTR on the Special 301 Watch 
     List for the third year in a row.]
       The Hong Kong government continues to cooperate fully with 
     U.S. agencies in combating drug trafficking. We note, 
     however, that many of the same favorable factors that make 
     Hong Kong one of Asia's most important financial centers also 
     make it attractive to criminals who wish to conceal the 
     source of their funds through money laundering. Consequently, 
     it is important that the Hong Kong government work with the 
     international community to improve its laws and enforcement 
     in this vital area.
       We are pleased to observe that during the first quarter of 
     1998 we continued to have full cooperation in the area of 
     export control, and no new incidents were reported. The U.S. 
     Commerce Department continued to conduct pre-license and 
     post-shipment checks. And in January, 1998, U.S. and Hong 
     Kong export control officials strengthened their already 
     strong interaction by beginning a new series of consultations 
     on licensing, enforcement and the exchange of information. 
     The latter will include the U.S. sharing information relevant 
     to Hong Kong's new ``brokerage legislation,'' which was 
     passed just prior to reversion. This new legislation will 
     allow Hong Kong's authorities to prosecute people based in 
     Hong Kong who are engaged in proliferation activities outside 
     of Hong Kong.
       We also note that serious concerns have been raised in some 
     quarters about the adequacy of Hong Kong's export control 
     regime and its ability to prevent the transfer of sensitive 
     technology to unintended destinations. [Note: See 
     Congressional Record, May 20, 1998, p. H3559.]


                                 Macao

       Macao, a small Portuguese colony with a population of one-
     half million, will revert to Chinese rule at midnight on 
     December 20, 1999. Like Hong Kong, it will become a Special 
     Administration Region with a ``one-country, two systems'' 
     formula. But Macao faces very different transition issues. In 
     the political arena, Macao will not face the contentious 
     debate that Hong Kong went through over its legislative body. 
     In contrast to Hong Kong's legislative body, the Macao 
     Legislative Assembly elected in 1996 will remain in place on 
     a ``through train'' beyond the December 1999 reversion. But 
     in other areas, there are causes for concern. The Portuguese 
     colonial authorities have not trained and groomed local 
     Macanese to replace Portuguese personnel in many key civil 
     service positions. It also appears that a much smaller 
     proportion of foreigners will remain in Macao, compared to 
     the case in Hong Kong. One would hope that the Portuguese 
     authorities will move with greater speed and resolve to put 
     in place a strong professional local bureaucracy and 
     judiciary, without which Macao cannot be expected to provide 
     the functions required as the territory moves into the 21st 
     century.
       U.S. interests in Macao are by no means as large as those 
     in Hong Kong, but they are nonetheless important. The largest 
     bilateral problem is unquestionably Macao's role as a 
     manufacturing center for pirated goods. The production of 
     pirated compact discs is a particularly significant problem. 
     According to knowledgeable sources, in 1997 estimates there 
     were between 80-100 compact disc production lines producing 
     up to 100 million compact discs and movies per year. Although 
     the Macao government maintains that it is committed to 
     tackling the problem, it has been unsuccessful in combating 
     the pirating problem for a variety of reasons. For example, 
     it lacks adequate legislation, enforcement mechanisms and 
     manpower. It was said that the government is drafting 
     legislation for the creation of a full customs service that 
     would take on the anti-piracy function of the economic 
     services department and the maritime police. It is in 
     America's interests that Macanese authorities move forward 
     forcefully. Separately, we note a continuing serious problem 
     with the transshipment of textiles through Macao.
       An even more troubling factor affecting bilateral 
     relations, and, indeed, Macao's entire development, is the 
     disturbing influence of organized crime. Macao-based triad 
     societies, which once contained themselves primarily to the 
     colony's lucrative legal gambling industry, have taken on a 
     more public and more violent persona. Several well-publicized 
     street shootings have driven away some of Macao's important 
     tourist clientele. The triads, now in cooperation with crime 
     elements from across the border in China, are believed to be 
     deeply involved in the production of pirated compact discs 
     and other

[[Page E989]]

     illegal smuggling activities, including the transhipment of 
     drugs and money laundering. Macanese authorities recognize 
     the danger these groups pose to Macao's society and economy 
     and have worked to combat them. The triads have responded 
     with retaliatory attacks against police and other public 
     officials. We applaud the authorities' efforts to combat 
     organized crime. The territory is unlikely to be able to 
     effectively address many of the problems it now faces until 
     it has successfully rooted out this scourge.


                               Conclusion

       ``So far, so good'' continues to be the view of the Hong 
     Kong Transition Task Force. As we noted above, the Asian 
     financial crisis will have a still-to-be determined impact on 
     Hong Kong's economy. As we have also noted, there are 
     continuing concerns within the Special Administrative Region 
     itself, particularly in the areas of freedom of expression, 
     the independence of the judiciary, the development of 
     democratic institutions and the protection of intellectual 
     property rights. Given the complexity of the reversion in 
     Hong Kong, this is, of course, important, but it should not 
     be surprising. Nonetheless, this transition period in Hong 
     Kong warrants the continued scrutiny of the international 
     community and the Congress.

     

                          ____________________