[Congressional Record Volume 144, Number 84 (Wednesday, June 24, 1998)]
[Senate]
[Pages S7032-S7034]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        HONG KONG ONE YEAR LATER

 Mr. BAUCUS. Mr President, as the first chapter of the Analects 
of Confucius says, ``is it not a great joy when friends come from far 
away?"
  This week we have had the pleasure to welcome two good friends to 
Washington--President Kim Dae-jung of the Republic of Korea, and Chief 
Secretary Anson Chan of the Hong Kong Special Administrative Region.
  And today, as President Clinton prepares to make the first visit of 
any sitting President to Hong Kong, I would like to offer some thoughts 
on the events of the past year in Hong Kong.
  Let me begin with some context. When we speak about Hong Kong, we are 
really talking about three different Hong Kongs.
  One Hong Kong is Hong Kong itself: a city of six million people on 
China's southern coast. It is a place of hard work, good humor and open 
debate; one of our major Asian trading partners; the site of $15 
billion in direct American investment and the base for much of our 
business in China; a site for 60 Navy port calls a year; a place many 
of

[[Page S7033]]

us have visited and where our country has many friends.
  A second Hong Kong is part of China. This Hong Kong, emerging from 
150 years as a Crown Colony to become the Hong Kong Special 
Administrative Region, can play a unique part in China's future 
history. It combines a living western intellectual and legal heritage 
with a Chinese identity, and as such offers Chinese reformers a model 
for the rule of law and an open society, as well as for economic and 
financial management. And of course Hong Kong also plays a unique part 
in our own broader relationship with China.
  And a third Hong Kong is the financial and management hub of a vast 
productive region which extends from southern China to Southeast Asia. 
And so Hong Kong is also bound up with our economic and trade 
relationship with most of Asia--and in particular the financial crisis 
which afflicts so many Asian nations this year.
  In summary, history has placed a very heavy responsibility on Hong 
Kong and its people--for the management of their own city; for China's 
future; and for Asia's prosperity.
  How have they managed these responsibilities since the Union Jack 
went down and the Bauhinia went up last July 1st?
  Here I will quote the very succinct view of an American businessman 
based in Hong Kong, who came to see me back in February:
  ``Everything we thought might be a problem is not a problem. 
Everything we assumed would be fine has become a problem.''
  He was referring, of course, to politics and economics. Last year at 
this time, many were worried about Hong Kong's political future, asking 
whether Chinese sovereignty would mean a controlled press and 
repression of political debate. Few saw any threat to its economic 
future. And what have we seen since?
  Hong Kong residents retain and exercise their rights. The Hong Kong 
Alliance holds regular commemoration of the Tiananmen Square massacre. 
Han Dongfang's China Labor Bulletin and the Human Rights Monitor 
operate just as before. All are freely and widely covered in the Hong 
Kong press--as are American China policy debates, the recent interview 
given by the Chinese political reform advocate and former political 
prisoner Bao Tong, and much more.
  Hong Kong's elections of May 24th went off more freely and its 
results were more interesting than anyone might have expected. Turnout 
rose from 35% in 1995 to 55% this year. The Democratic Party, along 
with the other parties which opted out of the Provisional Legislature, 
participated and did brilliantly. Equally interesting, the success of 
the Democratic Alliance for the Betterment of Hong Kong, traditionally 
identified as a ``pro-Beijing'' party, may point toward the eventual 
establishment of a two-party system in Hong Kong.
  And China has, as far as I can tell, kept its promises to stay out of 
the Hong Kong government.
  These facts, I believe, disprove two theories. After this election, 
nobody can now pretend that Hong Kong people are indifferent to 
political rights and elections and care only about money. Likewise, 
after the election, the view that China has malevolent intentions and 
will inevitably crack down on Hong Kong seems naive at best. And 
although one year is a short time in which to judge, the facts also 
tend to show that the one-country, two-systems idea may work. And it is 
a disappointment, but not a surprise, to see that none of last year's 
doomsayers have stepped up to the plate and admitted they sold Hong 
Kong--and China--short.
  Unfortunately, what they should have been selling short was not Hong 
Kong--nor its government, nor its citizens, nor the Chinese 
government--but the Hang Seng Index. And those of us who were 
optimistic about Hong Kong's prospects last year should also admit that 
we didn't get it quite right. The things we felt would not be a 
problem--Hong Kong's economy--has become not only a problem but a 
crisis.
  I last visited Hong Kong in May of 1997, as the last stop on a trip 
that also included Seoul, Pyongyang and Beijing. At that time, the 
Koreans were worrying about a slowdown in growth rates--maybe to 5.5% 
or 6%--and some scandals in the chaebols. And The Economist magazine 
ran a cover story on financial problems in Bangkok. And in Hong Kong, I 
asked a few people what might show that the transition was going 
wrong--and a few said that one clue might be a speculative boom in the 
Hong Kong markets. Not a single person I met--and that includes 
American diplomats, tycoons, civil servants, Chinese dissidents, 
legislators from the Democratic Party, the Citizens Party and the 
Liberal Party--predicted that the economy might go wrong.
  What has happened since?
  We need no longer worry about a speculative boom in the markets. The 
Hang Seng is down from nearly 16,000 then to below 8,000 this week.
  Hong Kong is in its first recession ever, with growth at negative 2% 
so far this year. Some predict that the contraction could be 5% or 
worse.
  Unemployment is already at 4% and will rise in the months ahead.
  This, ironically enough, has overshadowed the political divisions in 
the new Legislative Council, to the point that the Democrats, the DAB, 
the Liberals and other parties have come together to criticize the 
government's budget and push for emergency economic relief.
  Why has this happened? The answer is obvious. The problem is not the 
Hong Kong economy per se--its properties may have been overvalued, but 
the real problem is the crisis affecting every country around Hong 
Kong. When a typhoon blows, everyone feels the wind and rain.
  In summary, Hong Kong is a territory whose politics are in better 
shape, and whose economy is in worse shape, than anyone guessed last 
year would be possible. And with that let me now turn from the lessons 
of the past year to the issues we must address, together with Hong 
Kong, in the next.
  Our interest is clear: a prosperous, healthy Hong Kong whose politics 
are free and open, which integrates peacefully with China, and which 
continues to play its part as the center of a prosperous Asian economy. 
And to secure this interest, we need three things: first, a solution to 
the Asian financial crisis; second, a working relationship with China, 
especially in the field of economics and trade; and third, a continued 
good relationship with Hong Kong's government, political leaders and 
people.
  And let me begin with the first of these. When a typhoon blows, 
people feel the wind and the rain. But they also tend to see, perhaps 
more than they might in easier times, that they need to work together. 
We see that in Hong Kong's Legislative Council today. And we see it on 
a larger scale, as the crisis has brought together the countries 
hardest hit by the crisis, Hong Kong and China, Japan, and we 
ourselves.
  The affected countries--particularly Thailand and Korea--have acted 
with a great deal of courage and good sense. And as bad as the times 
may be, their approach is working. In the last few months their 
currencies have stabilized and capital flight ended. The task now is no 
longer stopping a panic, but restoring financial health, enduring 
recession and protecting the most vulnerable people. Indonesia, with an 
even more difficult economic situation and a weaker political 
system,thus far, has weathered an even more difficult situation with a 
weaker political without descending into violence.
  China and the Hong Kong Special Administrative Region have responded 
admirably. Hong Kong's refusal to devalue the dollar last October did 
more than any single other action, anywhere in the world, to prevent 
the crisis in Southeast Asia and Korea from becoming a meltdown. And 
China's refusal to devalue the yuan since then has allowed markets to 
recover and begin acting more rationally. The proof is that the 
revolution in Indonesia, as earthshaking an event as that is, has not 
created a new currency panic. And continued commitment by China and 
Hong Kong will make sure that the worst-affected countries can get back 
on their feet.

  This will impose tremendous strain on China in the months to come, 
because China is in no way immune to the crisis itself. The Central 
Bank Governor, Dai Xianglong, said yesterday that while China will 
stick to its commitment not to devalue:
  ``The economic adjustment in Southeast Asia and the sluggish Japanese

[[Page S7034]]

economy, particularly the depreciation of the yen, have all produced a 
very negative impact on China's imports, exports and inflow of 
investment funds, and increased pressure on the restructuring of our 
country's economic system.''
  This points to the need for rapid action in Japan to pass its fiscal 
stimulus package and perhaps to go further to prevent recession. In 
this crisis, Japan should be importing and growing; if it slumps and 
devalues its currency we can expect the situation to worsen.
  And we in the United States must act sensibly and seriously. Our open 
market is as important to recovery as the currency commitments by China 
and Hong Kong. So far, we have not given in to fears or temptations to 
reduce imports as our exports to Asia have fallen, and that should 
continue. We must pass our IMF replenishment, as the Senate has done. 
And we should give a strong endorsement to China's MFN status. As Ms. 
Chan said on arrival to the United States, revoking MFN status:
  ``[W]ould not only deal a devastating blow to business confidence in 
Hong Kong when we are grappling with the fallout from the regional 
turmoil, it would also undermine our ability to continue to play the 
role of firewall in the Asian financial crisis. Eventually it would 
take away a powerful line of defense in the economies of the region. 
None of us, including the United States, can afford another wave of 
uncertainty.''
  As this comment indicates, our annual debate over MFN status has 
become a pointless and essentially destructive affair. It does nothing 
to promote human rights, political reform or better security policies 
in China; instead it threatens jobs here and economic stability in Hong 
Kong and China. And that brings me to the second point: our economic 
relationship with China, and in particular to China's accession to the 
WTO.
  As Governor Dai's comments indicate, China is by no means immune from 
this crisis. Its growth rate has fallen; its export growth rates 
dropped by nearly half; and foreign investment in China is off. These 
are some of the early warning signs we saw in Southeast Asia two years 
ago. And that should worry us--because today's China is not so 
different from yesterday's Southeast Asia.
  China has some advantages that its neighbors lacked. It has more 
fixed investment, less short-term debt, and larger foreign currency 
reserves than its neighbors. But it also has many of the problems they 
had before the crisis. We see a level of bad debts about the same, or 
even higher, as Thailand had before a year ago. We see nepotism, 
corruption and intimate ties between big business and the state; 
politically directed loans to unnecessary industrial policy projects in 
fiber optics, semiconductors, autos, and other areas; property bubbles 
in the big cities; foreign investment dropping; and early signs of an 
economic slowdown that could worsen if the Asian crisis deepens. And 
all this is combined with a brittle political system, intolerant of 
opposition and with only a weakly developed rule of law, that in the 
event of crisis may not offer China the flexibility it needs to get 
through economic difficulties without a social upheaval.
  Part of the answer must be political reform. China has a good 
example, inside its own political borders, with Hong Kong's strong rule 
of law and open society in a Chinese society; and when the one-country, 
two-systems formula comes to an end in 2047, political development in 
China may be its most important legacy. but in the short term, the 
economic reforms WTO accession will bring are equally crucial for 
China's economic health.
  WTO accession, on the commercially meaningful basis we should expect, 
will reduce subsides and break the links between ministries and their 
semi-privatized profit-making offspring. Promote open competition at 
the expense of rigged markets. And strengthen the rule of law. This 
will produce a more rational economy which is more open to imports; has 
less interference by ministries in the market; which is run more by the 
rule of law than by informal connections; and offers more freedom for 
ordinary Chinese to determine their own future. And in the long run it 
will help ensure that China has a stable, sustainable economy.
  So as President Clinton's state visit approaches--and in its 
aftermath if necessry--we should push as hard as we can to reach a 
commercial meaningful agreement. We must not accept less than we 
should; that would be unfair to our own country and it would mean 
little to China. But we should work hard to get the job done right. And 
of course, when it happens we should live up to our responsibilities by 
granting China permanent MFN status.
  Finally, let me turn back to the first Hong Kong--the one that is 
simply a city.
  A year after the transition, Hong King faces and extraordinary array 
of challenges. It is at the eye of an economic storm worse that any 
Asia has faced since the Vietnam War. It is adapting to a political 
role unique in China and probably unique in the world. And its own 
government and constitution are very new.
  These challenges might bring a lesser city to its knees. But Hong 
Kong has handled them about as well as anyone could have. And beyond 
that--as far as I can tell from ten thousand miles away--it has grown 
because of them.
  Last May's election, to me, indicates that the ordinary Hong Kong 
people understand how important a responsibility history has given them 
this year. The qualities we have always associated with Hong Kong--hard 
work, good humor, honest government--have been amplified by growing 
civic responsibility, democratic participation and political maturity.
  In summary, a year after the transition, Hong Kong has defended its 
rights; acted to good effect in an economic crisis; and can look ahead 
with confidence. And as President Clinton prepares for the first visit 
any sitting American President has ever made to Hong Kong, he is going 
to a city whose future is bright.

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