TEXT: U.S. CONSUL GENERAL BOUCHER 3/24 SPEECH ON HONG KONG AND ITS
ROLE IN REGION
(Hong Kong can play a key role in regional recovery)
Washington -- Hong Kong, which has long been an example for the rest of China, stands as an example for all of Asia, as proven by its ability to weather the regional economic crisis, according to Richard Boucher, American Consul General for Hong Kong.
Speaking before the Asia Society in Washington, D.C. on March 24, Boucher said Hong Kong's "ability so far to have weathered the regional economic crisis is in many ways a testament to the success of the tested principles ... rule of law, free market, free flow of capital and information, and clean, non-interventionist government.
Even though Hong Kong has not been left untouched by the economic storms that began buffeting the region in 1997, "Hong Kong can play an important role in recovery as an investor in manufacturing in many of the affected countries, and as a place to raise capital to finance recovery," Boucher said.
Boucher listed some of the factors which enabled Hong Kong to fare far better than most of its neighbors. For instance:
-- Hong Kong has foreign exchange reserves of over $98 billion, the third largest in the world, and no official foreign debt;
-- Hong Kong's current account is roughly in balance, and its budget this year will be in surplus to the tune of $1.38 billion;
-- The regulation of Hong Kong's financial markets on the whole has shown itself to be sound and sophisticated;
-- Hong Kong continues to rely on free-market principles, transparency and competition.
"When we stop and look at what the real effect of the crisis has been on Hong Kong," Boucher said, "we find a number of outcomes that are quite positive. First, the bubbles in Hong Kong, especially inflated property and some stock prices, have been adjusted in the fall. Hong Kong gains in competitiveness as the price of real estate goes down.
"More fundamentally, Hong Kong's faith in free markets has been reaffirmed. Its experience has proven that, although countries cannot isolate themselves from regional or global financial woes, sound policies can limit the impact of negative effects from outside."
Commenting on Hong Kong's return to Chinese sovereignty, Boucher said: "It's too soon to pass final judgment on whether those promises will be kept in the long term, but Hong Kong is off to a very good start.
"The right precedents are being set. So far, people's basic liberties have been maintained, and peaceful demonstrations against the government are a regular feature of political life.
"The press remains free, although there is a persistent impression among press and public alike that some editors or reporters are censoring themselves, particularly when it comes to news about China, or issues like Taiwan and Tibet about which Beijing is known to be sensitive. Yet, on those occasions when press freedom in Hong Kong has seemed openly threatened, public opinion has made itself known in no uncertain terms, and always on the side of editorial independence and free expression of differing views."
Following is the text of Boucher's remarks, as prepared for delivery:
(begin text)
ADVANCING U.S. INTERESTS IN HONG KONG AND ASIA:
BEYOND TRANSITION AND CRISIS
REMARKS BY CONSUL GENERAL RICHARD A. BOUCHER
TO THE ASIA SOCIETY, WASHINGTON CENTER
THE WILLARD INTER-CONTINENTAL HOTEL
MARCH 24, 1998
It's a pleasure to be back in the United States and to have an opportunity to speak to you today.
When we reach the end of March, nine months will have passed since Hong Kong returned to Chinese sovereignty. If you cast your mind back to June of last year, you may recall the anticipation and even apprehension with which everyone interested in Asia was looking toward that event. The media were intensely focused on the handover -- all the major U.S. commercial television networks had their star anchors in town to report on it. But over these intervening nine months, Hong Kong's transition has not attracted very much news coverage in the United States. You've heard about plenty of other things: bird flu and financial crisis especially.
What I'd like to do today is to report to you on how Hong Kong is doing, viewed from the special angle of how U.S. interests there are doing. And beyond that, I want to look at Asia as a whole, as seen through the particular prism provided by Hong Kong, and the roles both the U.S. and Hong Kong can play vis-a-vis the larger Asian financial crisis.
Hong Kong has a key role to play in the economies of Asia and especially of China. Hong Kong has an unmatched ability for making deals happen, for putting together the marketing opportunity, the technology, the manufacturing center, the finance and the coordination that make deals work, often across several borders and many time zones. Hong Kong entrepreneurs have turned the city into an international 'packager' for trade and investment, everything from Beanie Babies for the US to toll roads in China or Southeast Asia.
In contrast to many of its neighbors, Hong Kong has based its success not on government intervention, but on its very opposite: a free society and free markets. The principles that have made Hong Kong a success are: strict adherence to the rule of law and the rules of the market; a free flow of information, capital, and goods; and clean, efficient, non-interventionist government.
Before Hong Kong's handover, the big question was whether this formula for success would be changed. No one was sure whether Hong Kong would actually be allowed to enjoy the high degree of autonomy -- in all areas except foreign affairs and defense -- which it had been promised in the 1984 Sino-British Joint Declaration and in the Basic Law passed in China in 1990.
It's too soon to pass final judgment on whether those promises will be kept in the long term, but Hong Kong is off to a very good start. The right precedents are being set. So far, people's basic liberties have been maintained, and peaceful demonstrations against the government are a regular feature of political life. The press remains free, although there is a persistent impression among press and public alike that some editors or reporters are censoring themselves, particularly when it comes to news about China, or issues like Taiwan and Tibet about which Beijing is known to be sensitive. Yet, on those occasions when press freedom in Hong Kong has seemed openly threatened, public opinion has made itself known in no uncertain terms, and always on the side of editorial independence and free expression of differing views. The official Chinese representatives who arrived in Hong Kong at the time of the handover have kept a low profile, and have given a very strict interpretation to their instructions not to intervene in Hong Kong's local affairs. The People's Liberation Army, which many of you saw on CNN being trucked into Hong Kong on the night of the handover, have rarely been seen since. They stick to their garrisons. Public order in Hong Kong is maintained not by the PLA, but by the same police and law enforcement agencies that carried out those responsibilities before the transition.
Make no mistake, we remain concerned about the disbanding of the previously elected legislature and about some aspects of the election system. However, a new election is being held on May 24. All the parties, including the strongest defenders of democracy, are gearing up for the elections. Despite the odds, the democrats will get seats and a voice in the future of Hong Kong. For our part, we are encouraging the continued democratic development of Hong Kong's institutions just as fast as the Hong Kong people desire. That is one of the keys to ensuring good government into the future.
On the economic front, Hong Kong maintains its own membership, separate from China's, in international organizations, including the key places where open trade policies are formulated: the World Trade Organization and the Asia-Pacific Economic Cooperation forum. Hong Kong speaks out in its own behalf. We have found Hong Kong's voice in harmony with ours in support of free trade and the elimination of procedural red tape.
The Hong Kong government has maintained excellent relationships with all the major law enforcement agencies of the U.S. government. Together, we fight criminal activities such as drug trafficking and money laundering, counterfeiting, credit card fraud, and illegal immigration. Hong Kong Customs has seized cars stolen from the United States, which end up in containers on the docks of Hong Kong. Hong Kong has also been scrupulous about enforcing laws on export controls, even seizing a Chinese armored personnel carrier that turned up without proper paper work, bound back to China.
We can truly say that Hong Kong people -- from the new Chief Executive to the same high-quality civil servants -- are running Hong Kong. Important administrative and legal precedents supporting Hong Kong's high degree of autonomy are being set, and most of them are on the mark. And once the new Legislative Council is elected this coming May and the current Provisional Legislative Council is no more, the most blatant impediment to the growth of democratic institutions in Hong Kong will have been removed.
So if you came to Hong Kong in the coming months -- which I hope many of you will -- you would see a city that is largely unchanged since July 1, 1997. The most visible difference is that new flags are flying from public buildings. And one of the factors that hasn't changed is the involvement of the United States in Hong Kong -- both officially and by the private sector. This past December, the annual American Chamber of Commerce survey of business confidence among U.S. companies showed that 96 percent of American business people felt optimistic about Hong Kong's future, and about their future in Hong Kong. The number of Americans in Hong Kong is now close to the 50,000 figure; we estimate that it has doubled in the last five years.
All of the indicators of U.S. involvement remain stable. This includes our commercial and financial relationships; government-to-government law enforcement cooperation; and the continuation of U.S. Navy port calls. It includes over 150,000 Hong Kong people traveling to the U.S. each year to visit family members, wrap up business deals, and enjoy a vacation. It encompasses about 14,000 Hong Kong students who are studying in the United States at any one time, and tens of thousands of U.S. university alums who have returned to live and work in Hong Kong.
So it's all sweetness and light, right? Not exactly. There are plenty of issues, important issues, coming up for Hong Kong and for our interests. Across the board, our primary interest is that people in Hong Kong decide these issues for themselves, without interference and in keeping with the traditions which have made Hong Kong successful. The first issue is the elections and the question of how democracy evolves in subsequent elections in the year 2000, 2002, 2004, 2005, 2007 and beyond. Second is a law to be passed on sedition and secession that we hope will not impinge on freedom of expression. Third are the court cases, in which Hong Kong's common law courts will have to decide how to interpret the new system. Fourth are some of the panoramic issues: how does China change and what role does Hong Kong have in that process?
That brings us to the hard part: economic turmoil. Because of its role as a financial center, Hong Kong is a focal point for responding to the ongoing financial turmoil that is afflicting so many of its neighbors in Asia. Hong Kong has not been left untouched by the economic storms that began buffeting the region during the last half of 1997. Its stock market fell 50 percent last fall, and remains about 35 percent below its high. Property prices, tourism levels, and retail sales have all dropped sharply. Hotels and restaurants have seen their business decline as fewer foreign visitors arrive, and local people pinch their pennies a bit tighter. There have been speculative attacks against the Hong Kong currency's 'peg' to the U.S. dollar, and overall economic growth is expected to slow this year.
Nevertheless, Hong Kong has fared far better than most of its neighbors, and can be expected to recover sooner than they will. Its economic management and the fundamentals of its economy have proven sound. Here are some factors to keep in mind:
-- Hong Kong has foreign exchange reserves of over $98 billion, the third largest in the
world, and no official foreign debt;
-- Hong Kong's current account is roughly in balance, and its budget this year will be in surplus
to the tune of $1.38 billion;
-- The regulation of Hong Kong's financial markets on the whole has shown itself to be sound
and sophisticated;
-- Hong Kong continues to rely on free-market principles, transparency and competition.
When we stop and look at what the real effect of the crisis has been on Hong Kong, we find a number of outcomes that are quite positive. First, the bubbles in Hong Kong, especially inflated property and some stock prices, have been adjusted in the fall. Hong Kong gains in competitiveness as the price of real estate goes down. More fundamentally, Hong Kong's faith in free markets has been reaffirmed. Its experience has proven that, although countries cannot isolate themselves from regional or global financial woes, sound policies can limit the impact of negative effects from outside. Hong Kong's reputation as an economic center and its financial autonomy from the central government has actually improved because of the way it has been able to handle the downturn. While the property, finance, tourism and retail sectors have been hit hard, there has been less of an effect on manufacturing, construction, shipping, the service sector, and trade. The need for effective prudential supervision of financial institutions has been made clear, and is likely to result in an even better supervised market in the future.
So Hong Kong has been able to maintain its position as an important financial center for Asia, and as a prime capital market for Chinese reform. When one looks at the Asian financial crisis from Hong Kong, it is clear that each country affected has its own story -- while there are some common threads, each economy has its own specific characteristics as well. The common problems lay in protection, privilege, and corruption. As Treasury Secretary Robert Rubin observed in his March 2 remarks before the Institute of International Bankers, all affected countries '...had close links between governments, banks and corporations which led to fundamentally unsound investments by corporations financed by unsound lending by banks. Moreover, financial systems had inadequate financial regulation and supervision, financial institutions lacked transparency, which masked the extent of the problem, undercutting the effectiveness of market discipline...'
The reforms being promoted by the International Monetary Fund are designed to address these weaknesses and are essential to full recovery in the region. The IMF possesses an incomparable wealth of expertise, technical skills, and financial resources. The IMF, contrary to what some might argue, has offered not austerity programs, but rather structural and financial reform assistance to those who have requested it. These are tailor-made programs designed to strengthen the banking system, increase transparency and supervision, implement appropriate fiscal and monetary policies, and to open markets. The net result of these changes is to allow markets, rather than political considerations, to direct and value investments. The IMF also has the ability to make available temporary financial assistance to give countries breathing room to restore confidence in the local economy. Reform is neither instant nor painless. Only when nations themselves adopt a serious posture towards economic and political reform, will confidence and private capital return to facilitate growth.
Nearly one-third of U.S. exports go to Asia -- more than we send to Europe. We contribute to the region's security through the more than 100,000 U.S. troops based in the region, 37,000 in Korea alone. Because the United States is a major provider of funds to the IMF, there has been considerable recent debate in Congress and elsewhere about whether we would be sending good money after bad to make further contributions to the IMF's programs for Asian recovery. I think it is becoming clear that in today's highly interconnected world, it is specious to treat the U.S. economy and the Asian economies as separate entities that have no effect on each other. We should not look at IMF programs as a handout to others, but as a defense of our own long-term interests. Asian jobs affect American jobs. Asian wealth affects American wealth. And Asian stability affects American stability. We have no choice but to exercise our leadership, leadership that derives as much as anything from the fact that we are the world's largest economy, leadership that derives from our own interests in economic vitality, just as we lead to protect our own interests in security.
That is why U.S. policy makers since the beginning of the crisis have focused their efforts on mobilizing -- and leading -- an internationally coordinated response to rebuild confidence in the region. Our aim is to find solutions which ensure an economic recovery which is comprehensive, structurally sound, and sustainable. Interdependence means we must work on an urgent basis with affected governments, the International Monetary Fund and other international financial institutions, the private sector, and the international community as represented by the G-7, the Asia-Pacific Economic Cooperation forum, and other organizations.
As the region recovers from the downturn, China is bound to be an important player. That massive country is currently undergoing great reform and charting a truly revolutionary economic course for itself. It is planning fundamental restructuring of state enterprises that have formed the backbone of its economic system for fifty years. A likely consequence is a sharp rise in potentially destabilizing unemployment. It is also in the process of organizing its banking and financial systems. In the face of Asia's financial crisis, it has pledged not to devalue its currency, the yuan, despite the fact that doing so would make it more competitive with many of the nations whose currencies have fallen since last summer.
Hong Kong and China are linked like binary stars: one small and intense, the other large and just finding its glow. Hong Kong is now, of course, a Special Administrative Region of the People's Republic, but its economy has deliberately been kept separate from China's. Among other things, it has and will keep its own convertible currency, its own foreign exchange reserves, its border, its Customs controls, its inspection stations and its international links. Still, as was true before the transition of sovereignty, Hong Kong's prosperity is linked to China's, and vice versa. More than half of the trade between China and the rest of the world passes through Hong Kong. More than half the investment in China, the most dynamic source of growth for China's economy, originates in or comes through Hong Kong. Hong Kong's intimate economic relationship with the mainland has been crucial in the reform of China's systems and China's opening up to the wider world. On the other hand, being China's window on the world has been crucial for Hong Kong's development as a prosperous, cosmopolitan city.
Hong Kong has long been an example for the rest of China, and it also stands as an example for all of Asia. Even though it is essentially just one city of about six million people, it can play a pivotal role. Its ability so far to have weathered the regional economic crisis is in many ways a testament to the success of the tested principles I mentioned before: rule of law, free market, free flow of capital and information, and clean, non-interventionist government. Hong Kong can play an important role in recovery as an investor in manufacturing in many of the affected countries, and as a place to raise capital to finance recovery.
So what does this mean for us? It means that there are opportunities in Hong Kong and in Asia that we need to explore. Asset prices are down, ways of doing business are changing. Hong Kong can play the role of a bridge and a packager, but we also need to go look for ourselves. There are opportunities in each of the countries of Asia, opportunities of different kinds in different sectors, opportunities for acquisitions, manufacturing, and even sales. Hong Kong business can serve as a window, an introduction, a base and a partner in looking at those opportunities.
Second, we have a role. We can affect the course of events by our cooperation and our involvement, whether from government, civic groups, academics, law enforcement, business, investors -- all the great variety of resources available in the United States. Take a look, get involved, stay involved.
So now, let me bring together the threads of thought that tie up what I have been saying to you today. First, in Hong Kong, Hong Kong people are running Hong Kong as they were promised. Its people have faith in its system and have shown that they are willing to take some risks to maintain their freedoms and their way of life. Everyone knows there are still tough times ahead, but there is a reservoir of confidence that Hong Kong people will be up to whatever challenges come their way. Hong Kong is not just another Chinese city now; it has retained its special atmosphere and character through the transition. It is a different city in China from any others -- one run by the Hong Kong Chinese in a very different way from other cities in China.
Secondly, U.S. interests in Hong Kong are going strong. Our commercial relationship, our excellent law enforcement cooperation with the Hong Kong authorities, our cordial and efficient relationship with the Chinese entities stationed in Hong Kong, serve US interests and provide a base for the future. The Consulate General which I head goes about its activities exactly as it did before the handover, as does the American business community and other Americans living and working in Hong Kong. We are there to help you when you come out.
On the wider stage of Asia and with particular reference to the financial difficulties there, the United States must and has assumed a leadership posture, working with and through the International Monetary Fund and other regional and global organizations. The recovery of Asia is vital to our economic and security interests. The U.S. and Hong Kong each in their own way and on their own scales, have a role to play in this recovery. Everything depends on the implementation of reforms that will eliminate the weaknesses that have been revealed in the afflicted economies. Tough times are still ahead for most of the countries involved, but the future also holds new opportunities in the context of cleaner, more transparent, more market-driven economies.
Thus, in March of 1998, we are in the post-transition era in Hong Kong and can begin to see how that historic change has affected politics, economics, and the people's way of life. We can't truly say that we are in a post-financial crisis period in Asia yet; some countries seem to have already turned the corner, while others still appear unsure of which direction leads to the fullest and most stable recovery. Let us hope that, by March 1999, all the affected countries will be well on the road to economic health, and that their people will be enjoying a better quality of life, one that will be underpinned by true economic strength.
Thank you very much.
(end text)
Return to The United States and China.
Return to IIP Home Page.