U.S. Dept. of State - IIP: The United States and China

Text: U.S. Consul General Klosson Remarks to Chinese Manufacturers
(Hong Kong's assets will help it survive WTO challenges)

Hong Kong's intangible assets will be just as important as its tangible economic assets in helping survive the competition and challenges presented by China's entry into the World Trade Organization (WTO), says U.S. Consul General Michael Klosson.

In a speech delivered September 28 before the Chinese Manufacturers' Association in Hong Kong, Klosson acknowledged that China's entry into WTO will result in more competition for Hong Kong companies, both from foreign companies and those on the Chinese mainland. "But most analysts believe that there will be significant overall growth in China," Klosson noted. "So, even if Hong Kong's share of the economic pie is smaller in relative terms, it will be larger in absolute terms because the pie itself will be bigger."

"However," he added, "Hong Kong's ability to turn the WTO challenge into an opportunity will depend only partly on its business acumen. It will also depend partly on whether Hong Kong can capitalize on its tangible economic assets -- its geographic location, sophisticated shipping and communications infrastructure, world-class financial system, dual language capabilities, and so on."

"But just as important," Klosson said, "will be Hong Kong's intangible assets. From the international community's perspective, these are the values, principles and institutions that make Hong Kong more than just another city in China. These are the assets that set this Chinese gateway and business platform apart from all the others."

-- The free flow of information - "the lifeblood of business" - with freedom of speech and of the press, openness and transparency.

The U.S. and Hong Kong: Turning Challenges into Opportunities
Remarks by U.S. Consul General Michael Klosson
To the Chinese Manufacturers' Association, Hong Kong
September 28, 2000

It's a pleasure to be with you this evening. The timing of this dinner meeting couldn't be better. Just last week, the U.S. Senate joined the House of Representatives in passing Permanent Normal Trade Relations (PNTR) for China. That event marked the culmination of a long and difficult process -- first the tough but ultimately successful negotiations between the U.S. and China on the WTO accession agreement, and then the internal debate within the United States about the merits of granting PNTR to China.

President Clinton himself and the entire Administration worked extremely hard to achieve PNTR passage. The debate -- emotional at times -- was ultimately won on the facts: China's entry into the World Trade Organization is good for the United States, and good for the people of China. It's also good for all of China's trading partners as a further boost towards a truly global, rules-based trading system where lower barriers to trade and investment will lead to greater prosperity and, we hope, greater freedom throughout the world.

The PNTR vote is also a positive sign for U.S.-China relations after the difficulties of the past year and a half, and I believe it will be one of President Clinton's enduring accomplishments.

Hong Kong can take pride in the role it played, particularly in its contribution to the debate in the United States. Chief Executive Tung Chee-hwa and Democratic Party leader Martin Lee both traveled to the U.S. during a crucial time. Their thoughtful support for PNTR -- coming from such different perspectives -- helped to reach persons across our political spectrum. Hong Kong's American Chamber of Commerce brought the authoritative voice of the local American business community to Washington as well. In addition, members of Congress visited Hong Kong and saw for themselves the issues at stake as they met here with business, government and community leaders.

Now that the PNTR push is over and China's accession to the World Trade Organization seems to be just a matter of time, it's tempting to conclude the heavy lifting has been accomplished. In fact, our work has only just begun. Written commitments must be translated into action if China and its partners are to reap the benefits of its accession. American and Hong Kong companies, as well as China's trading partners, share a common interest in seeing that happen, and the Clinton Administration plans to marshal resources both in Washington and the field to monitor and respond to developments.

Practical concerns about what this will mean for Hong Kong have also come to the forefront. These concerns are understandable. So much of Hong Kong's identity -- and economy -- have been tied to the idea that Hong Kong is the gateway to China. What will happen to Hong Kong, and Hong Kong businessmen like yourselves, when the mainland's other gateways open wider? What will be the impact on Hong Kong as Shanghai strives to regain its former prominence? Will Pudong become the new Central? What must Hong Kong do to seize the moment?

Of course, no one knows for certain what the long-term effects will be. But our sense, from analyses we have read by the various chambers here and by the Hong Kong government, is that China's entry into the WTO will produce a net gain for Hong Kong. It's true there is likely to be more competition for Hong Kong companies, initially from other foreign companies and then also from mainland ones; some further reduction in the SAR's role as a gateway to the mainland; and some changes in the employment mix. But most analysts believe that there will be significant overall growth in China. So, even if Hong Kong's share of the economic pie is smaller in relative terms, it will be larger in absolute terms because the pie itself will be bigger.

An important key to how this ultimately works out will be the adaptability and flexibility of the local business community. And if history is any guide, I have to be optimistic. Entrepreneurs such as yourselves are prime examples of the kind of nimbleness that Hong Kong has shown in the past and will need to summon in the future.

In the 1960s and 1970s, when I first came to this city, it was a low-cost manufacturing center. This is where you made the clothes and toys and consumer goods for the world market. When production costs rose, making your companies less competitive, you took advantage of China's opening up by shifting labor-intensive work to the mainland, and elsewhere.

Hong Kong adapted, though it wasn't easy. In the 10 years between 1984 and 1994, 443,000 manufacturing jobs moved across the border. Most workers were eventually re-employed in the growing service industries, while the high-end manufacturing jobs and head office operations remained here. "Made in Hong Kong" became "Made for Hong Kong" in the sense of made for Hong Kong owners or managers for the global market place. Hong Kong exploited its strategic location and communications hub to become an operations center for manufacturing done elsewhere, a center for international business, and a financial center.

In the past few months, I've visited some of those factories in Guangdong, and I have to say, they were very impressive. The ones I saw were world-class facilities where innovative manufacturing processes have been designed to squeeze in every last ounce of efficiency, and where due consideration has been given to good conditions for the workforce. While I'm sure there are other Hong Kong companies with less desirable practices, my point is that Hong Kong can and does help bring good management and other modern practices to places beyond its borders, while cementing this city's role as a marketing and management hub.

So, I think you can face the challenge of China's WTO accession with confidence. Not overconfidence -- because you'll need all the nimbleness, creativity, flexibility and entrepreneurial smarts you can muster. But confidence in your ability to adapt to yet another new competitive challenge.

However, Hong Kong's ability to turn the WTO challenge into an opportunity will depend only partly on its business acumen. It will also depend partly on whether Hong Kong can capitalize on its tangible economic assets -- its geographic location, sophisticated shipping and communications infrastructure, world-class financial system, dual language capabilities, and so on. But just as important will be Hong Kong's intangible assets. From the international community's perspective, these are the values, principles and institutions that make Hong Kong more than just another city in China. These are the assets that set this Chinese gateway and business platform apart from all the others.

In order for Hong Kong to turn the WTO challenge into an opportunity, these assets will have to be protected, nurtured and strengthened. I think five of them are truly key.

The first of these assets is rule of law, the foundation upon which business is conducted. Hong Kong witnessed controversy on this issue over the past 18 months and its vehemence reflected how much people care about this principle. Looking towards the future, protecting this asset needs to remain a primary consideration whenever Hong Kong takes up the still-unfinished tasks in the Basic Law, most notably those contained in Article 23.

The second asset is Hong Kong's excellent record in combating corruption over the past two decades. Corruption drives up costs and causes economic distortions. It adds uncertainty to the business environment. Not only has Hong Kong avoided these negative factors, it created a climate that attracts new business -- and new business means more jobs and more money for Hong Kong.

The third asset is the free flow of information -- freedom of speech and of the press, openness and transparency. Information is truly the lifeblood of business, a vital necessity for decision-making and the rational allocation of resources. It's also the fountain of credibility for public institutions.

I have heard many comments about the press here in Hong Kong. But ask yourselves this: Who would still not prefer the bold headline or critical story over the manipulation of markets, corrosive abuse of power, and public cynicism that runs rampant when the press is not free?

Hong Kong's fourth asset is its respect for human rights and personal freedom. There are those who argue that human rights should take a back seat to economic development. But history has shown clearly that there is no trade-off. The two go together.

The fifth asset is Hong Kong's progress toward representative government. The recent elections for the Legislative Council were a further step, as those who voted made clear they wanted their voices to be heard, despite LegCo's [Legislative Council of Hong Kong] substantial constitutional limitations. We congratulate the people and government of Hong Kong for the open and free manner in which the elections were held.

However, there have been some who seem to think that democratization is bad for business. Based on our own history and the record of the American economy -- which, by the way, we do not insist is a model for all -- we would have to respectfully disagree. Now, there's no question that politics can be noisy. In recent months we've seen attacks on the Executive, sensationalistic press reports, officials caught up in scandals and negative campaign slogans -- and here I'm speaking about the United States!

My point is that these kinds of things are a normal part of the political give-and-take in democratic societies. Representative government is relatively new in Hong Kong, so it's understandable that debate and controversy make people uncomfortable. But the emergence of open, pluralistic politics in Hong Kong is a healthy sign, and one that should be welcomed because it can help government to be more responsive and accountable to the people. And that sort of responsiveness contributes to stability over the long run by anchoring government leadership and initiatives in the bedrock of public support. After all, discussion and debate bring people's concerns to the surface, frame issues, identify common ground and thus strengthen the community.

Protecting these five intangible assets is not only good for Hong Kong but good for China as well. A vibrant Hong Kong can contribute to China's prosperity and pride by continuing to be a world-class international city. A vibrant Hong Kong can continue to be a source of talent, capital, and experience as China commits to joining the rules-based international community. And finally, most importantly of all, it can also show the mainland a preview of its own potential future -- a way forward toward prosperity that rests on openness, rule of law, and clean dealings.

What is the U.S. interest in all this? American business has a huge stake in Hong Kong. More than 1,100 U.S. companies operate here, and American direct investment totals 21 billion U.S. dollars. Also, 50,000 Americans call Hong Kong home. Our ties go back over 150 years.

But there's room for further growth. American small and medium-sized enterprises in particular are interested in finding Hong Kong partners, such as yourselves, as they contemplate their leap into the China market, and we at the Consulate will continue our efforts with you and other Hong Kong businesses to identify and broker those partnerships, as we did this week with a trade mission led by the Governor of North Dakota.

As China enters the WTO, opens its economy and plays by the rules, I foresee a further strengthening of the U.S. partnership with Hong Kong. The challenge of China's entry into the WTO is truly an opportunity for us both.

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)