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 You are in: Under Secretary for Political Affairs > Bureau of East Asian and Pacific Affairs > Releases > Remarks > 2002 East Asian and Pacific Affairs Remarks, Testimony, and Speeches

One Country, Two Systems, Five Years: U.S. Perspectives on Hong Kong

Michael Klosson, U.S. Consul General, Hong Kong
Remarks at American Chamber of Commerce Luncheon
Hong Kong
June 6, 2002

I am very pleased to have this opportunity to speak with you today in what is likely to be my last major speech in Hong Kong before my scheduled reassignment next month.

It seems like only yesterday when I first spoke to this Chamber in October 1999. But that is Hong Kong -- life lived at fast-forward. So we are coming full circle after three years, although I hope you don't think the Consulate has just been going around in circles during that period!

I have benefited enormously from working closely with the Chamber. I have welcomed your insights, valued your counsel, and looked to you for support. I have also enjoyed your friendship. I have spent more hours with Chamber leaders like Frank Martin -- one of the few constants in this city of change -- and chairpersons Jim Thompson, Paula DeLisle, Dick Kahler, and Jason Felton than with anyone else outside the Consulate.

Over the 5 five years, Hong Kong has witnessed lots of change, but also confirmed important constants. Today, I'd like to look back at developments over the past several years and offer a few thoughts on challenges ahead for a city that I have been associated with for over three decades, albeit much of the time as a "virtual expat."

War on Terrorism

Let me start off, however, with the seismic events of September 11, and the campaign against terrorism. No one will forget the horrific loss of life that day -- victims from almost 80 countries, including China and Hong Kong. Americans in Hong Kong will long remember the warm, spontaneous outflow of sympathy we received from people of all walks of life. And I will long remember the candles outside the Consulate gate and the moving ceremony last September when Americans and Hong Kongers gathered together in City Hall to honor the victims of terrorism.

September 11 was a transforming experience. The unequivocal reaction that day of Chief Executive Tung and other Hong Kong authorities boosted our bilateral partnership. Cooperation between our law enforcement agencies moved into even higher gear. And, as this year's president of the Financial Action Task Force, Hong Kong helped lead that organization to work on cutting off the financial lifeblood of terrorist groups.

We have made great strides against al Qaida, but the campaign against terrorism is far from over. International cooperation, determination, and, as Secretary for Security Regina Ip reminded us recently, continued vigilance are required everywhere.

We look forward to Hong Kong soon enacting legislation introduced in April to criminalize terrorist financing as required by new UN resolutions. We also look forward to Hong Kong's active participation in the "Container Security Initiative." Today, we have a team in town to discuss with Hong Kong authorities how to enhance cooperation between our customs services. In that way, we all can better protect legitimate trade from catastrophic disruption. Hong Kong's position is critical, and vulnerable: As the Number One foreign port-of-origin for U.S.-bound container traffic, Hong Kong each year sends about 1.6 million containers to the U.S.-Hong Kong's cooperation is thus essential to the campaign.

Five Years after the Handover

Turning to the transition, it's hard to believe that 5 years have already gone by. What can we say about the experience? First, Hong Kong remains in the news, sometimes even on the cover of international magazines, and its ups and downs are chronicled in all kinds of ratings. And second, Hong Kong continues to evoke a variety of images.

No matter what images people may have, no matter what the stories and ratings may say, those of us who live here know Hong Kong's reality is more complex. This always-on-the-move city is certainly Chinese, but also still quite international. It is modern, but traditions abound. It was a temporary refuge for many fleeing post-war China, but now is regarded as home by most. It was a place where people lived for decades with their backs to China, but now they have turned around to build a platform for riding China's opening and its economic growth. Hong Kong has been a place that puts business in the driver's seat, but it is no longer just an "economic city": pluralistic and increasingly democratic politics are now part of the mix.

Above all, Hong Kong in its new status remains a work in progress. These remain early days for a novel arrangement that provides for Hong Kong's way of life to remain unchanged for 50 years.

Those of us who live in Hong Kong experience its special status in our daily lives. Hong Kong residents pay no taxes to China. The civil service remains effective and clean. The ICAC goes after wrongdoing wherever it is found, in Hong Kong and mainland companies alike. Newsstands sell publications filled with critical opinions. The Falun Gong, banned on the mainland, remains legal here. Organizations like the Center for Human Rights in China continue to operate here.

But those of us who live here must also acknowledge some bumps along the road, concerns that bear continued watching as Hong Kong's story unfolds. Those events are laid out in State Department reports to Congress, so I won't go into detail. They include the Hong Kong Government's decision in 1999 to seek from Beijing a reinterpretation of the Basic Law. In 2000, P.R.C. officials made statements perceived as pressuring local media. In 2001, P.R.C. and Hong Kong officials issued warnings about Falun Gong activities in Hong Kong, and Hong Kong considered anti-sect legislation. This year, pro-democracy politicians criticized Beijing's early endorsement of the incumbent chief executive as discouraging other candidates from entering the Election Committee vote. Recently, Hong Kong again used its border controls to deny entry to a human rights activist.

Overall, however, the unfolding story of Hong Kong's transition has been a positive one. With some notable exceptions, China has kept its fundamental promise to respect Hong Kong's autonomy. At the same time, the Hong Kong people have demonstrated their continuing commitment to their unique way of life and institutions.

Achievements in U.S.-Hong Kong Relations

In the years since 1997, the U.S. and Hong Kong have significantly strengthened our partnership. High-level visits paint a striking picture: President Clinton visited Hong Kong in 1998, the first-ever visit by a sitting U.S. President, and Chief Executive Tung met the President in Washington three out of the Chief Executive's first 5 years in office. The Chief and Financial Secretaries have visited Washington frequently since 1997, and Antony Leung is there today. During my 3 years in Hong Kong alone, we have hosted visits by six U.S. Cabinet officers, eight governors, and eighteen congressional delegations.

And what has happened to key areas and issues at stake in U.S.-Hong Kong relations? The record is impressive. Let me highlight a few points:

  • Hong Kong was our 15th-largest trading partner in 1997 and retains that position today. Our bilateral trade amounts to roughly $25 billion.
  • We have maintained a productive dialogue on export control matters, and the most recent State Department report to Congress concluded there were no significant problems in that cooperation.
  • In 1997, Hong Kong was on USTR's 301 watch list of jurisdictions with inadequate protection of intellectual property rights. After 5 years and much effort, not only is Hong Kong off the list, it has transformed itself into a regional pacesetter for tough legislation and enforcement.
  • We have worked successfully together in APEC and the WTO to further trade liberalization and to launch a new trade round in Doha.
  • Law enforcement cooperation has been robust. We stepped up our cooperation against criminals when the Mutual Legal Assistance Agreement came into force in January 2000. Since 1997, we have processed 10 Hong Kong requests for provisional arrest and extradition; Hong Kong has processed 36 such U.S. requests. Representatives of our seven law enforcement agencies in the Consulate work intensively with Hong Kong counterparts.
  • Hong Kong has cooperated closely as an important partner in the war on terrorism.
  • Hong Kong Government leaders and Democratic Party Leader Martin Lee played important roles in encouraging Congress to approve PNTR for China.
  • We have expanded our educational exchanges. Just this year, the Consulate teamed with the Research Grants Council to inaugurate the Fulbright Hong Kong Scholar Program administered by the Hong Kong - America Center.
  • Finally, U.S. Navy ships continue to make liberty calls in Hong Kong, which we regard as another expression of its openness as an international city. In fact, over 5,000 U.S. servicemen are in town this week.

I don't mean to suggest we always see eye-to-eye. We have had occasional differences, and there is plenty of unfinished business. One area of unfinished business is air services. We have had five rounds of talks, and we are planning for another round to begin June 18. I hope we will be able to achieve the kind of substantially more liberal air services agreement that would be a win-win for both sides. Such an agreement would benefit consumers and businesses in the U.S. and Hong Kong, expand cargo and passenger flights, and help secure Hong Kong's hub position as regional competition continues to intensify.

Looking Ahead: Four Observations

Well, that's my look back. What about ahead? Much has been written about Hong Kong's prospects as an international city. The Chief Executive has set the ambitious goal of being "Asia's World City." Let me offer some observations on factors that will affect Hong Kong's movement toward that goal.

First, as Hong Kong confronts new challenges, it must do so by building on its past strengths. That means protecting its values and assets, which constitute the bedrock of its past achievements. First and foremost is the rule of law, as this Chamber has also repeatedly emphasized. A stable and transparent legal system with an independent judiciary perceived to be meting out justice fairly is the underlying guarantee of everything else. It is also a decisive competitive advantage for Hong Kong's economy.

We will all watch closely any legal cases and government actions that bear on the future of the common law system here. Three years after the Hong Kong Government's request to Beijing for a reinterpretation of the Basic Law which effectively overturned the Court of Final Appeal's ruling in a right of abode case, the effects still linger. Visitors continue to ask us about it. One can only wonder how international perceptions of the autonomy and independence of Hong Kong's legal system would be affected if this mechanism were to be invoked a second time. We certainly would not want to see any actions that could undermine the finality of the Court of Final Appeal or Hong Kong's judicial autonomy.

Respect for civil liberties is another key asset, especially freedom of belief, speech, press, and assembly. It was Hong Kong's openness and diversity that got it where it is today. Those essential qualities can only thrive where the basic rights that assure them are guaranteed by law and respected in practice. It is the function of democratic governments to protect these rights and accept the idea that the most successful public policies - those that best serve the public interest -- emerge from the give-and-take of criticism, debate, and even opposition and protest. Dissent is not disloyalty, but a spur to innovation and creativity. Protecting these rights, however, is not just the obligation of government. It is also the responsibility of the citizens themselves.

One of the greatest challenges in this area could come if Hong Kong proceeds to enact legislation under Basic Law Article 23 dealing with subversion and sedition. There are fears that this could become a device to limit discussion or activities deemed sensitive to the mainland. This is bound to be controversial.

Although we recognize all governments have a responsibility to ensure adequate laws are on the books to protect their citizenry, the international community, I'm sure, will also be watching any steps forward in this area. It will be essential that the Hong Kong Government ensure that any such proposals are consistent with international human rights standards (embodied in the International Covenant on Civil and Political Rights) and that they are subjected to wide and open public consultation. Hong Kong's international image would be at stake as well if such legislation were perceived to limit politically sensitive activities. Such activities are one of the most credible signs of Hong Kong's continued distinctiveness and constitute one litmus test of its autonomy.

My second observation would be to emphasize the importance of maintaining the balance inherent in the "one country, two systems" arrangement. During the first few years after 1997, the emphasis was on continuity and stability, and avoiding any significant change in Hong Kong's interactions with the mainland. But as time has passed, developments in China and the region have made clear the need for some adaptation in the operation of the "one country, two systems" arrangement. Hong Kong businesses have pressed the Government to streamline traffic across the border, to lower barriers to tourism, and to better coordinate infrastructure developments on both sides. The Hong Kong people, moreover, have developed more positive attitudes toward China over this period as well. So, Hong Kong's moves to engage further its hinterland on the mainland as a source of economic growth are understandable, but they will take the "one country, two systems" arrangement into new territory.

As Hong Kong moves in this direction, it will be essential to strike a proper balance between deeper economic interdependence with China on the one hand and Hong Kong's autonomy and international connections on the other. Suggestions in recent months that only the "one country" can save the "two systems" turn the arrangement on its head. The spread of this idea would be to Hong Kong's -- and I might add, China's -- disadvantage. After all, Hong Kong's foreign trade sector is two and a half times the size of its GDP, and trade with North America, Europe and Japan represents about the same share of total trade as Hong Kong's with China. Turn the focus to domestic exports and Hong Kong's outward orientation becomes even more dramatic. Finally, the Trade Development Council has long recognized the importance of attracting foreign companies, especially small- and medium-sized enterprises, to use Hong Kong as a platform for accessing the mainland. Hong Kong's international connections are thus equally vital to its economy and character, and are central to its ability to contribute to China's development as well.

We have watched with interest such recent initiatives as the proposed Closer Economic Partnership Arrangement with China and suggestions for streamlining the operation of the border through co-location of customs and immigration officials on the mainland side of the border. Both initiatives raise questions for the international community, so it is essential that Hong Kong demonstrate clearly that these changes in the operation of "one country, two systems" will neither weaken Hong Kong's autonomy nor dilute its core values.

My third observation concerns Hong Kong's "international personality," an important attribute of Hong Kong provided for in the Basic Law, but one that doesn't get enough attention in Hong Kong itself. By this, I mean Hong Kong's active participation in such international organizations and arrangements as the WTO, APEC, and World Customs Organization. Hong Kong has spoken with its own voice and made a mark with sound proposals in these areas. Hong Kong, for example, played an important role in brokering the process of consensus-building that launched the new WTO trade round in Doha. Hong Kong's leadership as this year's FATF president, which I mentioned earlier, is another key example.

Five years into the handover, Hong Kong's role on the international scene is regarded as another confirmation of the integrity of the "one country, two systems" arrangement. Hong Kong's participation is noticed and appreciated. Based on my April consultations in Washington, I can vouch that Hong Kong's international role counts for much. In fact, U.S. trade officials observed to me how highly they regard Hong Kong as a player in its own right. So it is important for Hong Kong to continue to project actively its "international personality." Moreover, this works to Hong Kong's advantage. It provides a unique opportunity for Hong Kong delegates to safeguard their local interests.

My last observation concerns governance. Hong Kong's governing structure was established more than a decade ago and served Hong Kong well in ensuring a smooth transition. However, popular expectations have increased, pluralistic politics have emerged, and experience has shown the need to look at the issue of governmental accountability. In response, the Chief Executive has pledged strengthened governance. He is proceeding to implement a political appointment scheme, which is proposed both to project more coherent leadership and to better tap community aspirations.

It will be important for the Hong Kong community as a whole to extend this consideration of improved governance, so that the rising calls for more accountability and transparency will eventually find their full voice in a more democratic system. After all, the Basic Law provides for the gradual expansion of democracy to universal suffrage as the ultimate goal, and we have seen such a trend gather momentum in the region. Given its well-established traditions of the rule of law and respect for civil liberties, coupled with an educated population, Hong Kong seems well positioned to complete the wiring diagram for a fully democratic system.

Some say that Hong Kong is not ready for more democracy, that its political parties, for example, are not sufficiently mature. Even if this were the right yardstick to use, the question then would become how to encourage their maturity. Is that maturity encouraged when a party leader who wins the vote for Chief Executive is required to resign from party leadership before assuming that post? Others say that the political opposition lacks responsibility and thrives on just saying "no." In a system where politicians have the prospect of actually implementing their views, accountability to the electorate could promote more "realistic" and "responsible" policies. It would also promote more informed debate between the government and opposition, which would educate the public on the tough choices often posed in public policy decisions, such as balancing the budget.

Obviously it is up to the Hong Kong people to decide the pace at which they move in the direction of a more democratic system. It did not happen overnight in America. While we support as rapid progress as possible toward greater democratization, we also understand that other people have their own history and cultures, their own opportunities and obstacles, their own dreams and fears, and thus must find their own distinctive path forward.

But the bottom line for Americans, in the words of E.B. White, is to embrace the "recurrent suspicion that more than half of the people are right more than half of the time." We Americans can attest to the tremendous energy, dynamism, and economic vitality that comes from that idea, that comes from unleashing the power of the individual, and that comes from empowering the individual to play a role in shaping his or her own destiny. That undoubtedly contributes to our general optimism and confidence as a nation. Full representation also contributes to stability and strengthens the capacity of government to embark on difficult reforms by anchoring its leadership and initiatives in the bedrock of public support. Our experience --- both positive and negative -- thus provides some food for thought as Hong Kongers reflect on their own future.


Let me bring these observations together and conclude on a theme that has become popular among the pundits -- the mood in Hong Kong in recent months.

There are reasons for anxiety about the future -- especially with depressed property prices, an international economic slowdown, significant changes in the structure of Hong Kong's economy due to globalization, and challenges posed by China's WTO accession.

But to concentrate solely on these anxieties is to ignore an important thread in Hong Kong's historical experience -- its ability to adapt to changes in its environment and the entrepreneurial prowess of its people. Consider Hong Kong's rapid transformation in the 1980s and 1990s. Over 650,000 manufacturing jobs moved north, but the average unemployment rate remained low as workers found other -- mainly service sector -- jobs. With hard work, sound policies, and strong leadership, there is no fundamental obstacle that would prevent Hong Kong from continuing to adapt as it confronts these new challenges.

To concentrate on difficulties and to be mesmerized by China's economic growth is also to ignore the role "Hong Kong Inc." played in transforming southern China into a modern export production platform with the highest average standard of living on the mainland. Hong Kong has been a stimulus for the mainland's dramatic transformation by providing capital, management, and experience. As a window on China's potential future, Hong Kong shows a way forward toward prosperity that rests on openness, tolerance, the rule of law, transparency, and corruption-free dealings. Mainland authorities, in fact, have intentionally turned to this experience and expertise in some areas to move their own economy forward.

Certainly there is no room for complacency. Indeed there are serious policy challenges to be addressed -- education, language skills, unemployment, and the environment -- as well as broader issues I've mentioned that need to be resolved. However, by protecting its fundamental values and capitalizing on its flexibility, there is no reason why Hong Kong won't continue to prosper. Look at longer-term trends around the region -- movement toward the rule of law and increased respect for civil liberties, movement toward more open markets, and China's entrance into rules-based international organizations. These all play to Hong Kong's traditional strengths. Hong Kong is an open textbook for the fundamental lesson that is increasingly taking hold, namely that free societies and free markets work and bring incredible benefits to one's people.

Through its embrace of free markets, adherence to the rule of law, and a level playing field for business, Hong Kong has capitalized on the forces of globalization -- the explosion of trade, travel, communication -- transforming the region. It has attracted ideas and capital from around the world and packaged the results in a variety of offshore locations.

Hong Kong's future lies not just in its role as the richest city in China. It aspires to be something more -- the most globalized city in Asia, and a city where the principles of economic and political freedom are just as much part of life as a morning newspaper and dim sum, or an afternoon conversation at the Shatin racecourse. That's a goal we all can support -- one which would benefit the Hong Kong people, reinforce China's prosperity and pride, and project Hong Kong's international character and distinctiveness that are the foundation of its close cooperation with the United States. Thank you.

Released on June 6, 2002

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