The Magazine

One Country, Two Systems,
Ten Years

Hong Kong is still Hong Kong.

Jun 25, 2007, Vol. 12, No. 39 • By GERARD BAKER
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

Hong Kong will soon mark the tenth anniversary of its return to China. At midnight on July 1, 1997, amid the mournful downpour of a tropical monsoon, as British soldiers lowered the Union Flag for the last time and Tony Blair, the fresh-faced new prime minister, looked on, another chapter in Britain's long colonial history closed.

But this recessional for a lost empire was unlike almost all of the previous scenes of decolonization enacted over the preceding 50 years. For the first time, the United Kingdom was not ceding sovereignty to the people of the little territory it had governed for 150 years. It was handing them over, lock, stock, and barrel, into the welcoming arms of the People's Republic of China, a regime that had, just eight years earlier, revealed to the world the shocking depths to which it would stoop in its own self-preservation, massacring thousands of its own students in Tiananmen Square in June 1989.

Britain had done its best to wring assurances from the Chinese Communists that they would respect the political and economic freedoms Hong Kong had enjoyed under British rule. Beijing had signed a treaty in which it promised to maintain Hong Kong's character for at least 50 years, implementing Deng Xiaoping's famous formula for "one country, two systems."

But trust in Beijing among Hong Kong's people--many of them refugee families from Communist China--was not high. The small minority who could got British, Canadian, and American passports and established bolt-holes overseas. A number of companies moved their Asian headquarters to Singapore. Those who had nowhere else to go hunkered down in a climate of fear.

The Chinese love anniversaries and will celebrate the passage of ten years next month with much fanfare, but for others the occasion presents an opportunity to consider whether their worst fears for Hong Kong's future have been realized.

It is a question that matters not just to the seven million people of the former colony, but one that has worldwide repercussions. It matters for the future of Taiwan. China has never made a secret of its desire to use the recovery of Hong Kong as a model for an eventual reunification with its renegade island. It has hinted that the one country, two systems formula might apply to Taiwan too, so that the island's distinctive and lively free political climate might be maintained.

The survival of Hong Kong tells us much about the China that is emerging into global preeminence. It tells us about whether the Chinese model of an increasingly free economy alongside an unstintingly authoritarian political system can possibly survive.

Visit Hong Kong today and on the surface you will not notice much difference. It was always, despite the colonial myth, a Chinese city to its core. Now, the red flag of Communist China has replaced the union flag over government buildings. The People's Liberation Army maintains a small presence along the harbor front in a rather drab-looking old building that used to house a detachment of British soldiers.

But the street names haven't changed. Official Chinese buildings sit on roads named for Victorian colonial governors. The "Royal" prefix has been taken off the Hong Kong Jockey Club, but the gambling-crazy Chinese still flock there in great numbers every Wednesday night for the action at the Happy Valley Racecourse.

The most obvious change is growth. The famous breathtaking view of the harbor is increasingly obscured by ever taller skyscrapers. Hong Kong has suffered a series of shocks in the ten years since China took it back: the Asian financial crisis, a property price collapse, and the outbreak of Severe Acute Respiratory Syndrome (SARS). But the territory is now thriving as never before.

It has become an increasingly important global financial center in fact, surpassing New York in the total raised in initial public offerings. Rapidly growing Chinese companies use Hong Kong as their conduit to global capital markets.

China has certainly left Hong Kong's basic economic structure alone. So it remains the model of the low-tax, small-welfare, low-regulation enterprise culture Milton Friedman celebrated in the 1970s. Freedom House in fact still ranks Hong Kong as the freest place in the world in its annual survey of economic conditions.

"Hong Kong is back to its economic peak," Martin Wheatley, chairman of the territory's Securities and Futures Commission, told me. "It's been an extraordinary success story since the handover to China."