"1990s in Hong Kong | AboutHK.Com - more information about HK"

1990s in Hong Kong marks a transitional period and the last decade of Colonial Hong Kong.

The 1984 Sino-British Joint Declaration paved the way for a series of changes that would facilitate the transfer of sovereignty from the United Kingdom to the People"s Republic of China (PRC).
In July 1992, Chris Patten was appointed as the last British Governor of Hong Kong.
By contrast, Patten had little knowledge or experience about Hong Kong or China, and spoke neither Mandarin Chinese nor Cantonese.
The decade was essentially dominated by the political backdrop of the handover.

Politics

Central District, 1992

Transfer of the sovereignty of Hong Kong

The transfer of the sovereignty of Hong Kong from the United Kingdom to China, often referred to as "The Handover", occurred on June 30, 1997. The event signified the end of British ruling, and the return of Hong Kong to the People"s Republic of China.

In 1982, the two governments began to talk about the sovereignty of Hong Kong. In light of the increasing openness of the PRC government and economic reforms on the mainland, then-British Prime Minister Margaret Thatcher sought the PRC"s agreement to a continued British presence in the territory. However, the PRC took a contrary position: not only did the PRC wish for the New Territories, on lease until 1997, to be placed under the PRC"s jurisdiction, it also refused to recognise the "unfair and unequal treaties" under which Hong Kong Island and Kowloon had been ceded to Britain in perpetuity. Consequently, the PRC recognised only the British administration in Hong Kong, but not British sovereignty.

Background

Chris Patten takes the podium at the handover ceremony

March 1979, the Governor of Hong Kong Murray MacLehose paid his first official visit to the People"s Republic of China, taking the initiative to raise the question of Hong Kong"s sovereignty with Deng Xiaoping. Without clarifying and establishing the official position of the PRC government, the arranging of real estate leases and loans agreements in Hong Kong within the next 18 years would be rather difficult. In fact, as early as the mid 1970s, Hong Kong had faced additional risks raising loans for large scale infrastructure projects such as its MTR system and a new airport. Caught unprepared, Deng asserted the necessity of Hong Kong"s return to China, upon which Hong Kong would be given special status by the PRC government.

Many argue that had it not been for MacLehose"s rashness, the PRC government might not have pressed to put the Hong Kong question on its agenda. Debate aside, MacLehose"s visit to the PRC did raise the curtain on the issue of Hong Kong"s sovereignty: Britain was made very much aware of the PRC"s intention - their aspiration to resume sovereignty over Hong Kong as the Qing Dynasty"s successor - and began to make arrangements accordingly to ensure the sustenance of its interests within the territory, as well as initiating the creation of a withdrawal plan in case of emergency.

Three years later, Deng received the former British Prime Minister Edward Heath. Heath had been dispatched as the special envoy of Prime Minister Margaret Thatcher to establish an understanding of the PRC"s view with regards to the question of Hong Kong. Throughout their meeting, Deng stated clearly for the first time the PRC"s willingness to settle the sovereignty issue with Britain through formal negotiations. In the same year, Edward Youde, who succeeded MacLehose as the 26th Governor of Hong Kong, led a delegation of five Executive Councillors to London, including Chung Sze Yuen, Lydia Dunn, and Roger Lobo. Chung presented their position on the sovereignty of Hong Kong to Thatcher, encouraging her to take into consideration the interests of the native Hong Kong population in her upcoming visit to China.

The talks

Major events during 1979 - 1997
24 March 1979	Hong Kong Governor Sir Murray MacLehose was invited to a visit to Guangzhou and Beijing to find out the attitude of the Chinese government on the Hong Kong issue.
29 March 1979	Sir Murray MacLehose met the then vice Premier Deng Xiaoping and raised the issue of Hong Kong for the first time. Deng remarked that the investors could set their minds at peace.
4 April 1979	The Kowloon-Canton through-train routes were restored after 30 years of non-service.
3 May 1979	The Conservative Party won the U.K. Election.
29 October 1979	Premier Hua Guofeng visited Britain and had a meeting with Margaret Thatcher. Both of them expressed their concern to maintain the stability and prosperity of Hong Kong.
12 May 1980	Tabled by the Conservative Party in the British government, a new status "British Dependent Territories Citizens" was introduced. This status proposal was widely opposed by Hong Kong people.
3 April 1981	Lord Carrington met Deng Xiaoping in his visit to Beijing.
30 September 1981	Chairman of the NPC Ye Jianying issued nine guiding principles concerning a peaceful reunification of Taiwan and mainland China.
30 October 1981	The House of Commons passed the new British Nationality Act.
Nov 1981	The Beijing government invited some Hong Kong citizens to help organizing a united front in the handling of the Hong Kong issue.
6 January 1982	Chinese Prime Minister Zhao Ziyang received Humphrey Atkins. Zhao insisted that the PRC would uphold her sovereignty over Hong Kong.
10 March 1982	Vice Premier Gu Mu received Sir John Bremridge, promising to maintain Hong Kong"s stability and prosperity.
6 April 1982	Deng Xiaoping revealed his wish to have official contact with the British government.
8 May 1982	Sir Edward Youde arrived as the 26th Governor of Hong Kong.
May 1982	Deng Xiaoping and Zhao Ziyang collected advice from Hong Kong notables such as Lee Ka-shing and Ann tse-kei.
15 June 1982	Deng Ziaoping officially announced the position of the Chinese government in the context of the Hong Kong 97 Issue, marking the first public statement on part of the PRC with regards to the issue.

Before the war of words

In the wake of Governor MacLehose"s visit, Britain and the PRC established initial diplomatic contact for further discussions of the Hong Kong question, paving the way for Thatcher’s first visit to the PRC in September 1982[2]. Margaret Thatcher, engaged in discussion with Deng Xiaoping, reiterating the validity for an extension of the lease of Hong Kong territory, particularly in light of binding treaties, including the Treaty of Nanking in 1842, the Convention of Peking in 1856, and the clause signed in 1890. In response, Deng Xiaoping cited clearly the lack of room for compromise on the question of sovereignty over Hong Kong; the PRC, as the successor of Qing Dynasty and the Republic of China, would recover the entirety of the New Territories, Kowloon and Hong Kong Island.

After her visit with Deng in Beijing, Thatcher was received in Hong Kong as the first British Prime Minister to set foot on the territory while in office. At a press conference, Thatcher re-emphasised the validity of the three treaties, asserting the need for countries to respect treaties on universal terms: "treaties ought always to be respected; without such respect, without such necessary trust, it was impossible for any negotiations to take place".

At the same time, on the 5th session of the 5th National People’s Congress, the constitution was amended to include a new clause which stated that the country might establish a special administrative region (SAR) when necessary. The additional clause would hold tremendous significance in settling the question of Hong Kong and later Macau, putting into social consciousness the concept of "One country, two systems".

Negotiations began

A few months after Thatcher"s visit to Beijing, the PRC government had still yet to open negotiations with the British government regarding the sovereignty of Hong Kong. Unsure of what to do, Thatcher consulted former U.S. Secretary of State Henry Kissinger, though consultation proved fruitless in the end. Shortly before the initiation of sovereignty talks, Governor Youde declared his intention to represent the population of Hong Kong at the negotiations. This statement sparked a strong response from the PRC, which slammed Britain for “making a three-legged stool” and “playing public-opinion cards” as bargaining chips. At the preliminary stage of the talks, the British government refused to budge, insisting on an exchange of sovereignty for administration and the implementation of a British administration post-handover. The PRC government refused, contending that the notions of sovereignty and administration were inseparable, and although it recognised Macau as a "Chinese territory under Portuguese administration", it also sought the return of that territory.

The conflict arising at this point of the negotiations, ended the possibility of further negotiation. During the reception of former British Prime Minister Edward Heath during his sixth visit to the PRC, Deng Xiaoping commented quite clearly on the impossibility of exchanging sovereignty for administration, declaring an ultimatum: the British government must modify or give up its position or the PRC will announce its resolution of the issue of Hong Kong sovereignty unilaterally.

In 1983, Typhoon Ellen ravaged Hong Kong, causing great amounts of damage to both life and property. But what perplexed the people of Hong Kong most were the uncertainties of the territory"s future. Hong Kong people were used to adjectives such as "useful" and "constructive" after each round of talks. The Hong Kong dollar plummeted on Black Saturday, and the Financial Secretary of Hong Kong John Bremridge publicly associated the economic uncertainty with the instability of the political climate. In response, the PRC government condemned Britain through the press for "playing the economic cards" in order to achieve their ends: to intimidate the PRC into conceding to British demands.

British concession

Governor Youde alongside 9 members of the Executive Council travelled to London to discuss with then Prime Minister Thatcher the crisis of confidence - the problem with morale among the people of Hong Kong arising from the ruination of the Sino-British talks. The session concluded with Thatcher"s writing of a letter addressed to the PRC Premier Zhao Ziyang; in it, she expressed Britain’s willingness to explore arrangements optimizing the future prospects of Hong Kong while utilising the PRC’s proposals as a foundation. Furthermore, and perhaps most significantly, she expressed Britain"s concession on its position of a continued British presence in the form of an administration post-handover.

Two rounds of negotiations were held in October and November. On the sixth round of talks in November, Britain formally conceded its intentions of either maintaining a British administration in Hong Kong or seeking some form of co-administration with the PRC, and showed its sincerity in discussing PRC"s proposal on the 1997 issue. Obstacles were cleared.

Simon Keswick, chairman of Jardine Matheson & Co., said they were not pulling out of Hong Kong, though reinstated a new holding company would be established in Bermuda instead. He remarked that it was not desirable to "put all of one’s eggs in one basket." The PRC took this as yet another plot by the British. The Hong Kong government explained that it had been informed about the move only a few days before the announcement. The government would not and could not stop the company from making a business decision.

Just as the atmosphere of the talks was becoming cordial, members of the Hong Kong Legislative Council felt impatient at the long-running secrecy over the progress of Sino-British talks on the Hong Kong issue. They held that the people of Hong Kong should have the right to know what was being discussed and to speak at the talks. A motion, tabled by a legislator Roger Lobo, and declaring, “This Council deems it essential that any proposals for the future of Hong Kong should be debated in this Council before agreement is reached”, was passed unanimously. The PRC attacked the motion furiously, referring to it as "somebody’s attempt to play the three-legged stool trick again". At length, the PRC and Britain initiated the Joint Declaration on the question of Hong Kong’s future in Beijing. Zhou Nan, the then PRC Deputy Foreign Minister and leader of the negotiation team, and Sir Richard Evans, British Ambassador to Beijing and leader of the team, signed respectively on behalf of the two governments.

Sino-British Joint Declaration

Hong Kong SAR and People"s Republic of China table flag

The Sino-British Joint Declaration was signed by the Prime Ministers of the People"s Republic of China and the United Kingdom governments on December 19, 1984 in Beijing. The Declaration entered into force with the exchange of instruments of ratification on May 27, 1985 and was registered by the PRC and UK governments at the United Nations on June 12, 1985. In the Joint Declaration, the PRC Government stated that it had decided to resume the exercise of sovereignty over Hong Kong (including Hong Kong Island, Kowloon, and the New Territories) with effect from July 1, 1997, and the UK Government declared that it would restore Hong Kong to the PRC with effect from July 1, 1997. In the document the PRC Government also declared its basic policies regarding Hong Kong.

In accordance with the "One Country, Two Systems" principle agreed between the UK and the PRC, the socialist system of PRC would not be practised in the Hong Kong Special Administrative Region (HKSAR), and Hong Kong"s previous capitalist system and its way of life would remain unchanged for a period of 50 years. The Joint Declaration provides that these basic policies shall be stipulated in the Hong Kong Basic Law. The ceremony of the signing of the Sino-British Joint Declaration took place at 18:00, 19 December, 1984 at the Western Main Chamber of the Great Hall of the People. The Hong Kong and Macau Affairs Office at first proposed a list of 60-80 Hong Kong people to attend the ceremony. The number was finally extended to 101. The list included Hong Kong government officials, members of the Legislative and Executive Councils, chairmen of the Hong Kong & Shanghai Bank and Standard Chartered Bank, Hong Kong celebrities such as Li Ka-shing, Pao Yue-kong and Fok Ying-tung, and also Martin Lee Chu-ming and Szeto Wah who are now often condemned by the PRC government.

Drafting of Basic Law

The Basic Law was drafted by a Committee composed of members from both Hong Kong and mainland China. A Basic Law Consultative Committee formed purely by Hong Kong people was established in 1985 to canvass views in Hong Kong on the drafts. The first draft was published in April 1988, followed by a five-month public consultation exercise. The second draft was published in February 1989, and the subsequent consultation period ended in October 1989. The Basic Law was formally promulgated on 4 April 1990 by the NPC, together with the designs for the flag and emblem of the HKSAR. Some members of the Basic Law drafting committee were ousted by Beijing following the 4 June 1989 Tiananmen Square incident, after voicing views supporting the students.

The Basic Law was said to be a mini-constitution drafted with the participation of Hong Kong people. The political system had been the most controversial issue in the drafting of the Basic Law. The special issue sun-group adopted the political model put forward by Louis Cha. This "main-stream" proposal was criticised for being too conservative. According to Clauses 158 and 159 of the Basic Law, powers of interpretation and amendment of the Basic Law are vested in the Standing Committee of the National People"s Congress and the National People"s Congress, respectively. Hong Kong people have limited influence.

Migration tide

Kai Tak Airport in the 80s was overcrowded daily

After the Tiananmen Square protests of 1989, the Executive Councillors and the Legislative Councillors unexpectedly held an urgent meeting, requesting the British Government to give the right of abode in the United Kingdom to the people of Hong Kong. More than 10,000 Hong Kong residents rushed to Central in order to get an application form for residency in Singapore and the United Kingdom. On the eve of the deadline, over 100,000 lined up overnight for a BN(O) application form. While mass migration did begin well before 1989, the event did lead to the peak migration year in 1992 with 66,000.

Many citizens were pessimistic towards the future of Hong Kong and the transfer of the region"s sovereignty. A tide of emigration, which was to last for no less than five years, broke out. At its peak, citizenships of such small countries as Cape Verde, Tonga, Gambia and Ecuador were also in great demand. Many consuls were deported for their corrupt behaviour in granting immigration visas.

Canada, Australia, and the United States were, by and large, the most popular destinations. The United Kingdom devised the British Nationality Selection Scheme, granting 50,000 families British citizenship under the British Nationality Act (Hong Kong) 1990. Vancouver was among the most popular destinations, so much so that Richmond (a suburb of Vancouver) earned the nickname of "Little Hong Kong" and "New Chinatown", and for the city itself, "HongCouver". Other popular settlements are found in Toronto, Sydney, Auckland and Singapore. All in all, from the start of the settlement of the negotiation in 1984 to 1997, nearly 1 million people have emigrated, consequently Hong Kong suffered serious loss of capital and talents

The last governor

Chris Patten became the last governor of Hong Kong. This was regarded as a turning point in Hong Kong"s history. Unlike the predecessors, Patten was not a diplomat, but a career politician and former Member of Parliament. He introduced democratic reforms which pushed PRC-British relations to a standstill and affected the negotiations for a smooth handover.

Patten introduced a package of electoral reforms in the Legislative Council. These reforms proposed to enlarge the electorate, thus making voting in the Legislative Council more democratic. This move posed significant changes because Hong Kong citizens would have the power to make decisions regarding their future.

The handover ceremony

Guests at the handover ceremony. Left-to-right: Robin Cook, Cherie Blair, Prince Charles (in his dress uniform as an Admiral of the Royal Navy) and Chris Patten; Tony Blair can just be seen on the right-hand side

The handover ceremony was held at the new wing of the Hong Kong Convention and Exhibition Centre in Wan Chai on the night of 30 June 1997. The principal British guest was The Prince of Wales who read a farewell speech on behalf of the Queen. The newly elected Prime Minister of the United Kingdom, Tony Blair and the departing Hong Kong governor Chris Patten also attended. Representing China were the President of the People"s Republic of China, Jiang Zemin; and Tung Chee-hwa, the first Chief Executive of the Hong Kong Special Administrative Region of the People"s Republic of China.

Additional effects

After the Tiananmen Square Protest, the Hong Kong government proposed a grand "Rose Garden Project" to restore faith and solidarity among the residents. As the construction of the new airport would extend well after the handover. Governor Wilson met PRC Premier Li Peng in Beijing to ease the mind of the PRC government. The communist press published stories that the project was an evil plan to bleed Hong Kong dry before the handover, leaving the territory in serious debt[5]. After three years of negotiations, Britain and the PRC finally reached an agreement over the construction of the new airport, and signed a Memorandum of Understanding. Removing hills and reclaiming land, it took only a few years to construct the new airport.

Views of the Kowloon Walled City

The handover of Hong Kong on July 1, 1997, the last major overseas British colony.

The Walled City was originally a single fort built in the mid-1800s on the site of an earlier 17th century watch post on the Kowloon Peninsula of Hong Kong. After the ceding of Hong Kong Island to Britain in 1842 (Treaty of Nanjing), Qing (Chinese) authorities felt it necessary for them to establish a military-cum-administrative post to rule the area and to check further British influence in the area.

The 1898 Convention which handed additional parts of Hong Kong (the New Territories) to Britain for 99 years excluded the Walled City, with a population of roughly 700. It stated that China could continue to keep troops there, so long as they did not interfere with Britain"s temporary rule. Britain quickly went back on this unofficial part of the agreement, attacking Kowloon Walled City in 1899, only to find it deserted. They did nothing with it, or with the outpost, and thus put the question of Kowloon Walled City"s ownership squarely up in the air. The outpost consisted of a yamen, as well buildings which grew into low-lying, densely packed neighbourhoods from 1890s to 1940s. The enclave remained part of Chinese territory despite the turbulent events of the early 20th century that saw the fall of the Qing government, the establishment of a Chinese republic and later, the People"s Republic of China (PRC).

Squatters began to occupy the Walled City, resisting several attempts by Britain in 1948 to drive them out. The Walled City became a haven for crooks and drug addicts, as the Hong Kong Police had no right to enter the City and mainland China refused maintainability. The 1949 foundation of the People"s Republic of China added thousands of refugees to the population, many from Guangdong; by this time, Britain had had enough, and simply adopted a "hands-off" policy. A murder that occurred in Kowloon Walled City in 1959 set off a small diplomatic crisis, as the two nations each tried to get the other to accept responsibility for a vast tract of land now virtually ruled by anti-Manchurian Triads. If the Black Market ever had a physical location, this would have been it. After the Joint Declaration in 1984, the PRC allowed British authorities to demolish the City and resettle its inhabitants. The mutual decision to tear down the walled city was made in 1987. The government spent up to HK$ 3 billion to resettle the residents and shops. Some residents were not satisfied with the compensation, and some even obstructed the demolition in every possible way. Ultimately, everything was settled, and the Walled City became a park.

Views of Rennie"s Mill

Rennie"s Mill got its name from a Canadian businessman named Alfred Herbert Rennie, who established a flour mill at Junk Bay. The business failed, and Rennie hanged himself there in 1908. The incident gave the Chinese name for the site Tiu Ken Leng , meaning "Hanging (neck) Ridge". The name was later changed to similar sounding Tiu King Leng because it was inauspicious.

In the 1950s the (British) Hong Kong government settled a considerable number of refugees from China - former Nationalist soldiers and other Kuomintang supporters - at Rennie"s Mill, following the Chinese civil war. For many years the area was a Kuomintang enclave known as "Little Taiwan", with the flag of the Republic of China flying, its own school system and practically off-limits to the Royal Hong Kong Police Force.

In 1996 the Hong Kong government finally forcibly evicted Rennie"s Mill"s residents, ostensibly to make room for new town developments, as part of the Tseung Kwan O New Town, but widely understood to be a move to please the Communist Chinese government before Hong Kong reverted to Communist Chinese rule in 1997.

Before the eviction, Rennie"s Mill could be reached by the winding, hilly and narrow Po Lam Road South. At that time, Rennie"s Mill"s only means of public transport were the routes 90 and 290 of KMB, which were operated by minibuses, and by water transport.

The handover

Flag of Hong Kong under British rule

Following China"s Tiananmen Square protest in 1989, citizens feared the Chinese government would not keep its promise of autonomy after the handover in Hong Kong. As a result, various mediating measures took place in the run-up to 1997. The Hong Kong Basic Law was ratified on April 4, 1990 as a mini-constitution. The pro-Beijing bloc welcomed the Basic Law, calling it the most democratic legal system to ever exist in the PRC. The pro-democratic bloc criticized it as not democratic enough. Patten emphasized the increase in democracy in Hong Kong through a series of measures that affected the election processes of both legislators and municipal officials. In 1994 the PRC announced that it would terminate Legislative Council (LegCo) in favor of the "provisional legislative council". In 1995 LegCo was passed and the Democratic Party denounced the provisional legislative council as illegal. The provisional legislative council operated from Shenzhen before the handover.


Flag of the Hong Kong SAR

At midnight on July 1, 1997 the handover ceremony was held at the new wing of the Hong Kong Convention and Exhibition Centre at Wan Chai North. The flag of United Kingdom and the flag of the Crown colony were lowered. The flags of the Hong Kong Special Administrative Region and China were raised. This marked the transfer of sovereignty of Hong Kong from British colonial rule to Chinese rule. Participated guests in the ceremony included HRH Prince Charles, President of the People"s Republic of China Jiang Zemin, the last Hong Kong Governor Chris Patten, and Tung Chee Hwa, the first Chief Executive of Hong Kong elected from a Beijing-Controlled election.

Demographics

Population

Causeway Bay, 1997

Population in 1995 and 1999 was 6.3 million and 6.9 million respectively[1]. A total of 44,000 illegal immigrants from mainland China were arrested and deported in 1993, with the number decreased to 35,500 a year later. Hong Kong"s fertility rate have also become the lowest in the world. Having declined to just 5.1 child per population of 1,000 in 1996

Emigration

In 1990, the outflow of people reached a peak of 62,000 people or about 1% of the population. The emigration rate would reach the peak in 1992 with 66,000 people, followed by 53,000 in 1993, and 62,000 in 1994. An estimated US $4.2 billion flowed from Hong Kong to Canada directly as a result. Many renowned tycoons in Hong Kong, such as the Shaw family, left Hong Kong for fear of adverse effects to the economy after the handover. Many Hong Kong citizens emigrated to Great Britain through the British Nationality Selection Scheme. Comparable number of families also moved to Australia, Canada, and the United States.

Foreign Domestic Workers

From the late 1980s to 1990s, Hong Kong"s currency stabilized. The value of the Philippine peso was dropping steadily from 17 pesos in 1984 to 30 pesos in 1993 = US $1[4]. This caused a surge of Philippines workers going to Hong Kong in search of higher salaries under the "maid to order" services. The number of foreign workers grew from 9,000 in 1987 to 28,000 in 1992 and 32,000 in 1993. Women from the Philippines make up the majority with substantial numbers from Indonesia and Thailand. The term "fei yung" became associated with the helpers.

The families in need of the helpers generally have both parents working at full time positions. In 1993 households were required to have a combined income of HKD $15,000. The foreign workers essentially run all home affairs from cooking, ironing, cleaning and caring for the young and old in the household. Most household have 4 to 5 members including at least 1 child under the age of 12, some have elderly over 65[5]. The hiring of workers fueled a number of social debates. From the worker"s perspective, problems range from unfair treatments, discrimination to low wages were raised. From the family perspective problems range from privacy invasion to abuse type cases. Newspapers, radios and TV broadcasts have covered the subjects on numerous accounts. To stir controversies, the media often claim traditional amah Chinese servants as superior workers

Culture

Entertainment

Leon Lai

The entertainment industry was essentially dominated by the Four Heavenly Kings of Cantopop including Aaron Kwok, Jacky Cheung, Andy Lau and Leon Lai. In the early stages in their career, Jacky Cheung and Leon Lai sang songs with Japanese melodies, but in the early to mid-1990s there was a public outcry for originality in local music. In 1993 the radio broadcasting company Commercial Radio, announced that it would play only locally-written music. The purpose was to encourage local musicians to write their own lyrics. Mark Lui was a popular composer by the late 1990s.

After 1997 the entertainment industry became integrated with Taiwan and mainland China. An example of this was the television drama Princess Pearl, which was produced in Taiwan and starred mainland actress Vicki Zhao. The show was broadcasted in Hong Kong in 1999 by ATV"s Home Channel and became popular among overseas Chinese worldwide. Another example of a popular mainland pop star was Faye Wong. She was born in Beijing and began singing in Cantonese, but later sang in both Mandarin and Cantonese as her career grew.

Cinema

The Hong Kong film industry underwent several changes in the 1990s, especially with the emergence of the mo lei tau culture, which became synonymous with comedian Stephen Chow. Some critics claimed those films were made to alleviate social tension.

Law and Order

In 1999 Hong Kong"s Court of Final Appeal ruled that children born on the mainland would be entitled the right of abode in Hong Kong so long as either parent was a HK permanent resident. This decision led to the government"s reinterpretation of the Basic Law.

Economy

Finance

1997 East Asian financial crisis

The East Asian Financial Crisis was a period of economic unrest that started in July 1997 in Thailand and South Korea with the financial collapse of Kia, and affected currencies, stock markets, and other asset prices in several Asian countries, many considered Four Asian Tigers. It is also commonly referred to as the East Asian currency crisis or locally as the IMF crisis although the latter is somewhat controversial. There is general consensus on the existence of a crisis and its consequences, but what is less clear are the causes of the crisis, its scope and resolution.

Indonesia, South Korea and Thailand were the countries most affected by the crisis. Hong Kong, Malaysia, Laos and the Philippines were also hit by the slump. Mainland China, Taiwan, Singapore and Vietnam were relatively unaffected. Japan was not affected much by this crisis but was going through its own long-term economic difficulties. However, all nations mentioned above saw their currencies dip significantly relative to the US dollar, though the harder hit nations saw extended currency losses. Out of all the countries affected, South Korea was hit hardest.

Though called the "East Asian" crisis because it originated in East Asia, its effects rippled throughout the globe and caused a global financial crisis, with major effects felt as widely as Russia and Brazil, as investors lost confidence in emerging markets. The United States as an investor was briefly affected.

History and causes

Until 1997, Asia attracted almost half of total capital inflow to developing countries. The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for a high rate of return. As a result the region"s economies received a large inflow of hot money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, the Philippines, Singapore, and South Korea experienced high growth rates, 8-12% GDP, in the late 1980s and early 1990s. This achievement was broadly acclaimed by economic institutions including the IMF and World Bank, and was known as part of the Asian economic miracle.

Whatever the disputed causes, the Asian crisis started in mid-1997 and affected currencies, stock markets, and other asset prices of several Southeast Asian economies. Triggered by events in Latin America, particularly after the Mexican peso crisis of 1994, Western investors lost confidence in securities in East Asia and began to pull money out, creating a domino effect.

In 1994, Princeton University (then MIT) economist Paul Krugman published an article attacking the idea of an Asian economic miracle. [1] He argued that East Asia"s economic growth had historically been the result of capital investment, leading to growth in productivity. However, total factor productivity had increased only marginally or not at all. Krugman argued that only growth in total factor productivity, and not capital investment, could lead to long-term prosperity. Krugman would be seen by many as prescient after the financial crisis became full-blown, though he himself stated that he had not predicted the crisis or foreseen its depth.

At the time Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of pegged exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, two factors began to change their economic environment. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had attracted hot money flows through high short-term interest rates, and raised the value of the U.S. dollar, to which many Southeast Asian nations" currencies were pegged, thus making their exports less competitive. At the same time, Southeast Asia"s export growth slowed dramatically in the spring of 1996, deteriorating their current account position.

Some economists have advanced the impact of Mainland China on the real economy as a contributing factor to their ASEAN nations" export growth slowdown, though these economists maintain the main cause of the crises was excessive real estate speculation[citation needed]. China had begun to compete effectively with other Asian exporters particularly in the 1990s after the implementation of a number of export-oriented reforms. Most importantly, the Thai and Indonesian currencies were closely tied to the dollar, which was appreciating in the 1990s. Western importers sought cheaper manufacturers and found them, indeed, in China whose currency was depreciated relative to the dollar. Other economists dispute this claim noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s[citation needed].

Many economists, like those within the Cato Institute, believed that the Asian crisis was created not by market psychology or technology (which actually represents a more efficient form of capitalism through the ability to acquire information cheaply and more quickly) but by macroeconomic policies that distorted information which in turn created the volatility that attracted speculators. What some have called "herd mentality" was merely the result of speculators behaving rationally, noting the currency policies (the government defending the fixed exchange rate) which speculators assumed could not be sustained. Such economists believe that this crisis was the result of unsustainable macroeconomic/protectionist policies which create the very "market" imperfections they were originally designed to correct.

Other economists, including Joseph Stiglitz and Jeffrey Sachs, have downplayed the role of the real economy in the crisis compared to the financial markets due to the speed of the crisis. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs points to strict monetary and contractory fiscal policies implemented by the governments at the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to the role of asymmetric information in the financial markets that led to a "herd mentality" among investors that magnified a relatively small risk in the real economy. The crisis has thus attracted interest from behavioral economists interested in market psychology.

The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of currencies was a deliberate attempt to destabilise the ASEAN economies. Former Malaysian Prime Minister Mahathir Mohamad accused currency speculator George Soros of ruining Malaysia"s economy with massive currency speculation. At the 30th ASEAN Ministerial Meeting held in Subang Jaya, Malaysia, they issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN"s cooperation to safeguard and promote ASEAN"s interest in this regard. Coincidentally, on that same day, the Central Bankers of most of the affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the New Arrangement to Borrow operational. A year earlier, the finance ministers of these same countries had attended the 3rd APEC finance ministers meeting in Kyoto, Japan on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under the General Agreement to Borrow and the Emergency Finance Mechanism. As such, the crisis could be seen as the failure to adequately build capacity in time, to prevent currency manipulation.

The role of the IMF was very controversial during the crisis, causing many locals to call the crisis the "IMF crisis."[citation needed] To begin with, many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down the path of "fast track capitalism", meaning liberalization of the financial sector (i.e. elimination of restrictions on capital flows); maintenance of high domestic interest rates in order to suck in portfolio investment and bank capital; and pegging of the national currency to the dollar to reassure foreign investors against currency risk.

However, the greatest criticism of the IMF"s role in the crisis was targeted towards its response[citation needed]. As country after country fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics in this scenario were similar to that of the Latin American debt crisis.

In response, the IMF offered to step in the case of each nation and offer it a multi-billion dollar "rescue package" to enable these nations to avoid default. However, the IMF"s support was conditional on a series of drastic economic reforms influenced by neoliberal economic principles called a structural adjustment package (SAP). The SAP"s called on crisis nations to cut government spending to reduce deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations" fiscal solvency, penalize insolvent companies, and protect currency values. However, the effects of the SAP"s were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a recession, the traditional Keynesian response is to increase government spending, prop up major companies, and lower interest rates. The reasoning was that by stimulating the economy and staving off recession, governments could restore confidence while preventing economic pain. They pointed out that the U.S. government pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the U.S. itself entered a recession in 2001.

Hong Kong

The collapse of the Thai baht on July 2, 1997, came 24 hours after the United Kingdom handed over sovereignty of Hong Kong to the People"s Republic of China. In October 1997, the Hong Kong dollar, which was pegged at 7.8 to the US dollar, came under speculative pressure since Hong Kong"s inflation rate was significantly higher than that of the US for years. Monetary authorities spent more than US$1 billion to defend the local currency. Since Hong Kong has more than US$80 billion of foreign reserves, which is equivalent to 700% of M1 money supply and 45% of M3 money supply of Hong Kong, Hong Kong managed to keep the currency pegged to the US dollar despite the speculative attacks. Stock markets become more and more volatile; between 20 October and 23 October the Hang Seng Index dipped by 23%. Hong Kong Monetary Authority promised to protect the currency. On 15 August 1998, Hong Kong raised rates overnight from 8% to 23% and at one point, to 500%. While the Monetary Authority recognized that the speculative forces were taking advantage of the unique currency board system, in which the overnight rates would automatically increase proportionally when the currency is sold in the market heavily, which would in turn increase the downward pressure of the stock market and thus allowing the speculators to earn a large profit by short selling shares, the Monetary Authority started buying component shares of the Hang Seng Index in mid-August. The Monetary Authority and Donald Tsang, then Financial Secretary, declared war with speculators openly. The Government ended up buying approximately HK$120 billion (about US$15 billion) of shares of various companies, and becoming the largest shareholder of some of the companies (e.g. the government owned 10% of HSBC) at the end of August when hostilities ended with the closing of the August contract of Hang Seng Index Futures. The Government started to divest itself from the position in 2001 and made a profit of about HK$30 billion (about US$4 billion) in the process.

Speculative actions against the Hong Kong Dollar and the stock market did not continue into September largely due to extraordinary reaction to speculators by the Malaysian authorities and the onset of the collapse of Russian bond and currency market, which caused massive loss to the speculators.

The currency peg between the Hong Kong Dollar and the US Dollar at 7.8:1 continued to exist undeterred.


The Hang Seng Index fell by 22.8% on 28 October 1997 after the real estate bubble collapsed, severely damaging the economy.

Three months after a peaceful handover in July 1997, Hong Kong was dragged into the Asian Financial Crisis. At one point the stock market fell by 22.8% within a week. Between the summer of 97 and 98, the leading shares in the Hang Seng Index lost nearly 2⁄3 of its value. The government had to intervene by buying billions of dollars worth of shares. While this may have prevented the market from collapsing and staved off pressure for the Hong Kong dollar to be depegged against the US dollar, the move was widely criticised as it undermined Hong Kong"s status of a free market economy.

Real Estate

In 1998, the real estate bubble burst due to the government"s housing policy, though the Asian financial crisis also had some influence. Upon the inauguration of Hong Kong SAR"s first Chief Executive, Tung Chee Hwa announced the building of 85,000 flats a year, while reducing public housing wait time from 7 years to 3 years. These factors combined to begin the most severe recession in Hong Kong since 1967, which was a year of ambitious government projects that used up fiscal reserves on infrastructure and structural deficit.

Transportation

Hong Kong International Airport

The Tsing Ma Bridge would become the world"s sixth largest suspension bridge, opening on April 27, 1997. Spanning metres ( ft), it is also the largest of all bridges in the world carrying rail traffic.

In 1998 the Kai Tak Airport was closed. The new US $20 Billion Hong Kong International Airport opened for commercial use. The initial years of operation were challenging as it utilized state-of-the-art computer systems in just about every function imaginable. The scale and size of the airport also required many innovative solutions from the HK Airport Authority. Over time it became the central connecting point for many flights in the far east.