Journal of Contemporary Asia       May 1, 2004

The "one country, two systems" formula devised by Deng Xiaoping to solve the Hong Kong problem envisaged an economically autonomous Hong Kong that was to be politically dependent on the Central People's Government (CPG). Six or seven years after the Chinese annexation of Hong Kong, however, Hong Kong finds itself being gradually assimilated into Chinese system. Economically, Hong Kong is increasingly integrated with the Pearl Delta River (PRD) region, notably through a Closer Economic Partnership Arrangement (CEPA). Politically, the imprint of the Beijing regime has been evident in a number of post-annexation decisions. We argue that the initial insulation of the Hong Kong Special Administrative Region (HKSAR) from Chinese system actually deprives Hong Kong of the leverage to defend local interests in the central-local bargaining framework of the People's Republic of China (PRC). The enhanced economic integration between Hong Kong and the Beijing regime in recent years, coupled with the lack of democratic government in Hong Kong, makes the SAR more dependent on political and economic support from the Beijing regime, damaging the autonomy prospects of Hong Kong.

To make our case, we begin by looking at formal aspects of Hong Kong's reintegration into China by exploring the key features of the "one country, two systems" formula. Against that backdrop, we examine events since July 1997 which show the political limits of Hong Kong's autonomy. The attempt to introduce national security legislation into Hong Kong in 2002-03, a major challenge to the autonomy of Hong Kong, led to a half-million strong demonstration against the government on July 1, 2003. This deepened the governing crisis of the SAR government and drove the CPG to step in to provide more economic assistance. In turn, this enhanced economic dependence on the CPG will weaken Hong Kong's bargaining power and trigger dialectics of economic and political change. At a certain point, the quantitative change of increased political and economic dependence on the CPG could lead to a qualitative change in SAR autonomy, undermining the very basis of "one country, two systems" and Hong Kong's free-wheeling capitalism. The key to the future autonomy of Hong Kong may lie in a set of more democratic institutions to forestall a qualitative change towards a merger of the Hong Kong and Chinese systems.

The "One Country, Two Systems" Formula

After 1949, the Chinese Communists left Hong Kong in British hands largely for economic and strategic reasons. During the Cold War, the free capitalist colony enabled goods to be traded or smuggled in and out of China, and generated invaluable foreign exchange for the PRC (Lau, 2000; Ma, 1997). Some Chinese officials estimated that in the late 1970s as much as 75% of China's foreign exchange passed through Hong Kong, though scholars gave lower figures (Wang, 1997; 5; Pye, 1983). After China adopted its open-door economic policy in 1978, the capitalist haven of Hong Kong had even greater economic value to China. When the "one country, two systems" formula was developed, the primary intention was to preserve the economic vitality of Hong Kong through separating its capitalist economic order from the socialist order in China.

Formally, Hong Kong's autonomy is guaranteed by its Basic Law, promulgated in 1990 by the National People's Congress (NPC) of the PRC as Hong Kong's mini-constitution. The Basic Law stipulates that the CPG is responsible only for defense and foreign affairs, leaving the full range of social and economic policy to the SAR. No government department and no provincial or municipal government of the PRC can interfere in HKSAR affairs (Article 22). The HKSAR has an independent set of courts with power of final adjudication (Article 19). Hong Kong citizens are guaranteed a full set of civil liberties that rival those found in liberal democracies (Chapter 3). Hong Kong citizens elect representatives to the Legislative Council (Legco), albeit not in a fully democratic manner. Legco makes its own laws that do not need rectification or endorsement by the CPG.

For Ghai (1997: 138), the principal aim of the Basic Law was to protect and sustain the pre-1997 capitalist economic system and way of life. Article 5 states that "The socialist system and policies shall not be practiced in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years." The central goal was to institute a "separation of systems," allowing Hong Kong to run its own capitalist course. For this reason, the Basic Law grants Hong Kong several economic powers that are characteristic of sovereign states, such as independent systems of finance (Article 111), taxation (Article 108), currency (Article 111), customs territory (Articles 116) and civil aviation (Article 130). It also consciously restricts some aspects of Hong Kong's autonomy to preserve its freewheeling brand of capitalism, mandating a balanced budget (Article 107), free convertibility of the Hong Kong dollar (Article 112), a free port (Article 114), and free trade (Article 115). Hong Kong also pays no tax to the CPG, and can negotiate economic and trade agreements with foreign countries in the name of "Hong Kong, China" (Holliday et al., 2002).

Viewed in this light, political or regional autonomy per se was not the Chinese leaders' top priority in developing Hong Kong's governance framework. Rather, the territory's autonomy was contingent on the larger goal of national economic modernization (Ghai, 1997: 181). The cornerstone of Hong Kong's autonomy is its economic contribution to the national modernization program: as a gateway for foreign investment, a source of business intelligence and skills, a hub of global financial and economic linkages, and an entrepot for Chinese merchandise. A free and vibrant economy in Hong Kong is central to these functions. Hong Kong is expected to maintain its role as the leading economic city in coastal China, and in return is rewarded with immunity from the wide-ranging administrative and political oversights imposed on other local governments in the PRC.

Bargaining Autonomy in China's Polity

The irony is that while such privileges provide a facade of autonomy and exemption of considerable obligations, they also deprive the HKSAR of important means for defending local interests which are enjoyed by its Chinese counterparts. Statutory documents seldom present a full picture of the interactive matrix between central and local governments in China. In truth, the extensive control and integrative mechanism inherent in the unitary character of the Chinese state actually present local players with ample opportunities and openings for pursuing parochial interests.

Scholars differ on their assessment of the central-local balance in China. Donnithorne is the forerunner in the research on local initiative and autonomy in Mao's China. Her notion of China's "cellular economy" highlights the possibility of fragmentation and room for local spontaneity within the unitary system (Donnithorne, 1972). Shue's study of rural China leads her to a similar observation on the limitation faced by the CPG. According to her conception of the "honeycomb" pattern of Mao's polity, local officials are the major impediment of central intention: "[f]ar from serving as robotic handmaidens of central domination, these stubborn, savvy, and often cynical local officials came to constitute a formidable obstacle to real and effective penetration and control on the ground" (Shue, 1988: 131). Wang and Hu reinforce the decentralized image on the basis of their analysis of the revenue distribution in the reform era. They see the weakening control of the central government over fiscal resources as a sign of the decline in capacity of the Chinese state (Wang and Hu, 2001). On the other hand, Huang challenges the conception of a fragmented Chinese state. His study on the regulation of inflation in the reform era prompts him to conclude that there remain effective central control mechanisms over local development: a national network of statistical intelligence, credit and investment control and personnel management (Huang, 1996, 2001). Edin shares a similar sentiment by emphasizing the effective functioning of central control over promotion and management of local officials (Edin, 2003). Or as Chung puts it, it is the local officials' "bureaucratic careerism" that mainly accounts for their compliance with and submissiveness towards central directives (Chung, 2000). Burns' observation regarding the preservation of the Leninist character of China's political institutions in the reform era reveals his agreement with the argument of an effective central state (Burns, 1999).

Amidst these controversies is a common recognition of a matrix of central coordination and integration, and most importantly the formal and informal opportunity of participation for local players inherent in it. There are several key mechanisms of central oversight: (1) the dual control system: local administrative units are simultaneously under a vertical hierarchy of control along the functional line and the horizontal supervision of the regional government; (2) the CCP network: party organizations are established in all local units which are in rum, subject to the command of the Party center; (3) the nomenklatura system: the Party controls key personnel decisions at each level of the administration; and (4) the imposition of economic and budgetary targets for local implementation. At a glance, the HKSAR is immune to most of these controls. The line of command between Hong Kong and Beijing is direct, and while appointment of the Chief Executive (CE) is the prerogative of the CPG, the disconnection between the Hong Kong and Chinese bureaucracy makes a future political career for the CE in the Chinese polity unlikely and thereby reduces the pulling strength for his compliance with central wishes.

However, the exclusion of HKSAR from CPG control mechanisms may work to its disadvantage: the SAR is deprived of access to key avenues for making decisions that may have immediate implications for her interests. In their seminal work on the Chinese bureaucracy, Lieberthal and Oksenberg identify several integrative mechanisms in China's polity. These include the meeting system, document system and personal ties and policy network (Lieberthal and Oksenberg, 1988). These systems enable the CPG to communicate its policies, respond to criticism, mobilize support and build consensus. However, the process also provides local governments with opportunities for expressing concern, raising objection, finding allies and cutting deals. The token representation of Hong Kong in the NPC and the Chinese People's Political Consultative Conference (CPPCC) is hardly a substitute for involvement in conference and meeting organized by ministries, state commissions, or the Party organizations. Nor is Hong Kong able to develop the understanding and loyalty that exist among local officials who share decades of collaboration in specific policy areas.

The political segregation from Chinese politics is intended to protect the unique position of HKSAR, but the privilege has also weakened Hong Kong's bargaining power vis-a-vis the CPG. In spite of the country's authoritarianism and unitary character, local support is always crucial for top leaders in China. Furthermore, one should not forget the king-making role of local officials at historical junctures. Local officials were key allies for Mao in his struggle against the "capitalist roaders" during the Cultural Revolution. Shirk pointed out the importance of rewarding local governments with autonomy and generous profit sharing schemes for Deng Xiaoping's reform faction (Shirk, 1993). The incremental character of the post-Mao reforms works in the favor of local governments, as the "bandwagon effect" of local success unleashes momentum for further reform (Chung, 2000). The CCP central committee membership reserved for leading officials at provincial level is a license for influence and exchange. The aloofness of the HKSAR from this politicking implies a reduced bargaining power against Beijing.

The bargaining process is not entirely political in nature. Economic roles of local government also contribute to Beijing's respect for local autonomy. The enormous size of Chinese provinces per se warrants flexibility and discretion in response to local diversity and complexity. Yet Beijing's tolerance towards specific regions is largely determined by the latter's contribution to the national economy. "Economic federalism," as some scholars put it, is evident in China. Regions like Shanghai and Guangdong that spearheaded the reform process are rewarded with higher autonomy and significant bargaining power versus the CPG (Monyinola et al., 1996). Put in this perspective, the expectations on Hong Kong's economic roles mentioned above should promote a tolerant and accommodative stance from the CPG.

Limits to HKSAR Autonomy

More than six years after the 1997 sovereignty transfer, the CPG has rarely directly intervened in HKSAR affairs. Leaders in Beijing seldom publicly comment on what goes on in the territory. Officials of the Central Government Liaison Office (CGLO) in Hong Kong seldom contribute to local political debate. Shortly after 1997, Hong Kong delegates to the NPC and the National People's Political Consultative Conference (NPPCC) were told by President Jiang Zemin and NPPCC Chairman Li Ruihuan that meetings of central authorities should not discuss Hong Kong's internal affairs (Ching, 1998; Kuan, 1999: 35). However, while Chinese leaders and officials have been restrained in meddling in Hong Kong, events after 1997 have shown that there are clear political limits to SAR autonomy.

Several incidents saw the SAR autonomy written into the Basic Law violated, often with active assistance from the Hong Kong Government. The most significant one was reinterpretation of the Basic Law by the NPC's Standing Committee (NPCSC). In January 1999, Hong Kong's Court of Final Appeal (CFA) ruled that, according to Article 24 (3) of the Basic Law, the offspring of Hong Kong residents born in China have right of abode in Hong Kong. Claiming that 1.67 million individuals were thereby eligible to swell the existing 6.7 million population of Hong Kong, the SAR Government opted to seek a "reinterpretation" of the Basic Law from the NPCSC.

In June 1999, the NPCSC overturned the CFA verdict, ruling that the offspring of Hong Kong residents born and living in China have to get approval from Chinese authorities before they can come to Hong Kong. The ruling cast doubt on the judicial independence and the rule of law of Hong Kong. The Basic Law does not permit reinterpretation of a CFA verdict, and although Article 158 places the ultimate power of constitutional interpretation with the NPCSC, according to that article only the courts, and not the executive branch, can request a NPCSC interpretation. The ruling thus opened the door for China to intervene. Whenever the SAR Government does not like a CFA ruling for political or policy reasons, it can henceforth bypass the courts and ask the CPG to intervene. This could spell the end of Hong Kong's final adjudication power.

Another "boundary violation" incident was enactment of the Adaptation of Laws Ordinances in 1998. In colonial times, British government agencies, or "Crown institutions," were exempted from the jurisdiction of colonial law. In 1998, the SAR Government suggested that the term "Crown" be replaced by "state" in the relevant ordinances, with "state institutions" in effect including the Chinese President, the CPG, the PRC central authorities and certain subordinate organs of the CPG. The SAR Government argued this was only a technical fix, but it effectively makes PRC offices and officials free of legal challenge in Hong Kong. This constituted a violation of the Basic Law, for Article 22 states that "All offices set up in the Hong Kong Special Administrative Region by departments of the Central Government, or by provinces, autonomous regions, or municipalities directly under the Central Government ... and the personnel of these offices shall abide by the laws of the Region." By making Chinese offices and personnel "above the law" in Hong Kong, the SAR Government was voluntarily giving up constitutional protection from Chinese interference guaranteed in the Basic Law.

On issues deemed politically sensitive by the CPG, such as Taiwan independence and Falun Gong, Hong Kong's freedom has been restricted in deference to Beijing's wishes. Chinese leaders made it clear after 1997 that they did not want notions supporting Taiwanese independence to spread in Hong Kong. A month after Chen Shui-bian was elected President in March 2000, a Hong Kong television channel released an exclusive interview with Vice-President-Elect Annette Lu, in which she made some pro-independence remarks. Days later, Wang Fengchao, Deputy Director of the CGLO, stated publicly that "the Hong Kong media should not treat speeches and views which advocate Taiwan's independence as normal news items, nor should they report them like normal cases of reporting the voices of different parties" (Apple Daily, 28 February 2002: A2). Official spokespersons of the Foreign Ministry in Beijing echoed this view, making it the PRC's official position. One month later, in speaking to the Chinese Chamber of Commerce in Hong Kong, He Zhiming, Deputy Director of the CGLO's Taiwan Affairs Department, advocated a "rethink" in doing business with pro-independence Taiwanese.

A related instance triggered debate over the role of Radio Television Hong Kong (RTHK), a government-funded channel modeled on the BBC. In 1999, pro-PRC politicians in Hong Kong attacked RTHK for airing a programme in which Cheng Anguo, then Taiwan's representative in Hong Kong, defended former president Lee Tenghui's "state-to-state relations" formulation. RTHK chief Cheung Man-yee retorted by defending editorial independence, which led to her transfer to Hong Kong's Tokyo Trade Office months later. Both events provoked strong reactions from local journalists and liberal democrats, who saw them as blatant violations of Hong Kong's autonomy and press freedom.

Another thorn in the flesh of Beijing leaders was the Falun Gong chapter in Hong Kong. Since Falun Gong was outlawed as an "evil cult" (xiejiao) in China in 1999, its organizations have been disbanded and its practitioners persecuted. By contrast, the Falun Gong Hong Kong chapter is legally registered and often practices in open areas and regularly protests in front of the CGLO building in Hong Kong. After 1999, pro-PRC circles in Hong Kong stepped up pressure on the SAR Government to take steps to restrict Falun Gong activities. The Secretary for Security Regina Ip and Chief Executive Tung denounced Falun Gong as an "evil cult." While the SAR Government has as yet made no attempt to outlaw Falun Gong, it adopts subtle methods of control to curb, harass or at least frustrate its practitioners. In 2002, 16 Falun Gong practitioners were arrested when protesting outside the CGLO and charged with "public obstruction." They were subsequently found guilty and fined. The Falun Gong chapter in Hong Kong also claimed that the SAR authorities had turned down 70 of its applications to rent government venues (Hong Kong Economic Journal, 26 June 2002: 2). In 2002 alone, more than 100 overseas Falun Gong practitioners were refused entry to Hong Kong. The Tung administration's attitude to Falun Gong naturally raised concerns about the limits of religious freedom in Hong Kong.

The most alarming fact in the above incidents was the active cooperation by the SAR government in subordinating local autonomy to CPG needs. As long as it is politically expedient or "correct," the SAR government appears to have few qualms in sacrificing the autonomy of Hong Kong. This cooperative attitude has both political and economic roots, and the political and economic factors intertwined in an interactive manner.

Dialectics of Political and Economic Dependence

Lapidoth argues that local autonomy can be better defended if both the CPG and the autonomous authorities are democratic regimes (Lapidoth, 1997). In Hong Kong's case, the Basic Law vests most of the political power in Hong Kong in the hands of the CE. In 1996, CE Tung was "elected" by a 400-member Selection Committee appointed by China. In 2002, he was "elected" by an 800-member Election Committee representing Hong Kong's most influential business and professional groups. Many of these 800 members were heavily influenced by the CPG. For instance, Hong Kong's delegates to the NPC and NPPCC, selected in large part by the Chinese Communist Party, took 77 of the 800 seats. Local organizations under direct PRC control or funding, such as pro-PRC trade unions, controlled about 150 seats. The CPG could also wield a lot of informal pressure on the business and professional groups that occupied around another half of the seats in the Election Committee. The CE election was thus a de facto appointment from Beijing. Political dependence means that unlike popularly elected local chiefs, Tung cannot easily stand up to the CPG even if local interests or autonomy are at stake. As a result the SAP, government is sometimes excessively cautious in dealing with politically sensitive issues--"more Catholic than the Pope"--and places unnecessary constraints on Hong Kong's autonomy (Vines, 1999).

This political dependence due to the lack of a democratic subsystem is aggravated by increased economic dependence of Hong Kong on China after 1997. Even before the Chinese annexation of Hong Kong, Hong Kong's economy benefited from China's open-door policy and became increasingly integrated with China. The coincidence of the Chinese annexation of Hong Kong and the onset of the Asian financial crisis in July 1997 ensured the continuation of the trend under the SAR. On the one hand, Hong Kong's stalled economy made it more desperate for external economic stimuli. On the other, the phenomenal growth of China's economy and the rapid opening up of its market made it the obvious place to turn to. At the same time, China's presence in the Hong Kong economy also expanded considerably, and by 2001 China was the largest investor in the territory, with a total accumulated investment of US$122.8 billion, or nearly 30% of total inward investment (Table 1).

Integration with Chinese economy entails an outflow of local capital across the border. The last two decades have witnessed a dramatic relocation of Hong Kong companies northwards to exploit the wage gap between the two economies and thereby lower production costs. Investments in China are now significant components of the business portfolio of leading Hong Kong conglomerates (Table 2).

The vast investments of Hong Kong tycoons in China and the economic presence of Chinese enterprises in Hong Kong enable the CPG to wield considerable influence over the Hong Kong business sector. Under CEPA, professional groups are granted permission to practice in China, as Chinese contracts are now vital for accountants, engineers, architects and lawyers in Hong Kong, making them loath to antagonize Beijing. The economic downturn that followed the Asian financial crisis placed Hong Kong business and professional groups in an especially vulnerable position.

The weakened economic situation of the SAR increased its reliance on the CPG, triggering a dialectical process of economic and political change. The low popularity of the SAR government has also driven it to rely more on the CPG for economic assistance, as the SAR Government argued that increased economic integration with China was the only way out for the territory's ailing economy. The increased economic dependence in turn gave CPG more influence on Hong Kong business and professional groups, and less bargaining power on the part of the SAR government. Increased political influence of the CPG on Hong Kong actors then drove the HKSAR government and Hong Kong businesses to seek more economic assistance from the CPG, starting another cycle of economic and political dependence.

Starting from 2000, Tung made frequent visits to Chinese cities to discuss economic cooperation plans, in a bid to present himself as the indispensable link with Chinese authorities, and thus the best person to secure Chinese support to help Hong Kong climb out of recession. In July 2001, the HKSAR government and the neighboring Guangdong provincial government reached cooperation agreements on port and airport services, trade, tourism, environmental protection, and information exchange. At the same time, Hong Kong and Chinese cities began discussions on preferential treatment for Hong Kong enterprises, and free trade zones to minimize barriers to Hong Kong goods, services and investments.

Economic integration with China, now spearheaded by the SAR Government, conveys the clear message that Hong Kong's future economic well-being is dependent on China, increasing the leverage CPG has over developments in the SAR. Increasing economic integration also brings Chinese actors into the formal policy institutions of Hong Kong. Their presence in the economic administration of the SAR reveals the growing involvement of China in local policy processes. Table 3 analyzes membership in three major financial administrations in Hong Kong: the Hong Kong Monetary Authority, a key statutory body overseeing the reserve management of Hong Kong dollars and the financial market, the Hong Kong Association of Banks, a major avenue for deliberation among bankers on credit supply and banking regulations, and the Securities and Futures Commission of Hong Kong, a leading watchdog over the operation of the financial market.

Economic dependence creates a crucial integrative context, within which political developments are necessarily played out. A case in point was the re-election bid by Tung in 2002. Because of the economic downturn and various policy failures (Lau, 2002; Chan and So, 2002), there were rumors by 2000 that many local business leaders did not want to see a second term for Tung. To quell possible opposition, Beijing leaders made their preference clear. In June 2000, 30 Hong Kong tycoons were summoned to Beijing to meet President Jiang Zemin, Premier Zhu Rongji and Vice Premier Qian Qichen. Most tycoons emerged from the meeting in support of a second term for Tung. In October 2000, top Beijing leaders openly stated their support for Tung's second term. Getting the message, the business elites and pro-China politicians in the Election Committee stood behind Tung in the 2002 CE election. With 714 of the 800 Election Committee members nominating him for a second term, Tung's re-election was uncontested. With abysmal popularity and legitimacy, strong backing from Beijing became the only card for Tung, further increasing his dependence on CPG.

The Struggle Against National Security Legislation

Soon after Tung's second term had begun, Hong Kong's autonomy faced its sternest test, in the 2002-03 political struggle surrounding the National Security (Legislative Provisions) Bill. The proposed law had its constitutional foundation in Article 23 of the Basic Law, which reads as follows:
The Hong Kong Special Administrative Region shall enact laws on its
own to prohibit any act of treason, secession, sedition, subversion
against the CPG, or theft of state secrets, to prohibit foreign
political organizations or bodies from conducting political
activities in the Region, and to prohibit political organizations
or bodies of the Region from establishing ties with foreign
political organizations or bodies.


For years, Article 23 has been a sword of Damocles for the pro-democracy opposition in Hong Kong. Many pro-democracy activists played a major role in supporting the Beijing democracy movement in 1989. Every year, tens of thousands of Hong Kong people participate in a candlelight vigil in the Victoria Park, in commemoration of the Tiananmen incident in 1989, and chant slogans such as "end one party dictatorship [in China]." Hong Kong's democrats have long feared that laws on Article 23, if enacted, might be used to persecute the political opposition and peaceful dissidence, and activities such as the Victoria Park vigil could be construed as acts of subversion.

Probably aware of the possible public opposition and damage to its international image, the SAR Government refrained from enacting Article 23 laws in Tung's first term. However, in 2002 Beijing leaders seemed to think they had waited long enough, and reminded Hong Kong of the need to act. In February 2002, NPC Chairman Li Peng said that while it was understandable" that the SAR Government had not enacted Article 23 legislation in the first five years, it should be accomplished within Tung's second term (Apple Daily, 28 February 2002: A2). Vice Premier Qian Qichen echoed the view, and argued explicitly that Falun Gong should be banned in Hong Kong once Article 23 laws were enacted (Hong Kong Economic Journal, 26 June 2003: 2). In September 2002, the SAR Government released a consultation document, Proposals to Implement Article 23 of the Basic Law. This contained new laws, and amendments to current laws, to forbid treason, secession, sedition, subversion, theft of state secrets, and links with foreign political organizations.

There were many legal and political objections to the National Security (Legislative Provisions) Bill subsequently tabled for First Reading in Legco in February 2003. It was considered too widely and loosely drawn, with major offences vaguely defined, resulting in sweeping official powers to curb peaceful dissidence through heavy sentences. One example was that "assisting public enemy at war" was held to constitute treason, but the meaning of "assisting" was not clearly defined, making peaceful anti-war protests and humanitarian aid to victims of war liable to prosecution as treason. The section on sedition outlawed acts that "incite" others to commit an offence of treason, subversion, or secession. Critics pointed out that the law would thereby punish the intent to "incite," rather than an action, which is against common law practice. What constituted "incitement" was also not clearly defined. Section 9C of the Bill made it illegal to publish, sell, distribute, display, import or export, print or reproduce any "seditious publications," with the latter defined as publications with intent to "incite" others to commit treason, subversion or secession. Legal professionals, academics and journalists commonly believed this would generate a "chilling effect" on the press, as nobody would know what exactly might constitute a "seditious publication," and many might simply shy away from criticism of the Chinese authorities and the SAR Government.

The Bill also created an offence of "damaging disclosure" of public information, defined as disclosure that would endanger national security. Information relating to national security, intelligence, defense, international relations or "affairs concerning the SAR which are under the Basic Law within the responsibility of the Central Authorities" was protected against disclosure, and "unauthorized disclosure" of protected information could be punished by heavy sentences. Wary of China's past record of persecuting journalists and dissidents through similar charges, the Hong Kong Journalists Association feared the impact on the news media. It argued that the range of protected information was too broad, and held that there was no clear definition of what constituted "endangering national security," which made the law liable to abuse by the authorities as a tool for curtailing press freedom.

In addition, the Bill invested in the Secretary for Security power to proscribe Hong Kong organizations that were subordinate to a Chinese organization which had been proscribed on national security grounds. Human rights activists warned that authorities in the PRC often charged Chinese dissidents with national security offences. Hong Kong groups that actively support Chinese dissidence movements, such as the Information Center for Human Rights and Democracy in China (Zhongguo Minyun Xinshi Zhongxin), could easily fall prey to the new law. Hong Kong's Catholic Church was also concerned, as it has many links with "underground" churches in China.

The proposed legislation prompted an unprecedented awakening of Hong Kong civil society. Many feared that by introducing China’s national security concepts into the territory's legal system, the "one country, two systems" framework and Hong Kong's long-established freedoms would be undermined. Although there were already signs after 1997 that Hong Kong's civil liberties and rule of law had political limits (Ching, 2001; Chan, 2002), Article 23 appeared to be an all-encompassing challenge to the existing rights and way of life in Hong Kong. As a result, bishops, academics, senior barristers, human rights activists, pro-democracy politicians, journalists, writers and columnists, film directors and movie stars, and other social leaders spoke out against the Bill, worrying that the law could undermine Hong Kong's freedom of press, of speech and of information. The governments or parliaments of the United States, United Kingdom, European Union, Canada, Australia and New Zealand all expressed concerns that Article 23 might adversely affect Hong Kong as a free city.

Both the SAR Government and the CPG Government seemed unmoved by the opposition. As early as October 2002, when asked about the massive opposition against Article 23 legislation in Hong Kong, Deputy Premier Qian Qichen said that those who were afraid of Article 23 legislation "had devils in their hearts" (xinli yougwei) (Ming Pao, 26 October 2002: A 1). In June 2003, State Council member Tang Jiaxun, who was in charge of policy on Hong Kong, made a high-profile comment that the reunification would be meaningless if Hong Kong does not enact laws on national security. On the same occasion, President Hu Jintao also said that Hong Kong people needed not to worry about Article 23 legislation, claiming that it would not hurt Hong Kong's stability or political development.

With pro-government members in the majority in Legco, the Tung administration thought it could force the Bill through despite the strong opposition, and scheduled the Second and Third Readings of the Bill for July 9, 2003. In a last-ditch effort, an alliance of 44 groups opposed to Article 23 legislation, known as the Civil Human Rights Front, organized a mass demonstration on 1 July 2003, the sixth anniversary of the Chinese annexation of Hong Kong. Defying scorching sun and high temperatures, an estimated 500,000 people turned out to defend their freedom and Hong Kong's autonomy. The march was also an outburst of long-accumulated dissatisfaction with SAR governance (Chan, 2003).

The mass demonstration threw the SAR Government into disarray. For several days, Tung and his cabinet could not decide whether or not to table the Bill for Second Reading as scheduled. Beijing also did not openly comment on the July 1 demonstration or Article 23 legislation after the march. The indecision created a split among the pro-government elites in the SAR. In the heat of the deepening crisis, the pro-business Liberal Party, a member of the governing coalition holding eight votes in Legco, decided to desert the Tung administration and support democrats' calls for a postponement of the Second Reading. Losing the support of Liberal Party, and hence majority support for the Bill in Legco, the Government was forced to postpone the Second Reading. In September, it announced that it was withdrawing the Bill altogether, meaning that no national security legislation could be raised until after 2004 Legco elections.

Increased Dependence on the Beijing Regime?

On the face of it, the July 1 demonstration was a major victory for people's power and Hong Kong's autonomy. In the long term, however, the demonstration could lead to more intervention from Beijing, and increased economic dependence, and hence political dependence, of Hong Kong on China. Both the CPG and the SAR government were clearly surprised by the scale of the July 1 protest, as before that the Hong Kong authorities estimated a crowd of only 30-50,000. Days of indecision from both Beijing and the SAR Government, and an internal split within the SAR elite, led to a temporary breakdown of the SAR governing coalition, and the eventual withdrawal of the Bill. The July events also showed that even if the CPG had wanted Hong Kong to legislate for national security as soon as possible, it lacked the formal institutional mechanisms to intervene. Under the "one country, two systems" umbrella, Hong Kong has independent legislative power, and as long as the SAR Government cannot control the legislative majority, there is not much the CPG can do to turn things around.

The July 1 demonstration changed the attitude of Beijing towards Hong Kong. To the Beijing leaders, mass mobilization of such magnitude might hurt Hong Kong's stability and prosperity. What alarms Beijing most is that the movement against Article 23 was quickly transformed into a pro-democracy movement. The unsatisfactory performance of the SAR Government after 1997 and its contempt for public opinion during the Article 23 legislation saga lent credence to the democrats' long-time claim that a democracy can better protect people's rights, respect public opinion and provide good governance. The Article 23 episode also had major implications for the 2004 Legco elections and subsequent political development in Hong Kong. With the democrats gaining in standing and popularity because of the struggle, they could possibly secure a Legco majority if they were to score a resounding victory in the 2004 elections. To Beijing leaders, if the SAR government loses its Legco majority in 2004, it will drastically increase the political influence of the democrats, and fundamentally shake Beijing's control over the SAR. Faced with these possibilities, the CPG stepped in to try to rescue the SAR Government from its political crisis. By withdrawing the National Security Bill in September 2003, the SAR Government risks not being able to legislate for Article 23 at all, should the democrats manage to win a majority in the 2004 elections. However, withdrawing the Bill should help to lessen the political damage to the pro-government parties in the 2004 election, as the election year will not be filled with debates over Article 23 and human rights in Hong Kong.

On the economic front, Beijing has decided to take drastic measures to give much more economic assistance and many more economic privileges to Hong Kong, in a bid to speed up the SAR's economic recovery. Some of these initiatives had been discussed for years, but with CPG help after July 1 immediate action was taken on various fronts. The key plank of a raft of proposals was China/Hong Kong Closer Economic Partnership Arrangement. This was formally agreed with Guangdong province at the end of September 2003, and was implemented on 1 January 2004. The benefits for Hong Kong are that local companies in service sectors such as management consulting, construction and real estate, healthcare, law, banking, accounting and conference organization are given access to the PRD market that go beyond China's WTO commitments. CEPA also allows Hong Kong professionals and residents to establish businesses or work in the Guangdong province. Some 90 percent of Hong Kong's domestic exports to Guangdong are expected to enjoy zero tariffs. Over time, further market liberalization measures are expected as the PRD moves towards the status of a free-trade zone. The Hong Kong Government predicts that the city's status as an international commercial hub will be enhanced by CEPA, and that employment levels will increase.

In parallel with the policy strand that produced CEPA, the CPG also agreed to a progressive loosening of regulations governing tourism from China to Hong Kong. Until summer 2003, PRC citizens could only travel as tourists to Hong Kong in state-organized and supervised tours. However, following the July crisis steps were quickly taken to allow individual tourism first, in late July 2003, from four cities in Guangdong province (Dongguan, Foshan, Jiangmen and Zhongshan), and subsequently from the whole of Guangdong, plus Beijing and Shanghai. Again, the policy objective was to provide a boost to the Hong Kong economy at a time of political discontent fuelled by economic under-performance.

A third major initiative was development of a Hong Kong-Macau-Zhuhai road bridge, which is expected to make a considerable improvement to transport links in the western part of the PRD by linking into the Beijing-Zhuhai superhighway, as well as expressways already constructed in much of Guangdong. It is believed that the bridge will boost Hong Kong's status as a logistics center and entrepot for the whole Pearl River Delta region. Although proposals and plans for this new piece of infrastructure had been discussed for more than a year prior to summer 2003, they were met with a mainly frosty response on the part of the Guangdong government, which believed both that Guangdong province had less to gain from the bridge than Hong Kong, and that its existing pattern of economic development would be adversely affected. However, following the July crisis the CPG made known its support for the project. At its meeting on August 4, 2003, the State Council agreed "that the governments of Guangdong, Hong Kong and Macau should set up a Hong Kong-Zhuhai-Macau Bridge Advance Work Coordination Group ... and press ahead with the advance work for the construction of the Bridge" (Environment, Transport and Works Bureau, 2003).

All these new developments point to increased economic dependence of Hong Kong on China, and to enhanced leverage for China over Hong Kong. With business and professional groups scrambling for lucrative contracts and business opportunities in China, the developments will silence the opposition of these influential groups to the SAR Government. Starting from August 2003, pro-PRC political parties and community groups, business tycoons, professional groups (including lawyers, journalists, academics, and others), were all invited to meet with top Beijing leaders and CPG officials. President Hu Jintao explicitly called on the visitors to "give more support to the SAR Government and Tung" (Wen Wei Po, 28 September 2003: A2). The business groups and professional bodies took the chance to discuss future business opportunities and arrangements under CEPA with Chinese officials. Groups that were opposed to Article 23 legislation, such as the Hong Kong Bar Association, were largely shut out of this process, showing that politically disobedient groups are going to lose out in the grand-scale scramble for pieces of China’s pie.

Conclusion

"One country, two systems" was a novel idea which, by allowing different social and economic systems to coexist under the same sovereign umbrella, could be used to solve sovereignty and border conflicts elsewhere in the world. However, the Hong Kong experience has shown that, while the Chinese leaders originally sought a "separation of systems" in the economic realm, the political formula encapsulated in the Basic Law mandated political dependence of the local on the CPG. This political dependence in turn generated more economic dependence, because of the post-1997 governing crisis of the SAR Government, thereby defeating the original "separation of systems" objective. Hong Kong's enhanced economic dependence on China after 1997 has enabled Beijing to wield increasing informal power over Hong Kong elites and society, and to exert even greater political control over the SAR. Hong Kong's ever-weakening economic position vis-a-vis China after 1997 also means a diminished bargaining power for Hong Kong on autonomy issues in the Chinese central-local bargaining framework.

Developments in Hong Kong since 1997 show that the economic "separation of systems" cannot last for long, especially with a low degree of political independence of the local from the central. "Two systems" under the roof of "one country" generates an ongoing osmosis of influence across a very permeable border. Inevitably, the politically powerful partner imposes its influence on the dependent one. At some point the quantitative change of increasing political control and economic dependence will trigger a qualitative change in SAR autonomy. The struggle over Article 23 was originally meant to be a triggering point to a qualitative change. More political control from the CPG or the "chilling effect" brought on by Article 23 could trigger a rapid erosion of the rule of law, civil liberties and information freedom, all pillars of Hong Kong's capitalist system which the Basic Law works so hard to preserve. Article 23 was stopped in its tracks, but the dialectics of political and economic dependence continue to unfold or even speed up following increased Chinese intervention to solve the SAR's governance problems after July 2003.

Hong Kong's autonomy prospects do not have to look bleak. The struggle against Article 23 shows that the vibrant civil society in Hong Kong and the institutional framework guaranteed by the Basic Law--legislative power independent of the Beijing regime--provide important bulwarks against encroachments on Hong Kong's autonomy (Holliday et al., 2002). The Article 23 episode shows that even if the CPG wants to impose its political logic on the local, it has no institutional means to overrule a defiant Legco without overhauling the whole "one country, two systems" setup. While enhanced economic dependence on China seems to be irreversible, the direction of quantitative changes on the political front is still uncertain. To the political opposition, which treasures "high autonomy" for Hong Kong, the next struggle should be about more progressive democratization to maximize political autonomy from the Beijing regime, to forestall a qualitative change towards a merger of the two systems.

The prospect of democratization under "one country" also holds a central place in the cross-strait relationship. Unlike Hong Kong, Taiwan enjoys internal democratic procedures and an autonomous foreign policy. Many Taiwanese are deeply skeptical of the post- 1997 developments in Hong Kong. In 2002, a report by Mainland Affairs Council of the Executive Yuan issued a long list of 143 "controversial events" witnessed since the Chinese annexation of Hong Kong that cast doubts on the autonomy, rule of law, press freedom and civil liberties of Hong Kong (Mainland Affairs Council, 2002). Moreover, Taiwanese leaders are fully aware of the problems of economic dependence revealed by Hang Kong's experience, and conscious of the fact that the past decade or so has seen a rapid relocation of Taiwanese enterprises to China. By 2000, 42 percent of Taiwanese PCs were made in China, and four of the five most important Taiwanese notebook PC makers operated plants in China. In the semi-conductor industry, VIA Technologies, Taiwan's largest integrated circuit design company, has set up production facilities in China to service Chinese computer companies like Legend. China has also replaced the US as the number one market for Taiwanese exports, with a trade volume in excess of US$26 billion in 2001 (Lardy, 2001: 52-3). For Taiwan, then, the key issue is how to preserve a high degree of independence from China at a time of accelerating economic integration. Few believe that Hang Kong's "one country, two systems" model offers a promising way forward.

The uniqueness of the Hang Kong case is generated by its distinctive economic and social systems. Events since 1997 have shown that it is difficult, if not outright impossible, to engineer a coexistence of two systems that are formally separate but informally increasingly interdependent. Symbiotic interactions between the two undermine the very possibility of a "separation of systems." In the case of Hang Kong, the politically more powerful central system has already found many ways to impose its own logic on the subordinate local system, and a new constitutional settlement is gradually unfolding. On the fifth anniversary of the Chinese annexation of Hong Kong, Anson Chan, Hang Kong's Chief Secretary from 1993 to 2001, warned that it would be in the best interests of both sides if Hang Kong maintained its "separateness" from China (Ming Pao, 16 September 2002: A23). However, without fundamental political democratization, it is difficult to see how Hang Kong can retain its political autonomy and maintain a high level of separateness within the "one country, two systems" framework. Drawing a final comparison with Taiwan, the island's trump card in negotiations with Beijing may be its rapidly maturing democracy, which makes a Hang Kong-style solution to the problem of cross-straits relations unthinkable.

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Ian Holliday *, Ma Ngok ** and Ray Yep ***

* Department of Public and Social Administration, City University of Hong Kong;
** Division of Social Science, Hong Kong University of Science and Technology;
*** Department of Public and Social Administration, City University of Hong Kong.
We gratefully acknowledge project funding through a City University of Hong Kong Direct Allocation Grant, and thank Yu To-ming for excellent research assistance.