FCR: What do you think about Hong Kong's future after it comes under mainland China's sovereignty in 1997? Has the territory's badly shattered confidence been restored since the June 4th killings in Peking? Will time cure Hong Kong's nervousness about its political future?
Cheung: The simple fact is that Hong Kong people don't have any faith in the mainland authorities, nor does anyone know who is really in power and who will be in power in the future. Particularly after the incident of June 4th, people backpedaled on their estimates, and semi-sure things became uncertain ties in Hong Kong's future. Some notable figures miscalculated the course of events. Ho Hung-seng, the big boss of a casino in Macau, publicly bet a hundred to one against any possibility of Peking brutality. He lost, and so did most China experts who ventured predictions.
I myself do not hold any illusions about communist rule. Most Hong Kong residents are refugees who escaped across the border. They know the communists better than anyone else. And the new generations can easily observe the facts of life as they unfold before their eyes.
Hong Kong's future has the potential to go to extremes of either good or bad. In my view, the Hong Kong economy may be quite satisfactory after 1997. If Hong Kong does poorly, the Communist Party will put the blame entirely on Hong Kong, but it would have proven itself to be a dreadful ruler for residents here.
Viewing the wave of political changes in Eastern Europe, no one could have anticipated such a scenario one or two months ago. The winds of change may yet threaten North Korea too. But we have an even harder time figuring out what the trend will be in mainland China.
The transfer of power in mainland China is always a puzzle to outsiders. Who is in power now, and who will be on top later? Teng is the backstage manager now but will probably be gone after 1997. Who will take over at that time? No one knows. What will the Mr. Who promise to do? No one knows.
FCR: What are the visible economic effects in Hong Kong of the June 4th shootings? Do you think that Hong Kong can preserve its status as the world's third largest financial hub and as an international commercial center?
Cheung: The economic situation in Hong Kong is tied to the mainland's development. If the mainland falls off its stride, the Hong Kong economy will suffer accordingly because Hong Kong's strong economic growth greatly depends on a large volume of trade with China, including entrepot trade.
What worries me most is not the situation after 1997, but how we get through the years before the reversion in 1997. All of Peking's economic policies are in a mess. The mainland may be facing a troubled state of affairs in the next few years.
FCR: What can Hong Kong people do to sustain prosperity?
Cheung: Our greatest problem is that we can't read minds. What does the Peking leadership want? What is the real power structure? What will happen in the future? These are all unknowns. We know nothing and can do nothing. Hong Kong is not in a position to bargain with the mainland.
FCR: Mainland China has tried to establish an economic base in Hong Kong. What do you think of its influence in Hong Kong, especially in the sphere of banking?
Cheung: Who is in charge in Hong Kong doesn't matter as long as Hong Kong people can live their lives and make money. But corruption among the officialdom is a serious problem. People in the mainland China banks do not know how to run a bank.
Some people are in favor of a central banking system, which would in fact ruin the local monetary system and destroy the link between the Hong Kong dollar and the U.S. dollar. They want Hong Kong to remain stable and prosperous, but they don't know how to go about it.
FCR: How about the economic situation in Hong Kong over the next decade, especially in the light of the brain drain and the flight of capital?
Cheung: Mainland China's open policies had contributed considerably to the tourist industry and in particular brought prosperity to the hoteliers. The scene changed after June 4th.
Investments flow in and out of Hong Kong. A lot of foreign investment came into Hong Kong in the 1980s. Some of the local capital moved out, and capital from Japan, South Korea, Taiwan, Europe, and Australia flowed in. If mainland China does not change its attitudes and behavior, incoming capital will soon not match outgoing capital, and the Hong Kong economy will collapse. The most important factor is mainland China—other factors are secondary.
Right now, Hong Kong is just at the balance point. If Peking continues on its present course, pretty soon we will fall short of the balance point, something that we cannot sustain. It is possible but very difficult to foresee that mainland China will show some gradual improvement. I don't think the word is in yet. That's the problem. And the other problem is that if the current Peking leaders step down, where will a competent new leadership come from? After all, we're not talking about Taiwan or Hong Kong, where there will always be competent people available to take over the government. But mainland China has to pay the price of 10 years of the Cultural Revolution—10 full years of no education of any kind. The consequences are showing up now: there is no one capable of running things.
Professor Stephen Cheung of the University of Hong Kong—"no illusions about communist rule."
FCR: What are the reasons for the recent influx of foreign capital, when at the same time some local capital is flowing out of Hong Kong in order to minimize risk—Jardines and Swire, for example?
Cheung: In the past two years, there was a mass influx of foreign capital, including investment from Japan and Taiwan, but it slowed down after the June 4th incident. In the long run, I think Hong Kong is tremendously good, even better than Taiwan, as an economic focal point. Geographically, Hong Kong is better situated than Taiwan, which is a little bit isolated. Hong Kong's financial services sector is one of the best in the world. If mainland China can really commit itself to an open policy, the region embracing Kwangtung, Fukien, Hong Kong, and Taiwan would be the optimum commercial zone in the world.
Eastern Europe has given wider scope to liberal rule and transformed itself into a potentially keen competitor of the Chinese littoral as a major home for foreign investment on a grand scale. The East Europeans can be expected to make fresh changes within a few years that promise to reinvigorate their societies. They benefited from Gorbachev's supportive attitude against a communist bloodbath, and the old regimes had the bad example of the Tienanmen massacre as a warning of the price of repression. They saw what happened in the mainland through the television and film media, and they decided not to follow that example.
Until such time as the Peking authorities change their minds about how to handle things, business risks remain at a high level. The strategy of business people with respect to Hong Kong is to disperse risk while at the same time not losing the opportunity to profit from the mainland China trade.
FCR: How do non-political factors, such as labor problems, rising production costs, and the surge of protectionism affect Hong Kong's foreign trade?
Cheung: Protectionism won't be applied too harshly to Hong Kong. The U.S. market has closed a little bit, but the Japanese market has opened up more, and the European market is tending in the same direction. The Russian market has opened already, and the East European market is expected to open up sooner or later. Global trends are favorable to Hong Kong's foreign trade.
FCR: Apart from freedom, what are the other factors that make Hong Kong what it is today?
Cheung: Private ownership is the most important factor. Also very important are the absence of controls on foreign exchange movements and Hong Kong's free export trade.
FCR: Governor Wilson announced the HK$127 billion public construction project for a new airport, harbor improvement, and other facilities up to 1997, and it was hoped that this would shore up confidence in Hong Kong. Do you think the strategy has worked?
Cheung: I don't think money can buy confidence. It's not a bad idea, and it will help development, but not people's confidence. Even if investments were to triple, it still can't win their hearts back. If there is no change in the present communist regime, confidence will not be restored.
FCR: Many people think Hong Kong is economically vital to Peking, and for this reason Hong Kong can be safe under the "one country, two systems" formula. Others argue that Hong Kong is not vital, but rather merely an economic convenience for the mainland. Do you think that Hong Kong is safe because it is vital to Peking?
Cheung: Don't count on that. Many people count on that in the belief that Hong Kong occupies such an important economic position in relation to the mainland. To some degree I believe that too, but not as much as most people. The proposition interprets the economic facts in the wrong way. The Peking regime doesn't care about the consequences at all. The message of the June 4th massacre is clear: they killed the students and they don't give a damn.
If a million people or two million people were to die, or if all the Hong Kong people threatened to kill themselves en masse and five million people died overnight, I don't think they would care. In fact, if all of Hong Kong disappears, it's OK with them. Hong Kong people think they are important to Peking. This is a joke, and Hong Kong people should come to their senses.
Peking is creating a gulf between itself and the outside world. So many people were killed, and then many were arrested. In the aftermath of the massacre, Peking launched a campaign to "unify thinking," and managers of all business units were asked to write a daily 4,000-word essay for six consecutive days. But it is impossible to "unify thinking" any more, not after opening up for more than 10 years. This effort is Peking's damage control strategy to recapture the public mind and regain the lead in sectors accessible to Hong Kong information.
Peking will treasure Hong Kong only when the atmosphere is precisely to their liking. So don't think in terms of how much Hong Kong benefits them. To some of the people now in charge in Peking, personal power and glory—whatever glory may mean—are more important than anything else.
The famous skyline over Victoria Harbor—Hong Kong is still a good place to become wealthy, "but money can't buy confidence."
FCR: Would the more open policy practiced in Hong Kong have an effect on the mainland after 1997?
Cheung: In the past, the Hong Kong economy affected the mainland's situation, but now it's just the other way around. The mainland is now more influential than ever in Hong Kong. It's difficult to see anything that would make the regime change its mentality.
FCR: Would the mainland take over Hong Kong before 1997 if a radical political atmosphere prevailed in Hong Kong and threatened its takeover in 1997?
Cheung: Hong Kong people would not allow radical acts of that kind in Hong Kong. I am opposed to radical political organizations, but only to prevent Peking from using them as an excuse. Peking would like to find excuses for its wrongdoing.
The critical time is right now, not 1997. The massacre widened the gulf between the communist bureaucracy and people, and communist rule has become vulnerable to further attack. In the long run, the June 4th incident will have contributed a lot to mainland China, but the price was much too high. Strictly in a pragmatic sense, the student pro-democracy movement is more negative than positive in the development of mainland China. No matter how much improvement results, it would be very difficult for the long-run benefits to overcome the short-term loss.
Change can come very suddenly, as we saw in Eastern Europe. If a major change should occur in mainland China, it would be very difficult for them to preserve the Communist Party. Previously they would have been able to save the Party, and it would have just been a question of reforming and improving the Party, but now that would be very difficult. As soon as the existing authorities lose their grip on power, change can happen very fast.
There may be another major round of bloodshed. It's very frightening, but it will prove very difficult to maintain the status quo. If they are ingenious, the present authorities may be able to find a way to protect themselves, but they can't do it by arresting people. They have to gain the support of the people. No government in history has been able to survive for long without the support of the people. The Peking leaders don't have the support of the people except for a few officials around them. People complain all the time.
There is no use in trying to cover up the Peking killings, for the whole of mainland China knew what was going on. In the morning, all the taxis were idle. Something must have happened. The hotels in Sian plunged down to an occupancy rate of nine percent from the previous 95 percent at the height of the tourist season. People in most places must have known what was happening. Somehow in a year or two, maybe Chao Tzu-yang (Zhao Ziyang) will come forth again.
FCR: What do you think of the mainland's plan to use the Hong Kong reversion as a model for reunifying Taiwan and the mainland?
Cheung: If Taiwan can't maintain its pace of development, it will definitely shift some operations to the mainland, where the factors of production are much cheaper. Since 1988, very large Taiwan investments have been flowing to mainland China through indirect trade or other channels. Economically speaking, the mainland's open policy in the past few years has benefited not only Hong Kong but also Taiwan.