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 THE LION ROCK INSTITUTE
Hong Kong 10 Years Later
by Alex Tripodi, Associate Scholar, and
Andrew Work, Exec. Director
Lion Rock Institute
 Lion Rock Institute Executive Director Andrew Work, met with ISIL execs Vince Miller and Jim Elwood and addressed an
international group at a breakout session from the Heritage Foundation's conference in Philadelphia (April 2007). The site for the meeting was McGillin's Old Ale House, the oldest pub in Philadelphia, founded in 1860.
Hong Kong had its origins in trade and has never forgotten this fact. The city's freedom has been its strength in recovering
from calamity, with nothing other than the freedom, the ingenuity of her people, and an insatiable appetite for opportunity.
As an island of openness with the rule of law, in a region rife with authoritarianism, Hong Kong has sprinted ahead of its neighbors
to create one of the freest and most affluent economies on Earth.
Its freedom has allowed it to recover from 3 massive external shocks since the 1997 "Handover". If defended and extended, Hong Kong's
freedoms will continue to give it the strength and flexibility to continue to lead the region. If not, our determined drive to succeed and build could be destroyed.
Financial Secretary Sir Philip Haddon Cave put words to Sir John Cowperthwaite's policy approach. He coined the term 'positive
non-interventionism' in the 1970's. This was the official stance of every government that followed – until 2006.
The big question leading up to the "Handover" in 1997 was, "Will the government that the Chinese select increase interventionism into
the political and economic realms?" The Asian Financial Crisis of 1997 seemed destined to test this question.
The Asian Financial Crisis
The day after the "Handover," a wide range of fiscal imbalances that had been building up in South East Asia began to unravel.
Export-driven economies with artificially-high interest rates drove over-investment into the members of the so-called "Asian economic miracle". When the Thai baht fell,
foreign capital that had suddenly flowed into the region's economies flowed back out as investors lost confidence in South East Asia's unusually hot economies.
Hong Kong's banking board reacted to the Crisis by manipulating the stock market, buying up massive amounts of Hang Seng Index stocks,
punishing short-selling speculators by propping up stock prices using Hong Kong's massive reserves. This move was lauded by some as a brilliant maneuver that saved the
collapse and the worst excesses of the AFC from ravaging the Hong Kong economy. But by the time the dust settled at the end of August 1998, the Hong Kong government
held over $15 billion USD of the Hong Kong Stock Exchange offerings, including over 10% of global banking giant HSBC. This was a shocking situation for the capital of
capitalism to have a government holding a huge proportion of the stock market. The Hong Kong government got an extremely lucky break and ended up doing well on the
investment due to a dramatic increase in the liquidity of the US currency – which lifted the stock market. However, the precedent, so early in the new
administration, was unnerving.
The continuing depression in the economy, exacerbated by the dot-com boom and bust, and the economically and spiritually-crushing SARS
epidemic, drove our inexperienced policy makers into accelerated Keynesian mode. Government money was spent on recruiting Disney, and giving away land to develop
technology hubs (like Cyberport). This and many more interventionist measures enriched only land developers and provided corporate welfare to the film industry. Deficits
were run up and taxes were raised.
Dissatisfaction with the leadership and the poor state of the economy culminated in resistance to Article 23 legislation. Article 23 is
the provision for anti-treason protection – as enshrined in the Basic Law, Hong Kong's mini-constitution. The measures were considered extremely draconian even
though some argued, with some justification, they were less strict than those under the British. In addition to the expected human-rights activists, the Bar Association,
the legal community, and virtually every element of Hong Kong society opposed the introduction of the measures. On July 1, 2003 a march for democracy and universal
suffrage became a referendum on those issues, the leadership, and the economy and attracted over 500,000 people – 1 in every 12 Hong Kongers.
In 2004, the economy began to improve, but the damage had been done. Tung Chee Hwa, in March of 2005, quit his post 2 years early as
the limits of Beijing's patience had been reached. Financial Secretary Donald Tsang took his place.
 Simon Lee, Communications Director for the Lion Rock Institute provides insight into developments in Hong Kong.
Hong Kong Rising
The recent economic upturn in the region has been good to Hong Kong. Unemployment is down to 4.3% and real estate prices have been
rising. Corporate profits are up, salaries are rising and the Hang Seng Index is at an all-time high.
The United States handed Hong Kong a gift in 2002: Sarbanes-Oxley legislation. Some years later, with many reformed Chinese financial
institutions tapping global markets for investment, they found Hong Kong's more sensible regulatory environment irresistible. Over $39.57 billion USD were raised in the
Hong Kong capital markets in 2006, second only to London – beating out New York handily.
This success diminished fears about Hong Kong's displacement as a financial center for China by the rise of Shanghai. Many Chinese
companies prefer to set up their headquarters for global transactions in Hong Kong for the same reasons that multinationals from around the world do – the
continued rule of law, the sanctity of contract and the free flow of capital.
Trade is also up. While there are concerns about the rise of multiple, cheaper ports along the South China coast, Hong Kong trade
continues to grow through a range of 6% to 18% on a quarterly basis since 2002.
Concerns about Singapore taking Hong Kong's role as an Asian center of finance and investment are no longer a great concern. Hong Kong,
a city of only 7 million people, attracted $42 billion USD FDI and many more regional headquarters last year than Singapore.
The End of Positive Non-Interventionism
But while times are improving economically, there is evidence that Hong Kong's economic miracle and the famous laissez-faire model is
under rhetorical and real-world attack.
Donald Tsang publically abandoned positive non-intervention in 2006. While the philosophy had not been absolute, it had suggested an
outlook that was broadly against government intervention, believing it likely to be detrimental in almost all situations. Abandoning the rhetoric reduced the pressure
to stay out of the market. This attracted criticisms from many quarters, including The Lion Rock Institute and luminaries like Milton Friedman.
Rhetoric usually follows action. In fact, a raft of interventionist policies had already come into play. Donald Tsang was part of the
administration that recruited Disney, and gave away Cyberport. He also led the taxpayer-funded government wager in the stock markets in 1998.
A prime example was the 2006 attempt to introduce a GST, a path to higher and more complicated taxes. Broadening the tax base is still
an objective of the government, even if they currently aren't sure how to achieve it without a GST.
Antitrust legislation is scheduled to be introduced. Socialist forces seem happy to advocate more government power for a government
they say they wish to displace. Pushing strongly for antitrust, they now have a proposal that would put a CE-selected commissioner at the head of a body with arbitrary
power to decide on prosecutions.
And much more is coming. Environmental NGO's are advocating more "green taxes" on plastic bags and on banning light bulbs. Unions and
CSR advocates have forced the issue of a minimum wage, something previously unheard of in Hong Kong. The government lowered wine and beer taxes in the last budget –
but rather than leaving the market to determine prices, they threatened beer producers with cancellation of the tax cuts if they didn't comply by lowering prices for
consumers. Importers complied promptly, even though a doubling of barley prices and rising currencies against the Hong Kong dollar made the product more expensive than
when the tax cut was announced. Select industries, like the film industry, are receiving more corporate welfare. Service providers continue to use professional
regulatory bodies like the Bar and the Medical Council to restrict access to Hong Kong from competitors. The smoking ban craze arrived in Hong Kong on January 1, 2007
banning smoking in most indoor places, private and public. And the list goes on.
Our Concern for the Future
While Hong Kong is doing well today, its economy is at risk. More than ever it is tied to the mainland Chinese economy and dependent on
flow-through trade to the US. Problems with either one could hit the economy hard. Hong Kong's resilience has come from a freedom that has allowed it to adapt –
not the deadening hand of an interventionist government.
Attempts to introduce new taxes, labor regulations (like a minimum wage), the emergence of bodies with arbitrary power of prosecution,
corporate welfare and nanny-state legislation are on the rise. Populist demagogues sit in the legislature and demand the government do more, seemingly indifferent to
the fact that they hand the bureaucrat-led government more power every time they do so.
However, there is still a thirst for freedom and enterprise among the people under the Lion Rock. They fought off attempts to put their
personal freedoms at risk by fighting Article 23 and defended their economic freedoms by opposing the GST. The people are becoming more active and aware of the issues
that will impact on their success and the success of their children. Bound to China and integrated with the global economy, their strength will lie in safeguarding the
freedoms that have made it a beacon to the world.
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