Chapter 7 Hong Kong's Road to Prosperity

2007 marks the 10th anniversary of Hong Kong's return to China.After 10 years of ups and downs in Hong Kong, what is the impact of its return and "one country, two systems"?What will Hong Kong's future economic prospects depend on?What implications does it have for China's development? ◎Reporter: July 1, 2007 is the 10th anniversary of Hong Kong's return to China.How much impact do you think the implementation of "one country, two systems" has had on Hong Kong's economy and finance in the past 10 years? Chen Zhiwu: In the past 10 years, although there have been several challenges, "one country, two systems" has basically operated smoothly without major persistent political or social crises.Hong Kong's unique legal system and open news media have basically been preserved, and there are still many good developments, and Hong Kong's democratic process is also accelerating.These have provided conditions for the continued growth of Hong Kong's free market economy.I believe that the rule of law and the awareness of rights have taken root in Hong Kong, and the institutional framework required by the Hong Kong economy will be further improved.

However, we have to see that due to the differences in political culture and social structure between the Mainland and Hong Kong, there have indeed been many lessons learned in the past 10 years, and summarizing these experiences and lessons is crucial for future development.Hong Kong is too important to the mainland. If there is a problem with "one country, two systems" and Hong Kong loses its vitality, it will be a loss for all Chinese in the world, and it will also pose a huge obstacle to China's rise.First, since mainland China does not yet have a constitutional court system, people do not have a fair and reliable judicial remedy for unconstitutional acts, administrative decisions or political decisions that are contrary to the constitution.In other words, when "one country, two systems" is abandoned or violated by any party, how can the other party maintain the dignity and integrity of the "one country, two systems" principle?In a sense, so far, international public opinion and Hong Kong's implicit Chinese economic interests are the main means of maintaining "one country, two systems".This "constitutional court" vacuum is the cause of some anxiety among Hong Kong people.

Secondly, before and after the "SARS" in 2003, the government provided many benefits to Hong Kong through policies such as the Pearl River Delta Special Economic Zone, hoping to help Hong Kong's economy out of the predicament.However, after these good intentions, Hong Kong people took to the streets on July 1, 2003 to march.Coupled with Hong Kong's other responses, people inside and outside the system are confused, as if Hong Kong people are very ungrateful and ungrateful.That experience hurt many in Beijing and elsewhere.I think that experience very much shows that the mainland lacks understanding of the changes in Hong Kong society, which led to such a big misunderstanding.We know that before the 1980s, Hong Kong's manufacturing and agriculture still accounted for a considerable amount.By 1980, nearly 1/4 of Hong Kong's GDP was in manufacturing, mining, agriculture and fishery, more than 25% of the people were engaged in these labor industries, and more people just opened "mom-and-pop shops".It can be said that Hong Kong people before the 1980s were mostly uneducated people. At that time, Hong Kong people probably valued practical favors more and were easily satisfied by material things.

However, since the early 1980s, the manufacturing industry has gradually shifted from Hong Kong to the mainland. By 2006, the service industry in Hong Kong accounted for 91% of GDP, and the manufacturing industry accounted for less than 4%. question.What's more, in the 1970s and 1980s, many Hong Kong families sent their children to Western countries such as Britain, the United States, Canada, and Australia to study. The awareness and culture of rights, democracy and freedom are very modern.These generations have never worried about food and clothing since childhood, and their education has made them pay more attention to the value of culture and rights.For them, financial favors are important, but not enough. They value those non-material values ​​more.However, the changes in Hong Kong's social structure and culture are not recognized by the relevant mainland management.Therefore, a few years ago, the mainland was an idea and a value system, while Hong Kong people were another value system.For a policy, the mainland people think that "the problem can be solved now", while the reaction of Hong Kong people may be very negative.I hope we learn some lessons from this.

This involves the study of Hong Kong.In the past, there was too little research on Hong Kong, and objective research was even more lacking.In fact, Hong Kong's tradition is a free economy and a free society under the rule of law. It would be better not to interfere.Hong Kong is a very desirable modern society and an economic miracle for mankind. In many ways, it is a role model for the mainland to learn from.Hong Kong itself is the wealth of the Chinese people. Deng Xiaoping's "one country, two systems" is a very creative institutional structure that can preserve this huge wealth.

◎Reporter: Not long after the return of Hong Kong, the Asian financial crisis broke out.How much impact did the Asian financial crisis have on Hong Kong's economy and finance?Why was Hong Kong able to survive the Asian financial crisis? Chen Zhiwu: Three main factors saved Hong Kong.First, Hong Kong's free and open news media and the rule of law have enhanced its ability to resist financial crises.Indonesia, Malaysia, Thailand, and then South Korea all lacked a reliable rule of law, so power and the relationship with power have always dominated the lending and investment decisions of banks and other financial institutions, planting the seeds of many financial crises.In addition, the news media in those countries are not free, and there is no independent media to expose the financial systems that are colluded with power and money, making their financial systems weak.So, when the crisis comes, the financial system collapses.However, the rule of law in Hong Kong is more reliable, and the news media is more free.In fact, a free and open news media is the most important means of avoiding the risk of financial crisis. It can expose those financial problems before they lead to a crisis, so as to force the relevant personnel to solve the problem.Therefore, Hong Kong's system saved Hong Kong.

The second is the deepening of reform and opening up in the Mainland.In particular, China's accession to the WTO in 2001 further integrated the Chinese economy into the global economy, which strengthened Hong Kong's role as an important bridge between China and the world.Hong Kong is an intermediary that both mainland and foreign multinational companies can accept. The more foreign trade China has, the more business opportunities there will be in Hong Kong.In contrast, Thailand, Indonesia, Malaysia, and Singapore do not have an economic big brother like China, and rely on such a big brother to get out of the Asian financial crisis.

Thirdly, Hong Kong's economic advantage lies in the financial industry, including the capital market and banks, while other countries that were deeply affected by the Asian financial crisis were basically manufacturing-based, which had a great impact on their recovery after the financial crisis.The reason is that before and after 1997, manufacturing shifted to China, and it was difficult for other Asian countries to resist this trend.Therefore, after the Asian financial crisis, the industrial structure of these Asian countries limited their recovery speed.Hong Kong's financial dominance, by contrast, has not been challenged in any way.On the contrary, since the development of China's economy needs more foreign capital and financial support, the capitalization development of Mainland China also needs the support of Hong Kong's financial service industry.In this way, China's development not only did not impact Hong Kong's economy like it impacted other Asian countries, but further stimulated the development of Hong Kong's economy, which is dominated by the financial service industry.

◎Reporter: In addition to the Asian financial crisis, Hong Kong later caught up with the two public health crises of bird flu and SARS.How much impact did they have on Hong Kong?Why was Hong Kong able to overcome these two public health crises? Chen Zhiwu: It is mainly due to the medical staff in Hong Kong, who have retained the professional ethics and professional culture accumulated in Hong Kong over the past century.What they have done also proves that a free society and selfishness are completely different things, unlike what we imagined before "a society with a high degree of marketization must be a society where everyone is selfish."

Because the medical staff in Hong Kong have more professional ethics and professional culture than those in the Mainland, I have always believed that Hong Kong should vigorously develop the medical service industry and the elderly care industry to provide individuals in the Mainland with occupational medical care and elderly care services that are difficult to find in the Mainland. ◎Reporter: How do you evaluate Hong Kong's economic situation today?Hong Kong or Shanghai, who do you think will be China's financial center in the future? Chen Zhiwu: Unless the mainland has substantial improvements in institutional guarantees and the openness of the news media, allowing the judiciary, market supervision and media to enjoy fundamental independence, those who believe that Shanghai can fundamentally replace Hong Kong as a financial center can only is a wish.It is undeniable that under the direct manipulation and arrangement of the government, Shanghai's capital market will sometimes outperform Hong Kong, but that is a superficial phenomenon and is arranged by the government.There is no major financial market center in the history of the world that did not develop spontaneously from the market. Only in this way can it have vitality and long-term prosperity.The capital market, which is arranged by the government and developed by suppressing the spontaneous forces of the market, itself conflicts with the original intention of the capital market.Of course, this does not rule out that there will be superficial prosperity arranged by the government for a period of time, just like the prosperity of the Soviet planned economy, but it will not be sustainable.The advantages of Hong Kong's rule of law, news media, and professional regulatory team, coupled with the familiarity of foreign financial institutions and practitioners with the Hong Kong system, will give Hong Kong an insurmountable advantage over Shanghai for many years to come.Therefore, Hong Kong will continue to be China's most important financial center, which is one of the important reasons why China's reform and opening up can outperform India and other countries. Without Hong Kong's special role in reform and opening up after the 1970s, it is hard to imagine China China's reform and opening up will be so successful.

I know that many people say that as the mainland reforms itself, foreign businessmen and investors themselves can directly bypass Hong Kong and enter the mainland, and the importance of Hong Kong will gradually diminish.this is correct.However, the scale of China's economy will be large, and the demand for financial services is growing rapidly. During this development process, both Shanghai and Hong Kong will grow rapidly.Indeed, before the 1940s, Shanghai trumped Hong Kong.But since then, things have changed.For China, the best policy is to take Hong Kong as the main financial center and develop Shanghai's securities and other financial industries at the same time, so that the two places can compete at the same time. This is the best approach for China.Hong Kong is China's priceless treasure. ◎Reporter: Hong Kong is backed by the mainland and looks at the world. What benefits does this bring to Hong Kong's economy?What are the disadvantages?As China's reform and opening up continue to advance, is Hong Kong's importance to mainland China decreasing or increasing?How can Hong Kong and the Mainland create a win-win situation in the era of globalization? Chen Zhiwu: In the past four years, I have brought dozens of MBA students from Yale University to China every year to visit Chinese companies and units.Every time we fly to Hong Kong first, and then to Shanghai and other places.The reason for this arrangement is that this order can give those foreign students who have never been to China a natural adaptation process.Hong Kong is not only popular in English, but also the closest to the West in culture and many other aspects, giving people the least sense of gap.I know that Shanghai, Beijing and other cities are more and more like Hong Kong in terms of hardware, but there is still a long way to go in terms of culture, dealing with people and many other software aspects. Our experience and practices basically reflect the practice of most foreign-funded enterprises and multinational companies, as well as their feelings. Because of this, Hong Kong's position in China's opening up will not be replaced for many years to come.Then, after the mainland cities become more and more internationalized and Hong Kong's role as a bridge becomes less and less, won't Hong Kong become more and more declining?Don't worry, Hong Kong only needs to focus on the development of the financial, education and medical industries, and that's enough.In such a small place like Hong Kong, the population that can live is limited, so there is no need to compete with the mainland in areas with low profit margins, including in the financial, education and medical industries, and only focus on the most profitable areas to be like those in the mainland Things that cannot be made, small but refined should be the model of Hong Kong.For example, in the field of education, the education system in the Mainland is a piece of rigid soil, and even the best seedlings are likely to be difficult to become talents.However, Hong Kong has considerable academic freedom, and the teaching content is also very flexible and not rigid, which can promote students' creativity.Therefore, Hong Kong does not have to do everything, and does not have to have all five poisons, but to specialize in industries that the mainland system cannot do or cannot make it to the essence.The mainland government should also encourage the free development of Hong Kong and ensure that the Hong Kong government is truly responsible to Hong Kong people. Only in this way can the mainland and Hong Kong achieve a long-term and sustainable win-win situation. ◎Reporter: Can Hong Kong's current economic development model provide useful reference for Macau and Taiwan? Chen Zhiwu: I don't pay much attention to Macau, and I don't know much about it.However, for Taiwan, since 1997, Hong Kong has been the model that all Taiwanese have been following.Whether Hong Kong's democracy is well realized, and whether "one country, two systems" is operating smoothly, these have a direct demonstration effect and influence on Taiwan.As Ms. Long Yingtai mentioned, we cannot think that Taiwanese only care about jobs and wallets.Thankfully, people in Hong Kong, Taiwan, and mainland China have come out of the era of struggling for food and clothing. Just like the new generation in Hong Kong, people in Taiwan care more about whether they can live a decent life beyond basic necessities of life than their parents. Care about feelings of freedom and rights.Therefore, the experience of Hong Kong in the past 10 years and in the future has specific and appropriate significance for Taiwan's return to the motherland. ◎Reporter: What do you think of the changes in Hong Kong's financial status in the world in the past 10 years?Can Hong Kong count as one of the global financial centers today?At present, is there any gap between Hong Kong and London and New York, the two world financial centers?Where are the gaps, if any?How can this gap be bridged? Chen Zhiwu: Due to the rapid development of China's economy and Hong Kong's unique tradition of rule of law in Asia, Hong Kong is not only a unique international metropolis in Asia, but also the strongest financial center in Asia and one of the most important financial centers in the world.On the American continent, people think of New York as a financial center; in Europe, people think of London; in Asia, people think of Hong Kong and Tokyo.Because of Japan's financial controls, Hong Kong is, in fact, widely considered to be the most important financial center of Greater Asia.Like New York and London, Hong Kong is very prominent in the fields of securities market, banking, insurance, private wealth management, fund management (including hedge funds and private equity funds), which are very critical financial intermediaries in the global capital allocation system.Hong Kong's rule of law, free media, and free market philosophy give the rest of the world the credibility and trust needed for financial transactions. The shortcoming of Hong Kong's financial market is that the listed companies and service targets in its capital market are basically from Hong Kong and the mainland, and there are too few from countries and regions other than China.In the past two years, cross-border mergers and acquisitions of stock exchanges between North America and Western Europe have been very popular. For example, the New York Stock Exchange has acquired the European Stock Exchange, and Nasdaq has merged with the London Stock Exchange. This is a new trend in global financial industry competition , modern means of transportation and means of communication make the transnational operation of exchanges a reality.After the powerful combination of American and European financial centers, it will undoubtedly challenge Hong Kong's status as an international financial center.Hong Kong must take action to face this challenge. Geographically, it must extend to Asia, especially the Middle East countries, and form its own strong alliance. Another shortcoming is that Hong Kong's bond market is underdeveloped, far behind New York and London. This is also a common defect in financial markets, and it is necessary to develop this key financial market. ◎Reporter: The authoritative American magazine "Fortune" predicted in 1995 that Hong Kong's handover would kill Hong Kong.But 10 years after Hong Kong's return to the motherland, the latest "Time" magazine (Asian edition) re-examined this statement 13 years later, and admitted in a full 25 pages that its sister magazine "Fortune" reported errors in the past. Hong Kong is more dynamic than ever.How would you rate Fortune's coverage back then and Time's coverage now? Chen Zhiwu: I think that Fortune's forecast did not take into account that China's economy would grow so fast in 1997, especially after entering the WTO in 2001. I did not expect the capitalization and financialization of the mainland economy to rise so fast , this is the biggest loophole in their original predictions, and they focused all their predictions on the pros and cons of the system.We need to know that the impact of the system on the economy is in terms of efficiency. With the same development opportunities and the same efforts, a good system will allow you to generate more income and economic growth, while a bad system will make you lose money. opportunities or only generate a little income.However, if China's economy develops at a supernormal speed, then, regardless of the institutional influence on Hong Kong after 1997, the development opportunities brought by China's rapid economic growth will overwhelm other factors.Hong Kong already has the institutional foundation of a free market economy.Therefore, if Hong Kong's economy does not develop and Hong Kong society is not full of vitality, it will be difficult. ◎Reporter: How do you predict the economic development of Hong Kong in the next 10 or even 20 years?Is the world economic landscape increasingly favorable or unfavorable to Hong Kong's future? Chen Zhiwu: If Hong Kong further strengthens its economic and political structure in several ways, Hong Kong will continue to prosper in the future.The first is as mentioned above, Hong Kong should focus on the development of the financial, education and medical industries, and of course the re-export trade, and they are indeed positioning Hong Kong’s industrial structure in this way; second, Hong Kong must be positioned as an international metropolis and not change Cheng is just a metropolis in China, if that is the case, Hong Kong cannot compete with so many mainland cities, it is a dead end.In other words, all Hong Kong’s positioning should be to strengthen its international character, not to strengthen its mainland character, so that its economic opportunities will be more closely linked with the economies of Greater China, Greater Asia and other countries in the world, and it cannot rely solely on the mainland economy .The source of listed companies must also go beyond China, so as to strengthen their internationality; third, Hong Kong must move forward in the development of democracy.The quality of Hong Kong people is very high, the level of education is also high, and the place is small. There is no reason why democracy cannot operate well. This is a specific institutional guarantee that can strengthen Hong Kong's own stable development and reduce the impact of other political turmoil on Hong Kong. It is also the further internationalization of Hong Kong. It is necessary to enter the modern political society.These can help safeguard Hong Kong's uniqueness and prosperity. ◎Reporter: You have been to Hong Kong (or lived in Hong Kong), what do you think of Hong Kong?Do you have any special feelings, or some interesting personal experiences? Chen Zhiwu: I went to Hong Kong for the first time in early 1989. I lived in Hong Kong for two months in the summer of 1995. In recent years, I have been there several times a year.Every time I go to Hong Kong, I marvel at the power of free markets, free trade and modern globalization. Before 1850, Hong Kong was just a fishing village, but 150 years later it became such a prosperous international metropolis. What does this miracle teach us?What does the history behind it teach us?Are the textbooks about multinational corporations and the history of Western expansion only one-sidedly emphasizing their aggressiveness and not talking about their constructive side?Should the prosperity of Hong Kong's free market and free society reduce our previous fear of free society and market economy? Hong Kong returned to the motherland in 1997, and has continued to prosper and become more vibrant since then. This is worth celebrating for all those who love Hong Kong. Hong Kong's continued prosperity will also be a barometer of China's modernization.