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Bloomberg News: Hong Kong's 'Velvet Revolution' William Pesek Jr. 2003-07-08 It's never wise to read a single gesture as a sign a
government is listening to its people, and Hong Kong is not a democracy. But
Chief Executive Tung Chee-Hwa's move to delay today's vote on national security
legislation after the biggest public demonstration in 14 years proves people
power is working. Just days ago, Tung was adamant about pushing through
''Article 23'' laws that would muzzle dissent. That was until 500,000 people,
one in 14 Hong Kong residents, last week took to the streets in protest. This
week, Tung shocked the city's 7 million people by bowing to public pressure and
deferring the legislation. Investors could be well served by democratic forces, or
even something approaching them, in post-1997 Hong Kong. Clearly, investors care
more about economic fundamentals and Hong Kong's are hardly good. The largest
demonstration on Chinese soil since Tiananmen Square in 1989 may encourage
Beijing to dump Tung, its handpicked leader. Some new blood could help things.
Tung has fumbled every major challenge thrown his way
since 1997, when China resumed control of Hong Kong. He has failed miserably on
the economy, and done even worse when it comes to representing the people of
Hong Kong. He also was slow to tackle severe acute respiratory syndrome, or SARS. At the very least, Beijing has received a humiliating
setback as it pursues political integration with Hong Kong. The city's residents
are all too happy to support economic integration with the mainland, something
that got a boost from the signing of a free trade agreement between the two
economies last month. On the issue of closer political links, Hong Kongers are
balking. This is a problem for China on many levels. It devastates
Beijing's efforts to create a kinder, gentler image in global markets. It
creates tension between Beijing and Hong Kong that complicates efforts to woo
Taiwan back to the motherland. China wants to demonstrate to Taiwan that its
''one-country, two-systems'' relationship with Hong Kong is working. Yet events
in Hong Kong can only be seen as a cautionary tale for Taiwan. Beijing's other problem is more immediate: investors.
Companies are rushing to China to harness its cheap land and labor costs and its
willingness to look the other way on labor rights and the environment. But
institutional investors have been far less willing to go there. The reason: Scant trust that Chinese officials will allow
the free speech and flow of information on which markets thrive. The current
dustup in Hong Kong suggests Beijing isn't ready. Hong Kong rejoined China six
years ago, but the laws under Article 23 It's one of the forces weighing on Hong Kong stocks. The
Hang Seng Index is up just 7.20 percent this year, lagging double-digit stock
gains throughout Asia. Even deflation-plagued Japan is experiencing a stock
rally; the Nikkei 225 Stock Average is up over 15 percent this year. The ambiguous language of Hong Kong's internal security
laws could be used to punish seemingly minor offenses. If a Hong Kong- based
economist published a report suggesting China's gross domestic product is
overstated, would that be an act against the state? Could an analyst be punished
for publishing negative economic forecasts? What about a journalist who gets
leaked information about a politician or a company doing dodgy things? Hong Kong's crisis also is a reminder that China is
missing a key economic ingredient: self-confidence. When you think about the
world's most vibrant, efficient and entrepreneurial economies, what they have in
common is a sense of certainty. Not so much in the success of their policies, as
in the belief that right or wrong, their nation and economy will survive intact.
Beijing's insecurity complex sends exactly the opposite
message -- that things are too shaky to allow free speech and transparency. Far
from being signs of strength, limiting debate and spending so much time and
energy on controlling what's said about China in China are signs of weakness. In Hong Kong, Beijing has the opportunity to show
investors it's maturing and becoming more confident. Otherwise, it may have even
bigger protests on its hands. Posting date: 7/12/2003
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