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NATHAN FENBY DEALING WITH THE DRAGON A YEAR IN THE NEW HONG KONG Also byJonathan Fenby ONTHE BRINK:THETROUBLEWITH FRANCE THE INTERNATIONAL NEWS SERVICES PIRACY ANDTHE PUBLIC THE FALL OFTHE HOUSE OF BEAVERBROOK DEALING WITH THE DRAGON A Year in the New Hong Kong JONATHAN FENBY -Ho 1 SpadinaCrescent,Rm. Ill* Ibronto, Canada• M5S 1A1 LlTTLE, Brown and Company A Little, Brown Book Firstpublishedin GreatBritain in 2000 byLittle, Brown & Company Copyright© 2000 byJonathan Fenby PICTURECREDITS 1: Ming/South China Morning Post; 2, 6, 7, 8, 9, 12, 14, 15: Popperfoto/Reuters; 3, 4, 5, 10, 11, 16: AFP; 17: SCMP The moral right ofthe authorhasbeen asserted. All rightsreserved. No part ofthispublication maybe reproduced, stored in a retrievalsystem, ortransmitted, inanyform orbyany means,without the prior permission inwritingofthe publisher, norbe otherwise circulatedin anyform ofbinding orcover otherthan that inwhich itispublishedandwithout asimilarcondition includingthis conditionbeing imposed on the subsequentpurchaser. A CIPcatalogue recordforthisbook isavailable from the British Library. ISBN: 316 85415 8 Maps by NeilHyslop M TypesetinBembo by Rules Printed andboundin GreatBritain by Clays Ltd, St Ivespic Little, Brown & Company (UK) Brettenham House LancasterPlace London WC2E 7EN To Renee Digitized by the Internet Archive in 2010 with funding from Multicultural Canada; University of Toronto Libraries http://www.archive.org/details/dealingwithdragoOOfenb GuewqzJiou 'Macau HohSKom9 South China Sea Note At the time ofwriting, currency conversion rates were as follows: £i = HK$i2.50 US$i = HK$7.78 Hong Kong This is the story ofa year in the life ofa unique place, long known for its material superlatives but now also the scene ofan unparal- leled political experiment. It also happens to be the last year of a century in which Hong Kong grew from being a small, unconsidered fragment ofthe predominant empire on the planet to a treasure house whose wealth was proportionately greater than that of the colonial master on the other side ofthe globe. More recently, it has undergone a unique passage from being the final major possession of a liberal democracy to becoming the freest city in the last major power ruledby a Communist party. A meeting place ofEast and West at the crossroads of the twenty-first century, this territory of only a thousand square kilometres and 6.8 million people has a gross domestic product of US$175 billion and the world's fourth largest foreign exchange reserves. An accident of history and geography, it has become a theatre for major questions ofour times, not in theory but in everyday life. Hong Since British rule ceased at midnight on 30 June 1997, the Kong Special Administrative Region (SAR) ofthe Peoples Republic of China has been the most advanced and richest city in the biggest devel- oping nation on earth. As it boomed in the 1980s and 1990s on the back ofthe opening-up ofmainland China, what had once been dis- missed as a rocky outcrop oflittle interest to Victorian empire-builders attracted international companies in their thousands to make it one of 2 Dealing Wiih the Dragon the great cosmopolitan metropolises. Apart from its 95 per cent Chinese population and its own dealings with the mainland, it has longbeen the unofficial capital ofthe diaspora of 100 million overseas Chinese, who see Hong Kong as a safe haven for their money and as a gateway to the mother country. Going in the other direction, it has been the main conduit for funds coming out of China, legally or illegally, some destined for licit investment, others moving through clandestine chan- nels; and for spectacular criminals moving to and from the mainland. Coming out ofa long and deep slump, the SAR still has more bil- lionaires than its former sovereign. Even in the depths ofrecession, the best-known tycoon, Li Ka-shing, whose empire stretches from property and container ports to supermarkets and mobile telephones, took tenth place in the listing of the world's mega-rich by Forbes magazine. Income tax is a flat 15 per cent, and only a quarter ofthe population pays it. The wealthy are further comforted by the absence oftax on dividends or capital gains. 'Here, the money we make, we keep,' as the owner of a big Chinese herbal pill business puts it. When it changed sovereign powers in 1997, Hong Kong made up 20 per cent ofChina's wealth, with 0.5 per cent ofthe mainland's population. The head ofits government earns HK$287,i4i (-£23,000) a month - more than his counterparts in the US, Britain orJapan. His number two, the ChiefSecretary for Administration, who heads the civil service, is paid HK$229,7i3 a month, and the Financial Secretary, the equivalent of the Chancellor of the Exchequer, HK$2i7,i49. Dwarfing their pay, the golf-champion boss ofthe cen- tral bank gets eight times as much as the chairman ofthe US Federal Reserve Board. Leading barristers can pull in 45 per cent more than their London counterparts. In the 1997 bull market, the stock exchange was the sixth biggest in the world, and membership deben- tures at the main golfclub cost £1 million. Despite a poor construction safety record, pollution, and bureau- cratic blunders such as paying China the equivalent of£130 million a year for water which overflows into the sea, Hong Kong is generally a model of urban development. It has a superb infrastructure and a spectacular new airport, reached over the world's longest two-level suspension bridge to the mountainous island ofLantau. The harbour,