Hong Kong's rapid changes undermine our stereotypes

RETURNING from a short visit to China and Hong Kong during the final stages of the Irish election campaign, it is intriguing to find the territory figuring in exchanges between the parties.

The Hong Kong model is assumed to represent a low tax, cheap manufacturing, welfareless capitalism which is seen alternatively as a threat or an exemplar for Ireland.

There is indeed some truth in this portrayal. But as I discovered, it is all too easy to overlook the rapid changes in Hong Kong which undermine the traditional stereotype we have of it. This was built up in the 1950s, 1960s and 1970s and popularised by Milton Friedman and the Chicago School of neo-liberal economists.

As a result the full significance of the forthcoming reversion of Hong Kong to Chinese sovereignty is likely to be missed.

In the first place Hong Kong's economic structure has changed dramatically. Most of the cheap manufacturing from which our picture of the territory is drawn has long since been transferred to China. It still figures strongly in the territory's trade figures, but overwhelmingly as re-exports. Sectors such as electrical machinery and appliances, textiles, toys, games and sporting goods all figure strongly.

Within Hong Kong textiles and light manufacturing goods are still made, but the proportions are down to some 9 per cent of GDP, although the sector remains the third-largest employer at 11.4 per cent. Mechanisation, automation and relocation have shifted the focus to more knowledge-based and higher value-added manufacturing. There has been a dramatic switch into services over the last decade, which means they employ six times as many workers as the manufacturing sector. This includes wholesale and retail financial services, transport and community, social and personal services.

Hong Kong has, therefore, become a much more sophisticated place, the world's eighth-largest trading entity in merchandise trade, one of its greatest financial services sectors, and the crucial entrepot for trade and investment in China. It provides at least 50 per cent of China's foreign investment; many of China's own companies trade on its stock exchange and control much of its real estate and banking systems.

In this sense the territory has in the last 15 years become part and parcel of the Chinese economy, long before the reversion of political sovereignty. That is why it is fundamentally in China's interest to preserve its economic system and values.

The Chinese economic elite that is about to assume control of Hong Kong as a special administrative region of the mainland will have full autonomy other than in foreign and security affairs. They are uniformly confident about the future and enjoy an extraordinary access to the mainland's leadership.

This confidence is shared by members of the various European chambers of commerce in Hong Kong, the British included, according to the most up-to-date surveys.

They are concerned about the negative tone of much American and European media reportage on Hong Kong as the reversion draws near. It exaggerates difficulties over political and human rights, they say, and underestimates the commitment of China's leadership to making the "one country, two systems" formula work.

Their critics charge the rich Hong Kong Chinese with suspending their judgments in order to profit from the huge market opening up before them. It is, indeed, intriguing to find such a coincidence of view between them and the Chinese authorities. But Hong Kong has developed a sophisticated civil society and a lively political system in recent years, along with the transformation of its economy.

The new party system partly reflects social divisions between the economic and commercial elite and the mass of the population in what remains one of the most unequally divided societies in the developed world. Thus the Democratic Party, which did so well in the 1995 elections, gets its main support from working- and lower middle-class voters. It puts enlargement of the territory's welfare system at the top of its agenda, along with the preservation of the political and civil liberties it has used to gather support.

Hong Kong remains a low taxation territory, with a relatively small public sector. But it has an elaborate public housing system, providing 50-60 per cent of accommodation in huge high-rise buildings. Otherwise people would not be able to afford the prices for private accommodation, which can cost up to £250,000 for a 500 sq ft apartment.

Leaders of the Liberal Party representing the commercial elite, charge that the Democrats' tax and welfare policies would bankrupt Hong Kong and undermine its competitive advantages. But there is cross-party consensus on the need to provide more housing and care for the elderly.

Unemployment has been increasing, but is still no more than 3 per cent. There is no unemployment assistance, but a well-developed trade union movement has been agitating for one. Real wages have been static, but are among the highest in the region, far ahead of those in the Chinese mainland.

It can readily be seen that Hong Kong has gone well beyond our rather stereotyped image. Its politics in coming years will have to do, centrally, with accommodating to absorption into Chinese sovereignty. All the parties support this in principle and there is much talk of a new spirit of Chinese patriotism. But alongside this there is the rapid emergence of a new politics concerned with how best to distribute the fruits of Hong Kong's prosperity, as well as how best to ensure that the best use is made of its political autonomy.

It would be as well for Irish parties who wish to use the Hong Kong analogy to identify with its different parties than with a simple and outdated model of a grasping capitalism.