The UK's relations with Hong Kong: 30 years after the Joint Declaration - Foreign Affairs Contents

2  Hong Kong Special Administrative Region: background

Hong Kong under British rule

10. The distinct legal and political systems that Hong Kong enjoys as a Special Administrative Region of China evolved from its history as a British colony and free-trading port. British rule over Hong Kong Island began in 1842 after the first Anglo-Chinese War, expanding further in 1860 and again in 1898 with the issuing of a 99-year lease over the entire Kowloon peninsula south of the Shenzhen River (an area known as the New Territories). By the end of the 19th Century, British Hong Kong was entrenched as the main entrepôt in southern Asia and the primary gateway for international trade with China. Hong Kong's population and prosperity grew rapidly throughout the twentieth century, bolstered by refugees fleeing political upheaval, war and Communist rule on the Chinese mainland. By the early 1980s Hong Kong was one of four so-called "Asian Tiger" economies, characterised by a high growth rate and a focus on international financial services.

11. British Hong Kong was administered by a Governor, appointed by the Crown on the advice of the Foreign Secretary. The Governor held full executive power, chairing the Executive Council (his cabinet) and appointing most of the members of the Legislative Council (LegCo) which played an advisory role. From 1985 onwards gradual reforms were introduced to the selection process for LegCo members, including indirect elections, with the aim of transforming LegCo into a working legislature. These reforms were accelerated by the last Governor of Hong Kong, Chris (now Lord) Patten, but the franchise remained narrow, and LegCo's powers relative to the Governor were in any event very limited. The majority of Governor Patten's reforms were reversed after the handover of sovereignty from Britain to China in 1997.

The Joint Declaration and the Basic Law

12. In the early 1980s, the UK and Chinese governments opened negotiations to pave the way for the return of Hong Kong to Chinese sovereignty after the expiry of the UK's 99-year lease on the New Territories.[11] Rather than insisting that Hong Kong adopt China's socialist economy and legal structures, China was willing to preserve Hong Kong's capitalist economy and common-law system in order to benefit from its prosperity and status as a global financial centre. It was also hoped that allowing Hong Kong to maintain its existing economic, social and legal structures under Chinese sovereignty could provide a model for the eventual reunification of Taiwan with the mainland.

13. On 19 December 1984, the Governments of the UK and China signed the Sino-British Joint Declaration, which established the general principles under which Hong Kong would be governed after the handover of sovereignty. According to the agreement, Hong Kong would be "directly under the authority" of the Chinese Central People's Government, but would "enjoy a high degree of autonomy". The Declaration also stated that the social and economic systems of Hong Kong would remain unchanged for 50 years following the handover, as would its rights, freedoms and "life-style".[12] This concept is known as "one country, two systems".

14. The Joint Declaration decreed that the policies outlined above would be stipulated in a Basic Law, to be adopted by the Chinese National People's Congress (NPC). Drafted between 1985 and 1990 and formally promulgated on 4 April 1990, the Basic Law is the mini-constitution of Hong Kong. It codifies the concept of "one country, two systems", declaring that "the socialist system and policies will not be practised" in Hong Kong for 50 years, but also stating that Hong Kong is an "inalienable" part of China.[13] The law grants Hong Kong a high degree of autonomy, except in foreign affairs and defence matters which remain under Beijing's direction.[14] The Basic Law guarantees that Hong Kong will be vested with executive and legislative power, and establishes Hong Kong's independent judiciary including a Court of Final Appeal. Chapter III of the Basic Law preserves freedoms and rights that do not apply to the same degree in mainland China, including freedom of speech and the press, freedom of assembly, freedom of the person, and private property rights.[15] The Law took effect formally on 1 July 1997, the date of the handover.

Hong Kong since the handover: economy, society and politics

15. Despite several setbacks including the Asian financial crisis of the late 1990s and the burst of the dot-com bubble, Hong Kong today remains a wealthy financial hub. In 2013, Hong Kong had a per-capita GDP of USD$38,124 (in current US Dollars), 26th-highest in the world.[16] According to the index of Global Financial Centres compiled by the London-based Z/Yen think tank, Hong Kong is the world's third-largest financial trading centre after New York and London, with an economic system characterised by heavy reliance on services, very low taxation and free port trade.[17] The Index of Economic Freedom, compiled by the Wall Street Journal and the Heritage Foundation, has ranked Hong Kong SAR as the most "free" economy in the world for 21 consecutive years.[18] Hong Kong's level of income inequality, however, is among the highest in the developed world. According to research by Credit Suisse, the richest 10% of the population control 77.5% of the total wealth.[19] Increasing economic integration with mainland China, concurrent with China's rapid growth, has been a major factor in Hong Kong's ongoing economic success. It has also made Hong Kong more economically dependent on China than it was at the time of the handover.[20] In 1997, Hong Kong's share of China's total GDP stood at 16%, and it accounted for 51% of China's exports. Today, Hong Kong makes up only 3% of China's total GDP.[21] Mainland firms are also increasingly prominent in Hong Kong, now accounting for 54% of companies traded on the Hang Seng Index.[22]

16. Hong Kong is governed by the Chief Executive, who is ultimately accountable to both the Chinese Central People's Government (CPG) and Hong Kong SAR in accordance with the Basic Law. The Chief Executive is supported by the Executive Council, all members of which he or she appoints. The Executive Council is, in turn, supported by a Government Secretariat (civil service), covering all policy areas over which Hong Kong's government has autonomy. The legislature, LegCo, today has 70 members. In the last LegCo election, which took place in 2012, 35 legislators were elected directly in geographical constituencies under a system of party-list proportional representation (in which votes are cast for a list of candidates selected by each party, rather than for individuals).[23] 30 legislators were elected by so-called "functional constituencies"—representing different professional and sectoral groups—while the final five were selected by regional councils and elected by those who were not represented in the functional constituencies. Although there are 16 political parties and several Independents currently represented in LegCo, Hong Kong's legislators are generally divided into two broad groups: the "pan-democrats", who advocate constitutional reform to make Hong Kong SAR's government and legislature more democratic, and the "pro-Beijing" groups generally seen to support the political status quo. In the five LegCo elections since 1998, the "pan-democrats" have held between 33% and 41% of seats, with the rest held by "pro-Beijing" legislators. The proportion of "pan-democrats" returned in geographical constituencies is considerably higher than the overall total, suggesting that they would be likely to hold a majority if all legislators were directly elected. The most recent LegCo elections returned 27 "pan-democrats", versus 43 in the "pro-Beijing" camp.

11   Although the UK technically held sovereignty over Hong Kong Island and a small part of the Kowloon peninsula in perpetuity under the terms of the Treaty of Nanjing (1842) and the Convention of Beijing (1860), it was believed that without the New Territories, which comprised over 90% of Hong Kong's territory, Hong Kong would no longer be a viable entity. The entire territory of Hong Kong was thus included in the handover. Back

12   Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong, para 3.5 Back

13   The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China, Chapter I, Articles 5 and 1 Back

14   The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China, Chapter II, Articles 12-14 Back

15   The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China, Chapter III, Articles 27-37 Back

16   The World Bank, GDP per capita (current US$), 2013 figures, accessed 15 January 2015 Back

17   Mark Yeandle, Nick Danev and Michael Mainelli, The Global Financial Centres Index 15, London, March 2014, p 5 Back

18   Heritage Foundation, 2015 Index of Economic Freedom, accessed 28 January 2015 Back

19   Credit Suisse Research Institute, Global Wealth Report 2014, Switzerland, October 2014, pp 30, 33; Josh Noble, "Economic inequality underpins Hong Kong's great political divide", Financial Times, 21 October 2014  Back

20   Q261 Back

21   Gabriel Wildau, "Hong Kong's value to China goes beyond numbers", Financial Times, 2 October 2014 Back

22   Clare Baldwin, Yimou Lee and Clare Jim, "Special Report - the mainland's colonisation of the Hong Kong economy", Reuters UK, 31 December 2014 Back

23   Electoral Affairs Commission of the Hong Kong Special Administrative Region, "Guidelines on election-related activities in respect of the Legislative Council Election, 2012", Chapter 2: Geographical Constituencies, para 2.23  Back

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Prepared 6 March 2015