Trading Places

It rained and rained the week Britain gave Hong Kong back to China, a fitting end for a place Fortune magazine said was doomed anyway. Under the headline “The Death of Hong Kong,” the cover story of its June 26, 1995, issue had declared, “the naked truth about Hong Kong’s future can be summed up in two words: It’s over.”

Of course, as much was said in 1941, when Japanese forces invaded Hong Kong, beginning years of murderous wartime occupation, and in 1951, when the China blockade started during the Korean War, pulling the rug from Hong Kong’s entrepôt economy. Hong Kong’s demise had been predicted in recessions and epidemics (typhoid long before the SARS virus).

But it always got back on its feet, sometimes in spectacular fashion. When the blockade around China left Hong Kong with little to trade, for example, it redoubled efforts to make its own goods to sell, spurred on by Shanghainese and other factory owners who had fled to the colony when the mainland fell to the communists in 1949.

Hong Kong ended up a top exporter of watches, garments, consumer and industrial electronics, and toys—a manufacturing center out of all proportion to its size. And when the People’s Republic began its transition to a market economy after 1978, manufacturing started its migration across the border, putting China on the road to becoming the workshop of the world. By the time “handover” rolled around on July 1, 1997, Hong Kong was China’s leading services center, a dynamic city of 6.5 million and the world’s busiest container port.

But if the PRC and Hong Kong were aligned in business, China was still a dictatorship and Hong Kong had a growing appetite for democracy whetted by reforms begun in the last years of the British regime. The political chasm was never more gaping than when China crushed its own democracy movement at Tiananmen Square on June 4, 1989, and Hong Kong responded with street protests drawing a million people.

With that memory still fresh, many questioned whether China would keep its “one country, two systems” agreement with Britain, allowing a capitalist, semiautonomous Hong Kong for 50 years from 1997. Even if it did, the Basic Law governing Hong Kong after handover did not provide for universal suffrage until well into the next century.

It wouldn’t be long after handover until controversial new policies became flashpoints pitting democrats against Beijing. Career bureaucrat Regina Ip Lau Suk-yee, named Hong Kong’s security chief in 1998, found herself caught in the middle. Eventually she would step back from the fray, return to studies at Stanford and, with Hoover Institution senior fellow Larry Diamond as her mentor, start to develop a new outlook on Hong Kong politics.

IP, MS ’87, MA ’06, had a lot on her plate the day of handover as a senior officer in the new Hong Kong Special Administrative Region government. “I had to take part in the British Forces’ farewell parade inspected by Prince Charles (in torrential rain), the handover banquet and ceremony, the swearing-in of the SARG principal officials, and the ceremony to mark the establishment of the SARG,” she recalled later. “As I was director of immigration, I had to change my uniform from the British one to the Chinese HKSAR uniform.”

Everyone had to change uniforms that night, police, immigration and health inspectors, prison guards, but the changes were subtle. The tiny crown that topped the old badge was replaced by a tiny bauhinia flower, the winning selection in a public competition to come up with a postcolonial symbol for Hong Kong. The Royal Hong Kong Police became the Hong Kong Police. The Chinese flag, accompanied by Hong Kong’s new red bauhinia ensign, replaced the Union flag on government buildings.

But changes to the visuals were kept minimal, the better to reassure locals and foreigners alike that the last bastion of serious capitalism would carry on under new management more or less as before.

The problem was that Hong Kong’s last British governor had given the territory a taste of democracy that Beijing repudiated. In 1995, Chris Patten radically changed how half the seats in the 60-seat Legislative Council (Legco) were decided. Furious at this move to widen the franchise, the Chinese appointed a provisional legislature to take over after handover when the last Patten-era legislature was abolished.

The provisional assembly sat until elections were held in 1998 under the Basic Law. As in pre-reform days, only 24, later 30, of its 60 members were directly elected from geographical districts. Half were elected by company directors and senior professionals from so-called “functional constituencies,” defined as Hong Kong’s key economic sectors—construction, manufacturing, legal, medical, engineering and so on. Special treatment for special interests had been a feature of early legislatures in other parts of the British Empire.

Patten tried to end it by giving the vote to every employee within each functional constituency—right down to the cleaners. It was a convoluted path, but a path nonetheless, to universal suffrage. (For more on Hong Kong’s government structure, see sidebar.)

Ip didn’t think much of Patten’s eleventh-hour reforms. “That was really cheating—turning the functional constituencies into something else, extending the electorate by stealth,” she says. “And because of all the maneuvering, bad feeling spilled over into other areas, including areas I was working on.” British and Chinese sides had been meeting regularly since the 1984 Sino-British Joint Declaration on Hong Kong’s repatriation, and Ip had served on several panels, becoming leader of the Right of Abode Expert Group studying immigration policies just before handover.

Whatever Hong Kong gained or lost from the governor’s short-lived reforms, the skirmish defined the political battle lines after his departure: partisans were either pro-democracy or pro-Beijing, and nothing in between.

Ip was hardly with the democrats, not in the public mind anyway. It would be difficult to imagine otherwise, given her appointment as security chief. The job put her in charge of police, fire and rescue services, corrections, immigration and customs and other areas including liaison with the People’s Liberation Army garrison in Hong Kong. Her brief encompassed policy issues so divisive that by the time she returned to private life in July 2003, one demonstration organized to protest the new national security bill Ip was promoting drew half a million people.

One big issue came on the heels of Ip taking over as top cop. In January 1999, Hong Kong’s Court of Final Appeal overturned a lower court ruling on the residency rights (right of abode) of mainland Chinese in Hong Kong. (Even when Hong Kong became part of China, mainlanders were not free to move in.) The high court decision opened the way for a whole new category of immigrants to qualify for permanent resident status. It was an emotive issue in a city whose people, if not mainland-born, were only one or two generations removed from China. Until that high court reversal, only children born after their parents had secured permanent resident status in the SAR qualified—the same yardstick that applied when the British were in charge.

Ip says the appeal effectively meant that any children born before the mother qualified for permanent resident status—a process involving a seven-year waiting period—automatically qualified once the mother secured the right of abode. It “went against what we believed was the legislative intent of the Basic Law.”

What happened next shocked democrats. The government sought Beijing’s help in getting the high court ruling overturned. In July, the National People’s Congress, China’s programmable legislature, agreed to a reinterpretation of Hong Kong’s Basic Law that did just that.

For Martin Lee, the founding chairman of Hong Kong’s popular Democratic Party and the territory’s best-known barrister, the high court had been reduced to a court of “semifinal” appeal. Lee, the face of Hong Kong’s democratic movement around the world, had served on the Basic Law drafting committee until he was expelled for condemning Beijing’s role in the Tiananmen massacre.

But for Ip and her colleagues, matters were too urgent to pussyfoot around. Hong Kong hadn’t even started to pick itself up from the 1997-98 Asian currency crisis that flattened economies across the region. “If that ruling were left as it was, Hong Kong would have been inundated by over a million mainlanders seeking right of abode,” Ip says. “If we allowed that to happen at the nadir of Hong Kong’s economic cycle, unemployment would have shot up to 20 percent, not 9 percent. We would have had a massive . . . social welfare problem and immigration control problem.”

Lawrence Lau, vice chancellor of the Chinese University of Hong Kong, was director of the Stanford Institute for Economic Policy Research when the controversy reached a boil. But sitting in a conference room in his sprawling secretariat near the university’s main library building, Lau, ’65—who was born in China but grew up in Hong Kong—wonders if there wasn’t another way around the problem.

“People here should try to resolve their differences here and not invite interpretations of the Basic Law,” he says. “That’s inviting problems.” Under the British, it was clear children born of nonpermanent residents didn’t have the right to stay in Hong Kong, Lau says, and it was clear that arrangement should continue.

“But somehow the Court of Final Appeal rejected that, and said they could. That’s not China’s doing, and the right thing would have been for the Legislative Council to pass a law overriding that,” Lau says. “It was perfectly within Hong Kong’s capability to do that—the U.S. Supreme Court can rule on something, and the Congress can pass another law superseding it.”

But what if the legislature wouldn’t back the Executive Council? The question underscored the widening divide between an executive, mostly senior civil servants, and a legislature divided into parties and special interests.

The disconnect between the Executive Council and Legco became abundantly apparent in 2003 when it came time to pass a national security bill to replace colonial-era legislation. Worried that its laid-back SAR could become an easy harbor for subversive elements, Beijing wanted Hong Kong to enact new laws. But because China tended to have draconian views on what constituted subversion, and subversive organizations and publications, democrats set out to get the public behind efforts to tone down or kill the bill.

As security chief, Ip promoted the bill with guns blazing; in one interview she suggested that taxi drivers and waiters didn’t care about the legislative details. She apologized for that, but then on the eve of the scheduled rally on July 1, a public holiday, she implied that many marchers would be there only to amuse themselves on their day off.

Ip had a knack for setting off democrats. “Adolf Hitler was returned by universal suffrage and he killed 7 million Jews,” she said on one occasion. Under frequent attack from Hong Kong’s media by now, Ip was even condemned for her coiffure and called “broom head.” The press had a field day.

She was, she says, only warning about the dangers of illiberal democracy—that without the requisite supporting institutions in place, elections could still deliver up fascists who trample constitutional rights. However, her words came across as just another excuse to delay democracy, and very hard to swallow because Hong Kong now reported to a dictatorship with its own brutal past.

“My statement was oversimplified and distorted,” Ip says. “People were throwing arguments like, because China is not a democracy she has no right to protect her security. I couldn’t possibly agree with that—it was oversimplified.”

Words were twisted on both sides as tempers flared. But after half a million protesters poured into the streets and the Executive Council had lost any hope of getting the required majority in Legco, the security bill was withdrawn. Ip withdrew, too, leaving the government a few weeks later. She would return to Stanford, where she’d been in the Sloan management program nearly 20 years earlier.

Although it looked like she had gone down with the security bill, Ip says she had made the decision to return to school months earlier. Certainly, few would assail her fortitude, as she had weathered fierce political storms and media attacks at a difficult time: widowed just months after the handover, she was raising her daughter, Cynthia, alone.

Looking back, Ip vehemently defends her record on constitutional rights. “Hong Kong has a very good record on that score,” she says. “Under my watch, there was no infringement of rights and freedoms in my five years. That’s something I’m very proud of.” Even the Falun Gong sect, long banned in China, continued to function freely in the SAR, she points out. “The government even lost lawsuits against them.” And that would never happen on the mainland.

By 2003, the political process was stalling. Hong Kong’s economy, finally making some headway after the currency crisis, was suddenly hit in March by the epidemic of severe acute respiratory syndrome. SARS virus cast a pall over Hong Kong and claimed 300 lives as the months passed. The city became a sea of surgical masks that summer. Hotel vacancy rates shot up to nearly 100 percent, and 747s flew virtually empty. There was no shortage of seats for anyone looking to fly to California.

Ip enrolled her daughter at The Webb Schools in Claremont, Calif., and returned to Stanford as a visiting research scholar in Asian languages, giving her a chance to re-engage with Larry Diamond. They’d first met when she was at the Graduate School of Business and slipped into Hoover to attend a seminar he was giving with the late Seymour Martin Lipset.

Diamond, ’73, MA ’78, PhD ’80, describes Ip as being on an intellectual and political journey. As secretary of security, he says, she obviously had to be responsive to Beijing’s vision for Hong Kong. “But I think she has come to see from the time she was able to step back and come to Stanford and reflect and analyze things more—without being in the heat of bureaucratic and political controversy—that there was a practical need for Hong Kong to be a democracy. It was going to be hard to govern the place without it, and I do think that has been a reflective, analytical journey.”

Hong Kong always struck Diamond as “an anomaly—a very developed society and economy with relatively high per capita income that’s not a democracy.” The question is how to proceed from here.

Hong Kong’s array of groups pulling for democracy seem focused on getting Beijing to commit to a date for full universal suffrage. That is generally taken to mean 2012. By then, democrats want to see functional constituencies dispensed with and direct elections of the chief executive; right now the chief executive is voted in by a committee of 800 electors, all approved by Beijing—as Donald Tsang just was, ahead of his new five-year term. (Illustrating how anomalies can border on the ludicrous, Tsang’s first move after getting the committee’s nod was to climb on a bus to tour the city thanking people for support that wasn’t theirs to offer.) 

Hong Kong’s fixation with a date troubles Diamond. “Before Hong Kong can decide when it wants to be fully a democracy,” he says, “it has to decide what that democracy is going to look like.” The one group that sees eye to eye with him in that regard is the Savantas Policy Institute, led by Regina Ip.

Savantas was founded to consider democratic options and mechanisms for transforming the SAR into a knowledge-based economy. The venture grew out of brainstorming sessions that Ip and Ronald Chan, ’05, MA ’06, had almost from the day they met while attending Diamond’s class, Comparative Democratic Development.

Chan had come out of left field. In high school back in Hong Kong, he had ambitions of a career in medical research, and after studies at an East Coast prep school, he entered Johns Hopkins. But Hopkins’ general education requirements diverted him to humanities and social science courses. “I decided to drop premed and biomedical engineering altogether,” Chan says, and that led him to rethink his choice of school. “I surely am glad that I decided to transfer, since Stanford is where I met many of the people who have had huge influences on my life—Regina included.”

Chan had returned to campus after two terms abroad at Corpus Christi College, Oxford, when he first met Ip at the Thai Café in Jordan Hall. “We ended up spending nearly two hours talking,” he says. Chan was overcome by the fact that a former senior minister would give him the time of day; Ip seemed thrilled to meet a fellow Hong Kong “belonger” with a passion for something other than business or engineering. (Despite credentials as Hong Kong’s onetime director of industry, Ip has an arts degree from the University of Hong Kong and a master’s of literature in Elizabethan poetry from Glasgow University.)

In December 2005, over plates of sushi, the idea of starting a think tank bubbled through the conversation and before the evening was over, the idea hardened into a plan. Ip asked Chan, who was only 14 when Hong Kong passed from British to Chinese hands, whether he’d be interested in serving as her administrative assistant. “Of course, I jumped on the offer,” he remembers.

Their tiny circle grew to include students, entrepreneurs and others, all belongers working in the States. Several Hong Kong-based people joined in, adding more area expertise. Last summer, a think tank sprouted in an office tower in Wanchai, a short tram ride from Legco in Hong Kong’s Central District.

When the institute invited Diamond to Hong Kong last September to discuss options for democratic development, his proposal for a parliamentary sys tem based on proportional representation to widen party participation and coalition building was dismissed by the leader of the pro-Beijing party in Legco. He said it broke with China’s insistence that Hong Kong maintain an executive-led government.

But that was hardly going to be the last word on the subject. Diamond’s ideas only reinvigorated the debate. Indeed, he says, the Chinese central government may realize it’s in its interest to agree to certain amendments in the Basic Law. “Certain ways to structure democracy may be conducive to the kind of consensus and stability that Beijing would like to see.”

The problem right now, as Diamond sees it, is the chief executive is not a member of, or responsible to, any political party. “You’ve got this core structural problem, which I think Regina [Ip] has grasped completely. The CE has no core base of support, particularly within Legco, and it’s particularly hard to secure a reliable governing majority.”

“How can you say Hong Kong isn’t ready for it yet?” former governor Patten asked in July 2006. “In what sense is Hong Kong not ready, but Indonesia is ready? Or Malaysia is ready? Or the Philippines is ready?” 

In April, Ip hinted she would run for a seat on Legco, as long rumored. In the legislature, the democratic cause had been peopled by Martin Lee, Emily Lau, Margaret Ng, Christine Loh and others whose names had become known in every fold of every mountain across Hong Kong.

Regina Ip was widely known, too, but hardly as a force for democracy. People change, of course. Hong Kong has.


JOEL McCORMICK has reported from Hong Kong for 20 years.