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By Robert Keatley, Editor, April 2006

The first months of 2006 saw Hong Kong experience renewed prosperity and continued political uncertainty. The short term outlook is for more of the same—continued economic growth after years of stagnation or decline, but no decisive change in the quest for expanded autonomy and universal suffrage.

Despite the political impasse, Chief Executive Donald Tsang Yam-Kuen continued to enjoy higher public approval ratings than did his predecessor, Tung Chee Hwa, who resigned in 2005—two years before his term expired. But this popularity was frayed slightly by governance issues that raised questions about his promises to have a more transparent and accountable administration. These could cause more trouble in the coming months.

Meantime, the city’s finances improved dramatically. For the first time in eight years—and three years ahead of schedule—Hong Kong enjoyed a budget surplus, and its Finance Secretary predicted these would continue for several more years. He proposed modest cuts of the territory’s already-low tax rates, but dismissed calls for large ones on grounds that Hong Kong needs to accumulate reserves for future needs.

Mr. Tsang’s current political problems began in the final days of 2005 when the Legislative Council failed to ratify his plans for modest expansion of the voting franchise. Though supported by a Legco majority, the measures feel short of the required two-thirds approval needed for passage because pro-democracy legislators insisted instead upon a specific timetable for full universal suffrage. They rejected what they called interim half-measures.

The defeated proposal, which had been accepted by the Chinese central government, would have expanded the committee that selects the Chief Executive to 1600 from 800, bringing a measure of diversity to its generally pro-Beijing membership. And it would have increased Legco to 70 seats from 60, with five of the new members chosen by direct election and the other five chosen by district councilors who themselves are elected, for the most part, by popular vote. These changes would have left Legco evenly divided between those elected directly voting and those elected indirectly, but would added a bit more diversity to the electoral system.

Following the Legco vote, a disappointed Mr. Tsang said in January he would not tinker with the system for at least two years—after the 2007 vote for Chief Executive and the 2008 ballot for Legco. He sharply criticized democratic legislators for “being rigid on certain positions” and turning down his limited reforms, which he called the best that would be accepted at present by Hong Kong’s “lords and masters” in Beijing. From now forward, he said, “I should focus on other important issues like people’s livelihoods and the economy.”

Others also criticized the pro-democracy forces for rejecting the changes. They said their Legco representatives should have accepted them as a step toward universal suffrage, then begun lobbying for more—such as completely open balloting in the 2012 elections for both Chief Executive and Legislative Council (China had previously ruled out universal suffrage for 2007 and 2008.) However, the democrats said they would accept nothing short of a specific timetable for direct elections for filling senior government offices, and rejected the more modest changes on offer. The showdown led to bitter feelings on both sides. One democratic politician accused Mr. Tsang of using “sordid and shameless” tactics during the dispute.

Thanks perhaps to the Lunar New Year holiday—one of the few times when busy Hong Kong shuts down—there followed a quiet political period. But a perhaps important development came in March with the creation of a new, democracy-oriented political party—called the Civic Party—led by moderates and career professionals, including six current Legco members. The Civic Party hopes to craft practical policies that will win greater public support, giving Hong Kong its first truly broad-based political organization. However, there was skepticism about whether it really will prove to be much different from its rivals.

Meantime, two huge property projects brought Mr. Tsang some unwanted criticism.

One was his plan to create one of the world’s largest cultural hubs on a 40-hectare (99 acre) West Kowloon reclamation site. It called for private developers to build museums, performance venues and parks in return for the right to use other land for commercial purposes. The private companies also would have had to create a $3.8 billion (HK$30 billion) trust fund to finance operation of the public spaces. The Solomon R. Guggenheim Foundation and the Museum of Modern Art of New York and the Georges Pompidou Centre of Paris had all expressed interest in opening branches in the new complex. One startling feature was to be a 21-hectare glass canopy, designed by British architect Lord Foster, to cover the center.

But this grandiose project has gone at least temporarily astray. Hong Kong real estate developers dropped out on grounds the price was too high. And public protests arose about the overall plan, which was basically imposed by the bureaucracy without much public consultation. The project was halted for the time being at least, and a new board was created to assess Hong Kong’s cultural needs. It is supposed to issue recommendations in September.

The other project was Mr. Tsang’s plan to build a massive new skyscraper on the Tamar site in central district for government offices. This too earned much criticism as being unnecessary, too expensive and contrary to a public desire to preserve what’s left of Hong Kong’s distinctive waterfront. In particular, a leading business group—generally supportive of the Chief Executive—attacked the project as violating good urban planning and the public interest. Its fate remains unclear.

These two large projects, plus management problems in the government-owned railway system and a dispute over whether a planned cruise terminal is needed, raised questions about Mr. Tsang’s promises to run a more open and responsive government.

But there were few complaints on the economic front. After some weak years stemming from the Asian financial crisis of 1997, the economy was on a serious growth spurt. Last year it expanded by 7.9% and for this year the International Monetary Funds predicts a 5.5% growth rate. Foreign investment is high, unemployment hovered near a five-year low of 4.5%, airport cargo and passenger traffic both grew 10%, retailing was brisk and other measures indicated a major expansion was under way.

This was reflected in the official budget, which moved out of deficit. Financial Secretary Henry Tang said this fiscal year would bring a consolidated surplus of $744 million (HK$5.8 billion), rising to $4.2 billion (HK$32.6 billion) in the 2010-11 fiscal year. He put off major tax changes but revived a perennial issue; the government will again study the possibility of introducing a sales tax to bring more people into the tax net and broaden the revenue base. But no action is imminent.

A few other matters caught public attention as the quarter came to a close.

--Bird flu. New cases in nearby Guangzhou Province, plus official efforts there to suppress news accounts about them, raised fears that a pandemic might yet reach Hong Kong. However, relatively few new cases and fewer deaths were reported and the cross-border trade in live chickens was resumed, with some restrictions.

--Pollution. Many residents believe that air pollution—mostly from China, though much of it spewed by Hong Kong-owned factories—is worsening. In mid-March, for example, the rate reached 133 on a scale of 200, and people with heart or respiratory problems were told to stay indoors.

--Broadcasting. The administration ordered a study of the government-owned RTHK broadcasting agency to determine what kind of public service broadcasting services might be needed in coming years. A survey of RTHK staff members found concerns, echoed elsewhere, that the real goal is to curb press freedom and turn it into an official propaganda agency.

--Religion. The pope appointed Hong Kong-based Bishop Joseph Zen Ze-kiun, a strong supporter of democratic politics, as a cardinal. The vice chairman of China’s state-sponsored Catholic association warned the new cardinal against trying to turn the church against Communism rule, as happened in Poland.

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