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By Robert Keatley, Editor, October 2006

Politics heated up but the economy slowed down as the year’s third quarter drew to a close. Nothing decisive happened on either front and no crisis loomed. But the stage was being set for what may become the most serious campaigning in Hong Kong’s short history of electoral politics.

Meantime, complaints about the continued deterioration of local air and water quality increased as several expatriate chambers of commerce joined forces to urge more effective environmental rules and their enforcement. They warned that Hong Kong’s role as an international business center could suffer long term damage unless the government acts decisively to reduce pollution. The issue promises to play a central role in the forthcoming political debate.

But the more immediate political issues concern next year’s vote for chief executive, the senior government position. The incumbent, Donald Tsang Yam-kuen, is all but assured of re-election by the 800-member election committee that makes the final choice, given his support from the Chinese central government. But this time around the vote promises to be much more complex than in 2005, when he faced no opposition and was chosen by acclamation to complete the five-year term of his predecessor, Tung Chee-wah, who had resigned.

Hong Kong’s political class, especially those members who favor faster progress toward universal suffrage, faced three closely related issues as the quarter ended. These were how to influence selection of the 800 electors, how to persuade at least 100 of them to nominate a rival candidate to oppose Mr. Tsang, and just who that candidate might be. Opposing them is the Beijing regime, whose agents are lobbying hard to ensure its own supporters continue to dominate the election committee.

Most (664) members will be selected December 10 in restricted balloting similar to that for functional constituency members of the Legislative Council; the other 136 members are ex officio or appointed. By law, the final body must consist of 200 members from each of four groups: industrial, financial and commercial; the professions; labor, social services and religious organizations; and Hong Kong permanent residents who are members of official local and national political bodies, such as Legco and the National Peoples Congress.

In past years, pro-democracy political parties have played little or no role in choosing members of the election committee, partly for fear that Beijing might retaliate against their business or professional interests. Many also argued that taking part would only legitimize a process they consider undemocratic and unacceptable. That is one reason why they blocked the government’s modest reform proposals last December that would have doubled the committee to 1600 members and otherwise expanded the voting franchise—a decision many critics considered to be self-defeating. Such criticism may help explain why many of them now seem ready to enter the fray and back their own candidates for committee membership.

They are also trying to forge a common electoral platform for pro-democracy parties that often quarrel among themselves. For example, some leaders have suggested adopting a five-point agenda that includes advocating universal suffrage, passing a minimum wage bill and opposing the government’s proposed general sales tax (GST).

Though chances of winning an election committee majority are all but nil, their more realistic goal is vote at least 100 of their own onto the committee. But even that is uncertain, given Beijing’s opposition; democracy advocates have already given up earlier hopes of electing 150 members. However, if they can get 100 or more members to nominate the same candidate, pro-democracy parties could then unite behind that choice as a rival to Mr. Tsang and prompt a full-scale debate on local issues. Even though the final outcome would not be in doubt—Mr. Tsang is expected to win handily—they contend an open campaign would raise political awareness and be a forerunner for freer elections to come. They also claim it would force the chief executive to pay greater attention to popular concerns during his next term.

Just who the opposition candidate might be remains to be determined; some concerned parties have agreed in principle to back a unity candidate but haven’t yet named one. Many had hoped that Anson Chan Fan On-sang, the popular former chief secretary, would assume the role. After leaving the government five years ago and remaining on the political sidelines for the most part, she recently has begun urging faster progress toward universal suffrage and even indicated she might stand for office someday. But in late September she announced that she would not run and instead would head an advocacy group to push for universal suffrage and good governance.

One leading alternative is the younger Audrey Eu Yuet-mee, a barrister who heads the relatively new Civic Party. Ms. Eu helped found the party in hopes of creating one, rare for Hong Kong, that uses modern organizing methods to promote a clear agenda and win broad popular support; many other pro-democracy parties often are seen as little more small debating societies that almost automatically oppose whatever the government proposes and too seldom offer alternatives. Whether this somewhat disparate cluster of small parties will unite behind Ms. Eu, or anyone, remained uncertain as the quarter ended. For example, outspoken democracy advocate Emily Lau, leader of the small Frontier Party, indicated she might once again boycott the election rather than become involved in a system she opposes.

Meantime, the economic news was not as good as expected. Although the economy grew at a healthy 5.2% annual rate in the second quarter, this was down sharply from a government prediction of 8.2% and the actual first quarter rate of 8%. Lower than expected exports to the United States helped explain the slowdown. Inflation rose slightly, but only to a modest 2.5% annual rate. And there was good news on the job front—unemployment hit a five-year low of 4.8% by the end of the quarter and there was no sign of public discontent like that which fed huge street protests in recent years.

Longer term questions did persist, however. Hong Kong has lost its postwar traditional role as the main gateway to China, and many foreign companies now bypass it when investing or trading on the mainland. Moreover, new airports and shipping ports in southern China have become direct—and often lower cost—competitors. Even Macau, with its plethora of new Las Vegas-style resort casinos, offers stronger competition for tourist and convention business. And given Beijing’s apparent determination to make Shanghai the dominant financial center eventually, there is a recurring note of uncertainty about just what future role Hong Kong will play.

Yet the city retains and is enhancing certain strengths. As David K.P Li, chairman and chief executive of the Bank of East Asia, argues in an article in this issue of the Hong Kong Journal, its expanding financial services sector—broadly defined—will spur economic growth for years. For example, thanks to the SAR’s legal system and open markets, much of China’s financial business has moved to Hong Kong—notably share listings and the raising of new capital. But even here there are some doubts. A recent study by Credit Suisse, the investment bank, predicts that China’s stock markets will experience “a big bang” during the next five years and drain business from Hong Kong. For this to happen, however, China would have to make more basic reforms of its legal, financial regulation and foreign exchange systems than it has so far been willing or able to do.

Such concerns explain why Chief Executive Tsang chaired a closed “economic summit” conference in early September to discuss Hong Kong’s economic future and its place in China’s overall growth. It gathered 33 senior business, academic and government leaders who heard, among others, two Chinese planning officials describe the next five-year economic plan for neighboring Guangdong Province and China as a whole. Though not a decision-making body, the group tried to determine just what government and private actions would let Hong Kong exploit opportunities posed by Chinese plans.

Whether they got beyond some fairly obvious generalities wasn’t clear. But key goals included finding ways to enhance the city’s international character, intensify economic integration with the Pearl River Delta, upgrade the talent pool and improve environmental protection. The first item, for example, included seeking new ways to develop Hong Kong as a regional center for commodities futures and foreign exchange trading, and expand it as a center for the insurance industry.

The effort wasn’t completely welcomed; for some, it smacked of unwanted government direction like that still found on the mainland. “The trouble with the planning process is that it anticipates how the economy at large should develop…” complained Tony Latter, a senior research fellow at the Hong Kong Institute of Economics and Business Strategy, writing in the South China Morning Post. He noted that “Hong Kong’s past flirtations with picking winners have not shone with success.”

For all that, there clearly was a growing public demand for more effective action on the environment. The British, Canadian, Australian and Japanese Chambers of Commerce met with Mr. Tsang to warn that “the deteriorating environment is adversely affecting the health of our community, our citizens, our children, our businesses and our enviable international status in an increasingly competitive global landscape.” This followed a survey of members by the American chamber that found 95% of respondents are worried about air quality, with 80% saying they know professionals who may leave because of pollution.

Much of the problem is beyond Hong Kong’s direct control; most air and water pollution comes from Guangdong, where rule enforcement is lax. But many critics contend the SAR government could push more aggressively for joint action with the neighboring province, and could also pressure Hong Kong owners of factories there to stop using high-sulfur diesel fuel. They also claim it could do more at home, such as by cracking down on Hong Kong’s two power-generating companies—the biggest local polluters.
The government did promise to introduce tougher air quality standards by 2009, to be based on new World Health Organization guidelines. But it warned Hong Kong could not meet the low WHO levels unless Chinese authorities do more on their side of the border. Environmentalists complained that this amounted to surrendering in advance, and urged faster and firmer action.

Several proposals already are under study—such as introducing an emissions-trading system—and Mr. Tsang has promised other new programs. “Let me assure you that this government is taking the subject very seriously,” he told a meeting of foreign and mainland businessmen who are recent investors in Hong Kong. However, there don’t seem to be any immediate remedies that could have a major impact in the short term.

Finally, there was mixed news on the tourism front. Hong Kong Disneyland said it would fall short of its projected 5.6 million visitor target for its first year of business, though it might reach the five million mark. The government is 57% owner of the theme park. A new 5.7-kilometer cable car ride over the green spaces of Lantau Island opened after a long delay, carrying sightseers to the landmark Buddha statue atop a high hill. And a squabble about the venerable Star Ferry terminal in Central District continued. The government plans to demolish it, along with nearby Queen’s Pier and Edinburgh Place, to build a new highway; most ferry passenger would have to trudge an extra 2,000 feet to a new terminal on a landfill site. A Legco motion urged the government to save the endangered sites but a senior official repeated that demolition will begin soon.

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