Brookings: Topics - Hong Kong

Hong Kong-Mainland Tension on the Brink of Explosion

Ray Yep — Tue, 09 Oct 2012 00:00:00 -0400

October 1, 2012 was no ordinary day in Hong Kong. It was supposed to be a day of routine celebration activities in honor of China’s National Day, but it turned out to be a nightmare. The festive spirit was brutally muted by a tragic collision of two boats in Hong Kong waters and the consequent sinking of one of these vessels packed with children and other passengers. The local community was stunned. People waited anxiously over the long night for updates on the rescue operation, but their prayers were not answered. The accident resulted in 38 deaths and a dozen serious injuries. The outpouring of grief and bereavement was significant.

The emotion was dwarfed, however, by parallel waves of criticism targeted at mainland officials’ expressions of sympathy and support during the trying hours. Li Gang, deputy director of Central People’s Government Liaison Office in Hong Kong, paid a visit to the victims of the tragedy and offered help for the rescue operation, only to be accused of undermining the authority of the Hong Kong Special Administrative Region Government. This sentiment was further fueled by “directives” from Beijing requesting the local government to make its best efforts in handling the crisis. The resentment against any form of involvement of mainland officials appears to have prevailed over the sentiment for unity, an instinct that is usually unleashed in time of crisis and desperation. For many, Beijing’s actions in this case are blatant intrusions into the autonomy enjoyed by the Hong Kong government and a testament to the emerging trend of “Beijing people ruling Hong Kong” (in contrast to the notion of “Hong Kong people ruling Hong Kong” that is enshrined in the Basic Law).

Overseas observers may find it difficult to reconcile the anti-Beijing sentiment depicted here with the visible role that Hong Kong has played in the recent campaign over the sovereignty of the Diaoyu Islands. Together with Taiwanese campaigners, Hong Kong protesters undertook a dangerous voyage and managed to land on the main island in late August 2012. This symbolic victory helped trigger demonstrations and rallies against the Japanese government in various major cities in China. Such a heroic act is no doubt an expression of concern for the dignity of the Chinese nation. And despite its century-long status as a British colony before 1997, Hong Kong in fact has a long tradition of being compassionate for the well-being of mainland Chinese. Generous donations for victims of natural disasters and concern for the dissidents across the border are illustrative of the bonding between the two Chinese societies. Yet beneath the facade of patriotism, in recent years there has been a rapidly growing counter-current of resentment against mainland encroachment on Hong Kong’s autonomy.

The irreversible process of integration with the mainland economy has certainly contributed to the growth of the local economy, yet many locals find the pressures of growing exchanges too great to bear. Economic integration between Hong Kong and the mainland took off during the early years of post-Mao reforms in the 1980s. Three of China’s four Special Economic Zones—test points for luring foreign investment—were located in Guangdong and Hong Kong investors were the primary targets. Local manufacturers responded enthusiastically to the supply of cheap labor and land and market opportunities, and this sparked waves of relocation of factories from Hong Kong to the north. Beijing’s resumption of the exercise of sovereignty over Hong Kong in 1997 increased the momentum of the process.

However, the outbreak of the SARS epidemic in 2003 heralded the beginning of a new level of integration. With Hong Kong’s economy severely hurt by the crisis, Beijing lifted various restrictions on the movement of capital, services and population between the mainland and Hong Kong. The Closer Economic Partnership Arrangement (CEPA), the main mechanism for these accelerated exchanges, was greeted with enthusiasm and gratitude by local businesses and professionals, who saw it as a timely boost for the local economy. As a result, tens of millions of mainlanders are now allowed to visit Hong Kong (with a population of just over 7 million) every year, and local professionals are granted greater opportunities to ply their trades in the mainland. On the other hand, local financial institutions are becoming more and more dependent on revenues generated from services for public listing of mainland enterprises in Hong Kong or renminbi-related business.

While the unabated influx of purchasing power and capital is a strong impetus for local growth, the challenge of accommodating the consequent increased demand on local infrastructure and services appears to be a daunting task. Locals are getting more and more irritated by the crowded streets and short supply of daily necessities due to the flood of tourists. While lower income groups may attribute general price inflation to the insatiable demands of mainland consumers, the aspiring middle class sees the arrival of mainland competitors as the major obstacle in their pursuit of career advancement, academic success, affordable property and better life chances. Differences in lifestyle, habits and social etiquette further reinforce the tension and uneasiness between these two Chinese groups.

The general mood of frustration and anxiety against the mainland encroachment goes beyond concerns for material well-being. The June 4 event in 1989 has always been an integral part of the local psyche and the people’s perception of the mainland authorities. The rampant corruption of the Chinese bureaucracy, the long list of its infringements on human rights and press freedom, and the authoritarian nature of the Communist regime hardly help endear the Chinese government to locals. More and more Hong Kong people are beginning to think that the growing intimacy with the mainland may come at the price of an undermining of the cherished tradition of liberty.

This fear is also premised on the power asymmetry between the local and central governments. Constitutionally speaking, the Hong Kong Special Administrative Region Government is a subordinate unit under the Central People’s Government. The Basic Law grants the Hong Kong Government autonomy on most issues, especially domestic affairs. But the undemocratic nature of the selection method of the Chief Executive of the Hong Kong government, and the strong influence of Beijing on the process, prompt many people to the believe that the holder of this office would never have the courage or authority to defend local interests in face of pressure from Beijing. This concern is also reinforced by the composition of the legislature—only half of its members are directly elected on the basis of universal suffrage.

The suspicion and fear finally erupted in the summer of 2012 over the controversy of “national education,” a compulsory course for all school children that was scheduled to be introduced in the 2012-2013 academic year, with explicit instructions from top leaders like Hu Jintao and Xi Jinping on the imperative of strengthening a national identity in Hong Kong. While most parents found it reasonable for their children to know more about their motherland, they were shocked when they learned more about the program design, specifically with what many saw as the glorification of the Chinese Communist Party in the curriculum. A collective fear of “brain-washing” and indoctrination in Hong Kong eventually exploded into a week-long siege of the government headquarters and a marathon hunger strike. The storm eventually subsided with the government making major concessions in the program and allowing individual schools to decide whether to implement the curriculum.

More broadly, the rising resentment against mainland encroachment is helping to remake the political landscape of Hong Kong. Only one issue really mattered for the Legislative Council election in the summer of 2012: resistance against mainland influence. Mobilization based on fear of China―rather than issues related to society, democratization, economy or any specific policy program―was the most effective campaign strategy. Even though the share of votes commanded by the democratic camp and the pro-establishment camp remained more or less unchanged, the Democratic Party, the political party that used to be the flagship party in the democratic camp, was the major loser. Its decision to cut a deal on constitutional reform with Beijing in 2010 was depicted by its rivals as an act of betrayal of Hong Kong, and a setback in the quest for universal suffrage for Hong Kong people. In this atmosphere, the Democratic Party suffered a severe blow in the 2012 election, while parties that advocated a non-compromising position vis-à-vis Beijing emerged as the major winners. In 2010, radical groups like People’s Power and the League of Social Democrats in effect manipulated the legislative electoral system by engineering a Hong Kong-wide by-election. The organizers cast the by-election, which was to fill five seats from which legislators had resigned, as a referendum on democracy in Hong Kong. Despite some criticism for this manipulation of the system, these parties have seen their votes increase by more than 50% over the last four years. The constituency for the depiction of the past 15 years as a period of mainland colonization appears to be expanding fast in Hong Kong.

The unease over the prevailing situation in Hong Kong is shared equally by Beijing. Chinese leaders certainly find the resentment of the Hong Kong people incomprehensible, given the mainland’s generous economic support since 1997 and political concessions in the approval of constitutional reform in 2010. Unfortunately, Beijing seems to rely on one expedient explanation for the protest movements and resistance: the involvement of overseas “black hands.” According to this theory of international conspiracy, dissident movements and opposition in China are primarily results of manipulation and intervention by outside forces, rather than spontaneous protests by victims against the wrong doings committed by the Communist regime. It is an official explanation for the outbreak of the June 4 incident in 1989, and the awarding of the 2010 Nobel Peace Prize to the dissident Liu Xiaobo is also taken as vivid proof of a well-orchestrated plot of the West against China. In this mindset, Hong Kong is just another extension of the global conspiracy, and the Americans and British are the usual suspects. This thinking was especially evident in late 2011 when Lü Xinhua, the Commissioner of the Ministry of Foreign Affairs of the PRC in Hong Kong, made a pointed attack on Stephen Young, the American Consul General in Hong Kong, accusing him of unwarranted intervention in Hong Kong politics.

With the growing agitation of Hong Kong people against the mainland, the concern that Hong Kong could be used as a base for subversive activities against China by outside forces could certainly gain some traction among the decision makers in Beijing. There is one obvious way that Beijing could act on such an impulse: the option of initiating deliberation on Article 23 of Hong Kong’s Basic Law—which spells out the obligations of the Hong Kong government to introduce laws prohibiting acts of secession, subversion and sedition and treason against the Central Government―must be very tempting for radicals in Beijing. Though Article 23 might be the most obvious potential bombshell, it is very likely that another controversy may jump the queue in creating mayhem in Hong Kong.

The issue of constitutional reform, represented chiefly by the concept of universal suffrage, must be solved before 2017; China’s National People’s Congress has designated that year as the earliest possible time when the Chief Executive of Hong Kong can be elected on a one-man-one-vote basis. However, even the most optimistic soul would not expect a fully democratic proposal from Beijing given its jaundiced view of the notion of universal suffrage. The radicals in the local political scene, however, are emboldened and are likely to stick to their position of occupying the moral high ground. They are also likely to heed the message delivered by the defeat of the Democratic Party in 2012, and not accept anything less than a perfect package. With the moderates heavily defeated in the latest election, the democratic camp just cannot afford another act of political suicide of being seen a traitor. With a larger segment of Hong Kong society viewing direct confrontation with Beijing as the most effective way of advancing Hong Kong’s interests, more provocative and even violent forms of protest are on the horizon. A total stand-off between some segments of the civil society and the Hong Kong Government is a genuine possibility. That will be the ultimate test of patience and tolerance for Beijing.

As a keen observer of post-1997 politics, Taiwan must find the latest developments in Hong Kong disconcerting. The Nationalists in particular, who have been embracing further encounters with Beijing since the first term of the Ma Ying-jeou presidency, are probably wary of the dislocations and consequences of unchecked integration with the mainland as witnessed in Hong Kong. While inflows of capital or trading opportunities are certainly welcome stimuli for Taiwan’s ailing economy, as they were in Hong Kong, a perception of over-reliance on the mainland economy would undermine the authority of the government in the eyes of the Taiwan public. And as the Ma government is fully aware of the presence of a well-developed opposition political machinery―the so-called pan-Green camp, which is even more prepared to mobilize the fear and resentment against mainlanders than the radicals in Hong Kong―until Taiwan can work out a proper formula for fairly allocating the fruits and costs of economic integration among different classes and interests in Taiwanese society, moderation and restraint on the pace and scope of exchanges with the mainland appears to be the safest approach in the short term. Yet, despite the contrasting calculations by the pan-Blue and pan-Green, some kind of consensus is discernible. That is, as informed by the experience of Hong Kong, the model of One Country Two Systems is simply a non-starter for any prospective dialogue on reunification.

Authors

Ray Yep

Image Source: © Siu Chiu / Reuters

Hong Kong in the Balance

James Keith — Fri, 15 Jun 2012 00:00:00 -0400

Rebalancing is a term much in evidence these days.

The global trading system is going through changes wrought by emerging economic forces, including broad and deep innovation and projected demographic trends that will reshape China’s global role. Regional blocs are experiencing economic and social dislocation as new trends in trade and investment arise. Bilateral ties among nations have become increasingly complex as the lines between national and international blur and a host of initiatives compete with each other in trade, financial, political, social, and religious spheres. Pundits debate whether the United States is in decline even as India, China, and other emerging economies rise. And the U.S. has announced its rebalancing of resources toward Asia as wars wind down and economic and trade objectives regain priority over security concerns that came to the fore after September 11, 2001.

An underlying message of the ongoing process of globalization is a conflicted one: we are truly all in this together but at the same time nations are competing fiercely with one another for resources, investment, jobs, and market share. And that implies the paramount challenge for most economies is to get one’s own house in order so as to realize the population’s greatest potential. We have to work together while we are jockeying for position with each other.

Against this backdrop of change and challenge on a global scale, how much does it matter that C.Y. Leung was selected as the next Chief Executive of Hong Kong, to succeed Donald Tsang on July 1―the fifteenth anniversary of Hong Kong’s reversion to Chinese sovereignty―and to preside over the Special Administrative Region (SAR) from 2012 to 2017?

It might matter a lot. The March 25, 2012 indirect election in Hong Kong, directed by Beijing, featured the novel circumstance of the 1200 members of Hong Kong’s Election Committee facing at least a degree of uncertainty about the ballots they would cast. The genuine competition between two of three candidates for ultimate selection was no more than an incremental step toward the goal of universal suffrage for the Chief Executive in 2017 and the legislature in 2020, but that is significant.

The debate over the relative merits of two of the three candidates did not occur solely in the back rooms or mainland offices of the political and economic elite in Hong Kong and Beijing. To say the media was a lively participant in the process would surely be an understatement, and civil society leaders as well as political party officials had an active voice. There were distinct limits, of course, that made this a selection not an election. To take just one example, Democratic Party candidate Albert Ho had no genuine opportunity to test his party’s agenda for the future against the likes and dislikes of the voters of Hong Kong.

Moreover, it is fair to say that even assuming the ideal outcome for 2017 and 2020, universal suffrage will also be an interim step toward a more conclusive judgment on the success or failure of the “one country, two systems” model by which Hong Kong was incorporated into China on July 1, 1997. The means by which Hong Kong citizens choose their government leaders can and should be made more transparent and more responsive to the people’s will, but that will not change the basic circumstance of the SAR. It will remain, in 2017 or 2020, sovereign Chinese territory beholden to and in many ways dependent upon the mainland. Foreign policy and defense policy will remain in Beijing’s hands.

That said, Hong Kong matters to the mainland, and for very Hong Kong-style pragmatic reasons. Like so many others in the region, Hong Kong seeks to advance its citizens’ prosperity by competing with other economies ranging from cleaner and greener Singapore to well established financial hubs in Tokyo and London. Hong Kong’s experience in that competition to escape the middle income trap and move up the value chain can be a valuable resource to leaders in Beijing in a number of ways.

For example, Mr. Leung is predicting a proactive approach to governance in Hong Kong. He has promised to help the poor and campaigned on pledges of a more equitable distribution of wealth. This is a theme that resonates in Beijing as the leadership ponders the implications of the Guangdong versus the Chongqing model for economic development and political priority (very broadly, the Guangdong model can be defined as a market-oriented development strategy, while the Chongqing model is more state-led). Mr. Leung has promised his detractors that the rule of law will not be diluted in Hong Kong. He affirmed his intention to defend judicial independence and the exercise of fundamental rights such as expression and assembly. That, too, should resonate in Beijing as it is seeking to determine the most effective means of driving domestic economic growth, a debate that necessarily includes discussion of advancing good governance in the political sphere. A question that has been with us since 1997 is this: will Hong Kong lead the way toward gradual establishment of more robust civil society and a greater grounding in the rule of law for the mainland, or will China’s size and complexity overwhelm Hong Kong and pull it backward toward a less free and more authoritarian mode of governance?

The answer depends at least in part on the ongoing effort to define the national identity of the People’s Republic of China and how it relates to Hong Kong. Hong Kong is not Shanghai, it is not Singapore, and it is not Guangzhou. Just as China is struggling to claim its new identity in a new global political and economic landscape, Hong Kong, too, is grappling with its sense of direction and the characteristics that will define it in the decades ahead.

As previewed by Mr. Leung, it seems to me, there are some likely constants in the Hong Kong experience that will dominate the debate about the future of Hong Kong. What makes Hong Kong work today? The rule of law, civil society, a transparent and accountable government, and strong commitment to free market principles is my answer. In my view no Chief Executive of Hong Kong should―or likely will―veer from these foundational elements of Hong Kong’s success. That begs the question, of course, of whether Beijing would do so, given that the Chief Executive is not a sovereign leader. Mr. Leung will be Hong Kong’s chief public servant who ultimately answers to the collective leadership in Beijing.

So the core questions about Hong Kong may be these: what makes Hong Kong valuable to the People’s Republic and what is necessary to sustain or expand that value? If one looks at the record since 1997, the answer that suggests itself is that Hong Kong is valuable to Beijing mainly as a means of engaging the global system in a safe way from a domestic perspective. It is not just initial public offerings that are floated in Hong Kong, which remains a valuable laboratory for the mainland.

A range of ideas for China’s future can be tested in Hong Kong with minimal political risk to the leadership in Beijing. This happens in many ways. Bureaucrats learn that the rule of law in Hong Kong is quite a bit less malleable than it is on the mainland. Experiments with the convertibility of the currency can be conducted without fear of nationwide consequences. And as Chinese try out their new national identity, there can be an “all-in-the-family” series of exchanges in which the Mandarin-speaking assertiveness that goes with pride in past accomplishments can be tempered with a realistic, Cantonese-speaking view of the distance yet to be traveled before China answers satisfactorily the kinds of questions that are being raised in China during the current run-up to the 18^th Party Congress this fall. Such exchanges may be a bit rough and tumble at times, as is the case in the current dispute over mainland mothers giving birth to children in Hong Kong hospitals. But stop for a moment to consider what those Chinese mothers are expressing. Is it anything other than a sense of confidence in the future for their children in Hong Kong? And what is the attraction of Hong Kong’s future? What is the basis for a better chance for one’s children in Hong Kong compared to the mainland? We come full circle, then, to the core of Hong Kong’s success: is it not the rule of law and the free market, recognizable even to the most recent or temporary visitor to the SAR?

One can understand the reticence a Hong Kong citizen might feel comparing life before and after the handover. There have been compromises and twists and turns in the path leading from 1997 to the present, and there almost certainly will not be a straight and clear path from here to 2047, the projected end of the fifty years of autonomy that China promised to the citizens of Hong Kong. There are reasons to be concerned that China might not take the long view. It might seek to circumscribe life in the SAR based on immediate political needs that give priority to politics in Beijing. But the record thus far has been one of Beijing’s identification of the long-term national interest of the mainland in Hong Kong’s success. Beijing has generally had a clear sense of the necessary building blocks of that success, even if it has not always acted on that knowledge.

So to return to the first question: does Mr. Leung’s selection, and by implication his record over the course of his term as Chief Executive, matter to those outside of Hong Kong? Should we who are preoccupied with a return to more balanced global growth and our own nations’ politics of austerity and fiscal discipline sit up and take notice? The answer is yes. As noted at the outset, despite our need to compete with each other for relative position in the global trading system, ultimately we are all in this together. We have to find ways to compete and cooperate at the same time. In short, as participants in the global system, China’s choices matter to us. Hong Kong remains useful and valuable to Beijing, and therefore it, too, matters to the rest of the world.

From a political perspective Hong Kong remains valuable to Beijing, even if not in the way envisaged by those who first conceived “one country, two systems.” If the original intent was for Hong Kong under “one country, two systems” to be a model for reunification of Taiwan and the mainland, it was in this regard an abject failure. The two circumstances are and were fundamentally different and cross-Strait ties have grown organically without direct reference to Hong Kong’s experience. That is not to say Hong Kongers’ experience is without relevance. It is relevant, but the formula for Hong Kong’s return to Chinese sovereignty does not apply to the development of cross-Strait ties since 1997. Moreover, one could argue that the Hong Kong experience was not as direct a precedent for Macau as Beijing might have envisioned. Macau has taken its own very different path based on its quite different colonial history and relationship to China. Beijing has had to become accustomed to things turning out in unexpected ways in its Special Administrative Regions.

As noted briefly in the foregoing, Hong Kong is uniquely positioned to offer valuable economic experience to the mainland across a number of sectors. Primary among these is the financial sector, given Hong Kong’s role as a financial hub and its critical mass of relevant resources. New areas will arise as the global economy develops. Supply chain expertise may give way to biotechnology or medical tourism. There is huge potential, in short, for the mainland to gain from preservation of Hong Kong’s way of doing business. Perhaps the core element of that potential is the growing discussion on the mainland, prompted by outgoing Premier Wen Jiabao, of the necessity for structural change in the political economy of the People’s Republic. This is an area where lessons learned in Hong Kong can be applied on the mainland.

Perhaps the area where China needs the most help and can most effectively learn from experience in Hong Kong is precisely that set of issues that creates the most anxiety among Hong Kong citizens. If good governance grounded in the rule of law is essential to Hong Kong’s continued success, how much more important is it for the mainland economy? After he is inaugurated on July 1, on the fifteenth anniversary of the handover, one of Mr. Leung’s most pressing and important burdens of leadership will be to balance the competing notions of this conundrum: the Hong Kong Special Administrative Region is most useful to the mainland when it is most free from its direct control.

Authors

James Keith

Image Source: Reuters

The Effectiveness of Money Laundering Investigations in Fighting Transnational Crime in the U.S. and Hong Kong

Nelson Yiu-mo Cheng — Fri, 02 Mar 2012 12:51:00 -0500

INTRODUCTION

For a two-year period between 2008 and 2010, part of my professional responsibilities with the Hong Kong Police was to command the Joint Financial Intelligence Unit[1] of Hong Kong (“JFIU”). One day in mid 2009, just as I was about to leave the office, I received a call from a compliance officer of a bank, who was also a personal friend, asking for my advice on a case which had aroused his suspicions. In short, his staff had identified a pattern involving a group of three nonresidents (from Mainland China in fact) opening personal bank accounts at different branches of the bank in the last couple of days. During routine customer due diligence processes, the group told the bank that the accounts were to be used for the purpose of business (trading). However, they appeared to have some common links and once the accounts were opened, they shared a similar transaction pattern of receiving inward remittances from Taiwan in the range of HK$20,000 – 100,000 (US$2,500 – 12,500).

Though I was not happy about the bank allowing personal accounts to be opened for business purposes, being his friend I was courteous enough to praise his staff for what appeared to be good transaction monitoring. Though experience suggested that something was not right with these accounts, neither the bank nor my unit could do anything about the inward remittances. I advised my friend to file a suspicious activity report as obligated under Hong Kong law so that my unit could look into it.

After the call, I asked one of my team leaders to initiate an investigation into the background of the group once the suspicious activity report had been received. The report came two days later which I regarded as pretty efficient; many reports were filed weeks or months after the transactions in question had taken place. However, when the team leader called the bank for some missing details, he was told that the accounts had received further inward remittances from Taiwan in the last two days and that most of them had been either withdrawn in cash or transferred to a remittance agent. The inward remittances amounted HK$ 1.6 million (US$200,000) in total.

Initially, little could be established as to the background of the account holders as they were nonresidents and had left Hong Kong. The funds transferred to the remittance agency were subsequently “wired”[2] through underground remittance networks to two bank accounts in the Mainland. Background checks on the account holders and bank accounts were then conducted with the Mainland and the Taiwanese authorities but experience suggested that we would have to wait weeks or even months for the results. Two days later the remitting bank in Taiwan attempted to recall the remittances from one of the accounts as they were believed to be the proceeds of fraud. Our suspicions were confirmed. The remitting bank alleged that the remittances came from the account of a retiree who was deceived (over the telephone) to believe that his son was subject to a money laundering investigation by the Taiwanese Police and that he needed to transfer all funds in his account to Hong Kong for investigation to prove his son’s innocence.

This was not an exceptional case but was one of many which JFIU came across in recent years. This case illustrates, for the purpose of this study, the fact that transnational crimes take place on a daily basis, and that they are not necessarily complex or involve big sums. It also depicts the current landscape of transnational crime where criminals are adept at exploiting jurisdictional boundaries and incompatibilities to ensure a low risk environment for their criminalities; and it exemplifies the relative inefficiency and ineffectiveness of law enforcement response. There were also issues concerning the regulation of financial institutions for the purposes of anti-money laundering and combating the financing of terrorism, but they do not fall within the purview of this study.

[1] Hong Kong’s Joint Financial Intelligence Unit (“JFIU”) is managed by the Hong Kong Police and is set up in accordance with Recommendation 26 of the Financial Action Task Force (“FATF”), an intergovernmental body comprising 36 financial jurisdictions and organizations. Recommendation 26, titled “Institutional and other measures necessary in systems for combating money laundering and terrorist financing,” reads as follows:

“Countries should establish a FIU that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of suspicious transaction report (or suspicious activity report) and other information regarding potential money laundering or terrorist financing. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR.”

See http://www.fatf-gafi.org/document/44/0,3746,en_32250379_32236920_43730156_1_1_1_1,00.html.

[2] Cross boundary remittance operations between Hong Kong and Mainland China do not involve actual cross boundary fund transfers through banking systems. Remittance agents in Hong Kong normally join in partnership with underground remittance agents in the Mainland to conduct the cross boundary remittance business. On receiving a remittance instruction from a client in Hong Kong, a remittance agent will pass it to his partner agent in the Mainland, who will then deposit the money into the bank account(s) designated by the client.

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Authors

Nelson Yiu-mo Cheng

Image Source: © Siu Chiu / Reuters

Hong Kong and China's Next Five Years of Development: A Keynote Address by The Honorable Donald Tsang

Wed, 09 Nov 2011 12:30:00 -0500

Event Information

November 9, 2011
12:30 PM - 2:00 PM EST

Salon III
Ritz-Carlton Washington DC
1150 22nd Street, NW
Washington, DC

The United States and Hong Kong have long enjoyed close and mutually beneficial economic ties. This commercial relationship has grown considerably over the past decade, with a 65% increase in U.S. companies based in Hong Kong during that time. In 2010 alone, U.S. merchandise exports to Hong Kong amounted to $27 billion, creating the largest U.S. trade surplus with any single partner that year. Beyond the bilateral relationship, Hong Kong will play a unique and pivotal role in the ongoing market reforms in Mainland China, a process that undeniably will affect the U.S. economic recovery and job creation in the years to come.

On November 9th, the John L. Thornton China Center and the Center for Northeast Asian Policy Studies at Brookings, along with the Hong Kong Economic and Trade Office, hosted The Honorable Donald Tsang, Chief Executive of the Hong Kong Special Administrative Region, for a keynote speech on the benefits of strengthened trade and investment relations between Hong Kong and the United States.

Transcript

Keynote Address (.pdf)

Event Materials

1109_hong_kong_china

Participants

Panelists

The Honorable Donald Tsang

Chief Executive
Hong Kong Special Administrative Region, People's Republic of China

Transnational Organized Crime and Mass-Marketing Fraud: A Call for a Swift and Collaborated Response

Nelson Yiu-mo Cheng — Wed, 31 Aug 2011 13:46:00 -0400

Over the past twenty years, mass-marketing fraud has developed from an issue of localized crime into a serious global threat that affects millions of people all over the world on an annual basis. According to surveys conducted by various jurisdictions and international bodies, the annual total losses resulting from mass-marketing fraud may reach tens of billions of U.S. dollars worldwide.

Mass-marketing fraud features many of the same characteristics of contemporary transnational crime and its rampancy highlights the many deficiencies of international law enforcement cooperation. It is highly lucrative with low operational costs. It is truly transnational with regards to perpetrators and victims, while its proceeds are scattered throughout different jurisdictions. The perpetrators know how to exploit the incompatibilities amongst jurisdictions to create a low-risk environment for themselves and their fraudulent operations. Fuelled by advances in information technology, these fraudulent operations can be very secretive, efficient and extremely mobile. Unlike other conventional crimes such as drug trafficking or human smuggling where money laundering normally takes place subsequent to the commission of the crime, the money laundering process of mass-marketing fraud takes place simultaneous to the perpetration of the fraud itself. As highlighted by the International Working Group on Mass-Marketing Fraud, money laundering forms an essential component of these fraudulent operations, and the ease with which proceeds can be moved across borders is a primary factor facilitating the success of the operations.

The term “mass-marketing fraud” may not always be appropriate as the perpetrators constantly change their modus operandi to evade law enforcement detection and in response to the growing awareness of prospective victims. In some jurisdictions, mass-marketing fraud is often referred to as telemarketing fraud or telephone deception. In other jurisdictions, names specific to the cover stories deployed by the perpetrators, such as lottery fraud, heritage fraud, boiler room fraud, etc., are preferred. In lottery fraud, the perpetrators inform prospective victims that they have won a lottery, but before they can receive their winnings, they need to pay an “administrative fee”. In heritage fraud, the victims are deceived into believing that they are entitled to inherit valuable assets left by a distant relative who has just passed away. On the other hand, boiler room fraud requires a greater degree of organization and support, as the perpetrators set up bogus investment companies with false websites and documentation to lure victims through cold calls to invest in some high return shares in a foreign stock exchange. Recently, particularly in Asia, a new line of deception has emerged where the perpetrators tell the prospective victims that their sons or close relatives are being detained in a foreign jurisdiction by police (for committing an offense) or by a loan-shark (typically as a result of gambling debts).

Irrespective of the cover stories presented, the common modus operandi involves perpetrators approaching prospective victims by email, telephone or other communication means, to deceive them into wiring money to banks accounts in an overseas jurisdiction. The bank accounts are normally stooge accounts[1], accounts of shell companies, or business accounts of remittance agents. Very often the proceeds are withdrawn in cash or further wired to other jurisdictions. In some cases the proceeds are comingled with funds of legitimate trading, which is commonly referred to as “trade-based money laundering”. All these maneuvers are to obscure, complicate or break the audit trails so as to avoid law enforcement detection. The proceeds are eventually routed to a location as arranged by the perpetrators by another money laundering scheme involving the use of money couriers, underground remittance networks, etc. If trade-based money laundering is involved, the proceeds may be routed through normal banking systems.

Mass-marketing fraud accentuates some typical challenges to law enforcement in the investigation and prosecution of transactional crime. When the perpetrators, victims, and the proceeds are all located in different jurisdictions, the question of which jurisdiction(s) should coordinate the investigation and collection of evidence from all other relevant jurisdictions arises. For one reason or another, e.g. corruption, absence of mutual legal assistance agreement, different competing priorities, insufficient skills and resources, etc., some jurisdictions are not always keen to take the lead role, or assist in an investigation or prosecution, particularly when the victims are not located in their jurisdictions. It is not uncommon to have a situation where there is lack of necessary foreign evidence to prove the fraud. In the absence of such evidence many jurisdictions often find their hands tied by their over complex money laundering offenses regarding proceeds and money launderers surfacing in their jurisdictions.

Even though there is international cooperation, the level of coordination also leaves much to be desired. Timely interdiction of the proceeds once they have surfaced is important as victims’ losses can only be recovered if the proceeds can be stopped in a timely fashion. This window of opportunity can be extremely narrow. Once the proceeds change their form, e.g. from funds in a bank account to a cash withdrawal, or even worse leaving a jurisdiction, substantial difficulties and barriers are added to the investigation. Worse still is the fact that when the proceeds are gone there is little incentive for victims to come forward to assist in the relevant investigation and prosecution. Domestic collaboration amongst law enforcement agencies, the Financial Intelligence Unit[2] and financial institutions is equally important, but not easy to achieve because of various reasons, e.g. internal bureaucratic protocols, unnecessary complex law enforcement structures, etc.

Hong Kong has been seriously affected by mass-marketing fraud; its role as an international financial center with free inflow and outflow of funds makes it an attractive target for those seeking to establish money laundering schemes arising from fraud. In recent years there have been thousands of cases annually involving local and overseas victims. Hong Kong’s response to the problem has primarily focused on public education and publicity, and more importantly, law enforcement. For public education and publicity, emphasis has been placed on the elderly as statistics indicate that they are the most vulnerable, although highly educated young professionals also fall victim from time to time. Relevant anti-crime messages are circulated as widely as possible by means of public announcements and police stories through media, posters and leaflets, as well as through community centers, schools, and banks.

In respect to law enforcement, the Hong Kong Police endeavors to recover the victims’ losses and to prosecute the perpetrators including the money launderers no matter where the perpetrators are based or whether the victims are in Hong Kong or not. To these ends, the Hong Kong Police set up dedicated investigation units at both Headquarters and District levels to coordinate and consolidate all investigations of mass-marketing fraud. Dedicated investigation units have the advantage of achieving expertise and efficacy in investigation and prosecution and avoiding a compartmentalized approach that has been criticized as an inefficient. Moreover, they can enhance domestic and international collaboration through establishing close contacts with relevant stakeholders such as financial institutions, local and overseas Financial Intelligence Units and law enforcement agencies. They mount intelligence-based operations to identify and target perpetrating groups, share strategic and tactical intelligence, as well as conduct joint investigations with overseas agencies as and when necessary.

Capitalizing on the robustness of the Hong Kong money laundering legislation, these dedicated units have been successful in interdicting some of the proceeds of mass-marketing fraud transiting Hong Kong and pursuing money laundering prosecutions against those who dealt with the proceeds in Hong Kong. This has been achieved despite the fact that very often there is absence of evidence to prove the fraud abroad.

Financial intelligence forms an integral part of effective law enforcement against the problem. Many jurisdictions fail to make good use of its Financial Intelligence Unit in combating mass-marketing fraud. The Financial Intelligence Unit of Hong Kong, known as the Joint Financial Intelligence Unit (“JFIU”)[3], plays an important role in the fight against the problem. Because of its well-established relationships with financial institutions, it conveniently acts as a point of contact between the dedicated investigation units and the financial institutions, as well as with overseas Financial Intelligence Units and law enforcement agencies. Financial institutions, banks in particular, are an important source of information of mass-marketing fraud. There have been numerous cases where banks identified suspicious transactions and accounts which later proved to be related to mass-marketing fraud, well before the relevant victims were aware that they had been deceived. The JFIU regularly issues case studies and red-flag indicators to banks to raise the awareness of their front line staff on the latest modus operandi and to assist them to identify suspicious transactions and accounts. Whenever a bank identifies suspicious transactions or funds in an account, a bank is obligated to file a suspicious activity report to the JFIU. The JFIU will then liaise with the relevant dedicated investigation units and if necessary the relevant overseas FIU or law enforcement authorities to establish the sources of the funds. After reporting, as obligated under the anti-money laundering legislation of Hong Kong, the bank needs to wait for the “consent” of the JFIU for it to continue to deal with the funds; otherwise the bank will run the risk of being prosecuted for money laundering if the funds are later confirmed to be the proceeds of crime. If the JFIU has a reasonable cause to suspect that the funds in question are the proceeds of mass-marketing fraud, the JFIU will withhold the consent[4] and disseminate the report to a dedicated investigation unit for investigation and action. This arrangement, provided under Hong Kong legislation, conveniently provides the JFIU with a means of holding suspicious funds pending investigation and/or recovery, and hence facilitates the proceeds to be timely interdicted once they are surfaced.

International cooperation is indispensible to any effective law enforcement approach to transnational crime. The Hong Kong Police treat every overseas request for assistance very seriously irrespective of any involvement of local victims. Hong Kong can provide a wide range of assistance, such as sharing evidence, restraining and confiscating criminal assets, surrendering fugitives, and sharing confiscated assets. The JFIU can swiftly respond to an overseas request for holding suspicious funds in a Hong Kong bank account if there is information and/or evidence to show that the funds may be the proceeds of mass-marketing fraud regardless of where the fraud has taken place.

Moreover, to pool together international efforts against the problem, the Hong Kong Police initiated a Typology Project on Mass-Marketing Fraud at the Asia Pacific Group on Money Laundering (“APG”)[5] in July 2010. The project is co-chaired by Hong Kong and Malaysia. It seeks to assist member jurisdictions to understand the fraudulent operations and the associated money laundering activities; identify deficiencies in existing institutions and approaches to the problem; and share preventive and enforcement best practices, with a view to deliberating and formulating a global solution. The project is particularly aimed at jurisdictions in the region with less developed AML regimes which are now only starting to arise in these cases as their economies develop.

By exploiting jurisdictional incompatibilities and the ineffectiveness of international law enforcement cooperation, mass-marketing fraud has achieved a high degree of impunity. To retain their relevancy and effectiveness, law enforcement agencies need to, without delay, critically review their domestic institutions and work together to strengthen the exiting international collaboration, so as to bring an end to the problem.

[1] Stooge accounts, often referred to as strawmen, are accounts opened by a third party for small reward. However, these individuals, often low-paid drug addicts or students, never control the accounts.

[2] Financial Intelligence Unit is a national agency set up in accordance with Recommendation 26 of the Financial Action Task Force with the primary function of receiving and analyzing suspicious activity reports for the purposes of anti-money laundering and to counter the financing of terrorism.

[3] It was set up in 1989 in accordance with the Financial Action Task Force Recommendation 26. As its name implies, it is jointly operated by the Hong Kong Police and Hong Kong Customs but is mainly funded and managed by the former.

[4] In practice, the JFIU will issue a No Consent letter to the bank. A No Consent letter is not a court order and a bank is not obliged to follow it. However, if the bank disregards it and continues to deal with the funds, it may be liable to prosecution. Therefore, banks normally treat a No Consent Letter as a warning and will not further deal with the funds in question.

[5] APG is a Financial Action Task Force-style regional body for the Asia Pacific region. It has 40 member countries or jurisdictions in Asia, the Pacific Ocean and North America. Its mandate is to ensure and assist member countries to implement international AML/CFT standards.

Authors

Nelson Yiu-mo Cheng

Image Source: © Siu Chiu / Reuters

Hong Kong’s External Relations

Tue, 05 Oct 2010 10:00:00 -0400

Event Information

October 5, 2010
10:00 AM - 1:45 PM EDT

Saul/Zilkha Rooms
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036

As a major trading, logistics and financial center, as well as a gateway for trade with China, the Hong Kong Special Administrative Region has the authority to develop relations and conclude and implement certain agreements with foreign states, regions, and international organizations. Today, Hong Kong seeks to maintain its role as an international financial center, but faces competition from Shanghai, which wants to become the central hub for China’s international financial affairs. The complex competition bears the question of how Hong Kong sees its role on the world stage evolve as cities in mainland China rise to the challenge.

On October 5, the Brookings Center for Northeast Asian Policy Studies, the John L. Thornton China Center and the Hong Kong Journal hosted a seminar to examine the evolving dimensions of Hong Kong’s external relations. A panel of experts analyzed Hong Kong’s role as an international financial center; its role in combating money laundering and terrorism; and its relations with Taiwan. Following the panel discussion, Donald Tong, Hong Kong commissioner for economic and trade affairs in the United States, gave a keynote address. After the program, speakers took audience questions.

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Hong Kong’s External Relations

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Participants

Moderator

Panelists

Robert Keatley

Editor, Hong Kong Journal

Michael F. Martin

Specialist in Asian Affairs; Foreign Affairs, Trade and Defense Division; Congressional Research Service

William H. Overholt

Senior Research Fellow, John F. Kennedy School of Government, Harvard University

Simon Xu Hui Shen

Associate Professor, Hong Kong Institute of Education

Donald Tong

Hong Kong Commissioner for Economic and Trade Affairs, Hong Kong Economic and Trade Office

U.S.–China Economic Relations: Hong Kong's Role

Wed, 22 Sep 2010 14:00:00 -0400

Event Information

September 22, 2010
2:00 PM - 3:30 PM EDT

Root Room
The Carnegie Endowment for International Peace
1779 Massachusetts Ave., NW
Washington, DC

Since its return to mainland China in 1997, Hong Kong has gained a reputation as a gateway to China for overseas investment and businesses. On September 22, the Brookings Institution Center for Northeast Asia Policy Studies, in cooperation with the Asia Program at the Carnegie Endowment for International Peace, held an event to discuss Hong Kong’s changing role in shaping U.S.-China economic relations.

C.Y. Leung of the Executive Council of the Hong Kong Special Administrative Region gave remarks during the event. Richard Bush and Carnegie's Douglas Paal moderated the discussion that followed.

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0922_hong_kong_economics

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C.Y. Leung

Convener, Executive Council of Hong Kong

Trip Report: Taiwan & Hong Kong, Internal Politics and the Beijing Partnership

Richard C. Bush III — Wed, 10 Feb 2010 09:59:00 -0500

Taiwan

Taiwan is in the middle of an effort to stabilize its relationship with China, and the process remains controversial. Prior to the presidential election of 2008, Taiwan and China were locked in a downward spiral of mutual fear, where each side feared that the other was about to challenge its fundamental interests. Each took counter-measures that only made the situation worse. The election of Ma Ying-jeou, the leader of the more conservative Nationalist party (KMT) created the possibility of reversing that spiral. Ma campaigned on the idea that Taiwan could better assure its prosperity, dignity and security by engaging and reassuring China rather than provoking it.

Since Ma took office in May 2008, the two sides have made significant progress on the economic side, removing obstacles and facilitating broader cooperation. They will attempt this year to sign a framework agreement for a free trade area. There has been less progress on the political and security side, in part because Beijing and Taipei understand that the necessary mutual trust and consensus on key conceptual issues is lacking. Indeed, China continues to build up its military relevant to Taiwan: hence Taiwan’s request for advanced U.S. arms and our positive response. Broadly speaking, however, the two sides are correct to work from easy issues to hard ones and defer discussion on issues that remain sensitive.

Ma’s project is politically controversial. Although polls indicate that the public supports his cross-Strait policies, the opposition Democratic Progressive Party (DPP) seeks at every turn to convince people that Ma is selling out the island’s interests. Because Ma is a Mainlander, some voters find the sell-out charge plausible.

The DPP’s slowness to recover from a crushing defeat in 2008 has helped Ma for awhile. But his popularity as a result of his administration’s responses to unexpected challenges—for example, disaster relief after a typhoon last August, and the politics of an agreement with the United States on market access for beef. On the latter, the opposition gained traction by playing up food-safety concerns and the legislators of Ma’s own party rebelled at being excluded from policy-making. As a result, Ma’s approval ratings are in the 20s.

The striking phenomenon was some public anxiety about perceived weakness vis-à-vis China. Beijing, the people fear, will identify Taiwan’s points of vulnerability and then exert leverage to exploit them. No one apparently is thinking about how, jujitsu style, to turn Beijing’s pressure against it.

But the situation is far from hopeless for Ma and his party. Despite his low standing in the polls, recent by-elections suggest that his party’s majority electoral support remains firm (as much as 55 percent). He has two years before he must stand for re-election. And, as noted above, the public still supports his China policy. Yet the opposition’s prospects are not bad either. It is regaining some initiative and given the right environment, its candidate could mount a serious challenge. The key factor will be swing voters, who are actually the biggest bloc (40 percent, perhaps). And because Beijing knows that the DPP might return to power, it may be increasingly reluctant to grant concessions to Ma for fear that the DPP will pocket them. That will make it easier for the DPP to make the case that Ma has achieved little for his embrace of Beijing.

Hong Kong

Hong Kong, a “special administrative region” of China, has substantial autonomy to run its internal affairs, while Beijing retains control over defense and foreign affairs. At the same time, China has shaped the political system to prevent the election of the opposition, pro-democracy camp as the majority of the legislative council or the selection of a chief executive not to its liking. For example, half of the seats in the legislature are “functional constituencies” representing key social sectors, most of which are business sectors favorably inclined to Beijing. Similar small franchises select the chief executive.

But China, in its agreement with Britain in 1984 concerning the future of Hong Kong, did promise that universal suffrage would be permitted “ultimately.” Similar general promises were made in the mini-constitution that China’s legislature passed in 1991, with the proviso that the process be “gradual and orderly.” The debate ever since has been over the pace and scope of the movement towards universal suffrage. How soon will it happen? What will happen to functional constituencies? What are the arrangements during the transition period? The pro-democracy groups doubt whether Beijing will ever allow the selection of leaders to reflect the will of the people. Beijing mistrusts the intentions of the democrats if they were ever come to power. It also dislikes the hurly-burly of democracy.

The current argument is over arrangements for the legislative council elections in 2012. The Hong Kong government has proposed minor changes that do not fundamentally change the system, but it points to signals from Beijing that universal suffrage (undefined) will be allowed for elections late in this decade. The government needs the votes of some democrats to pass those arrangements, because they require a two-thirds margin in the legislature. But the democrats are unwilling to support the legislation for 2012 without greater clarity from Beijing that universal suffrage of a truly democratic sort will happen (three years ago, the democrats voted down a similar proposal).

The drama has taken a new and unexpected turn. Recently, five democratic legislators from geographic districts resigned their seats in order to force by-elections, and they assert that this vote is in effect a referendum on universal suffrage. They are from the more radical wing of the democratic camp, and the moderates opposed this gambit. So too, of course, does the Hong Kong government and Beijing, and the latter has apparently instructed the parties that toes its line to not contest the elections.

At the same time, the mode of politics is becoming more extreme and polarized. In particular, some younger activists are engaged in symbolic confrontation for confrontation’s sake. Loosely organized and coordinated through the internet, this is a force that older, elitist politicians and officials find it hard to cope with.

The upshot, of course, is that the chances for resolving the fundamental conflict have declined. Assuming a certain amount of trust-building, reaching a mutually acceptable outcome was not impossible—if the discussion remained within the elite circle. And recent developments may provide some greater leverage to more moderate democrats. Still, radicalization of politics within a society that still values order and symbolic challenges to Beijing probably reduce the odds. Before, there was an assumption that political evolution could be both “gradual and orderly” at the same time. Now that is not so certain.

Economically, Hong Kong must continually find ways to remain competitive while the Chinese economy grows and moves up-scale. The best opportunities are in the service sector, where Hong Kong is already advanced. The top priority is to preserve Hong Kong as an international financial center, and that will require innovations (creation of a bond market, for example). Even if this effort is successful, it is not clear that the results will trickle down to the bulk of the population. Inequality is growing and young people have less and less hope for a middle-class life. That, in turn, can fuel political alienation and radicalization.

Authors

Richard C. Bush III

Classification and Statistical Reconciliation of Trade in Advanced Technology Products: The Case of China and the United States

Thu, 01 May 2008 12:00:00 -0400

The Brookings-Tsinghua Center hosted a roundtable on September 6, 2007 titled “China’s Economic Policies” featuring top scholars and experts from U.S. International Trade Commission (USITC). This topic is a point of interest in U.S.-China relations. Participants in that roundtable will be featured in a joint research working paper series between USITC, school of public policy and management at Tsinghua University and Institute of International Economics at NDRC of China.

EXECUTIVE SUMMARY

This study provides an objective overview of U.S.-China trade in advanced technology products (ATP). It examines the definitions and classification methods of ATP in the United States and China, compares available ATP lists, and investigates some of the pros and cons of both countries’ current systems using historical data. It also illustrates a method to reconcile U.S.-China ATP trade data that combines the strengths of both countries’ trade statistics. Finally, it presents preliminary explanations for U.S.-China ATP trade patterns from 1996 to 2006, based on one set of reconciled ATP trade statistics.

Major findings from the study are:

ATP classifications in the two countries, while similar in a number of ways, appear to have been created to serve different purposes. Some Chinese classifications appear to be used to help inform and manage its broad industrial development strategy and often extend to products beyond those considered advanced technology products in the United States. The U.S. ATP classification are mainly for statistical monitoring purposes and do not appear to be tied to specific policy goals.

The ATP-producing industries are relatively stable, while the ATP product list changes year by year, with dramatic changes taking place when a revision of the HS codes occurs.

ATP statistics from numerous sources consistently show that the U.S. trade deficit in ATP with the world grew rapidly in recent years, with China as one of the largest contributors.

The dramatically increasing surplus of China in ATP trade since its WTO accession is concentrated mostly in information and communication technology, while the United States still enjoys sizeable surpluses in electronics and aerospace technology.

The adjustment of re-exports through Hong Kong has only a modest impact on the discrepancies in U.S.-China ATP trade statistics, which is similar to the findings of Ferrantino and Wang (2007) in U.S.-China general merchandise trade. However, when we make adjustments for differences in classification definitions, and largely purge the Chinese data of “new” products, we get a clearer picture of U.S.-China trade in ATP products.

More than 90 percent of the rapidly expanding ATP exports from China to the United States is processing trade, which is closely related to foreign direct investment (FDI) and largely carried out by foreign firms. This is in contrast to non-ATP trade, where most of the growth in trade since China WTO accession has been carried out by private Chinese firms, not foreign firms.

Various special economic zones and areas have largely hosted the rapid expansion of Chinese ATP exports.

The emergence of China as a major supplier to the U.S. advanced technology products market results from the combination of the fragmentation of global production, China’s comparative advantages, and Chinese Government preference policies to processing trade and foreign invested enterprises.

There appears to remain a considerable technological gap between Chinese ATP exports and Chinese imports from the United States. Chinese ATP imports from the United States were dominated by large-scale, sophisticated, high-valued equipment and devices, while Chinese ATP exports to the United States were still mainly small-scale products or components in the low-end of the ATP value-added chain.

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Authors

Falan Yinug
Fengjie Qu
Haifeng Wang
Ling Chen
Michael Ferrantino
Robert Koopman
Zhi Wang

Publication: Brookings-Tsinghua Center for Public Policy Working Paper Series

Digital Democracy: How the American and Hong Kong Civil Societies Use New Media to Change Politics

Rikkie L K Yeung — Thu, 03 Apr 2008 12:00:00 -0400

Introduction: Digital Democracy and "You"

Democratic participation faces challenges in many modern societies, including the United States and Hong Kong. Americans are confronting growing executive power and legislative gerrymandering, and the resulting disillusionment of the electorate. Hong Kong citizens are struggling for something more basic about democracy—universal suffrage. New media, based primarily on the Internet, which allows users much more autonomy to create and distribute content than traditional mass media, are being heralded as the savior of government by and for the people. Time Magazine, for instance, selected "You" as its 2006 Person of the Year, in part due to the emergence of blogs and YouTube videos as a political force in the 2006 U.S. mid-term elections.¹ Can new media actually boost democratic participation and change politics in a lasting way? Or is such optimism as inflated as internet stocks during the dot com mania at the beginning of this millennium?

People-based political activism in the digital age contributed to the loss of the Republican majority in both houses of Congress to the Democrats in the last elections. Blogs and online video sites raised awareness of George Allen’s "macaca" incident and Mark Foley’s lewd messages to pages, both of which bruised the GOP’s reputation. Surprise wins in Senate races by Democrats Jim Webb in Virginia and Jon Tester in Montana were facilitated by the rising influence of netroots bloggers within the Democratic Party, political "vlogging" on YouTube, online election fund raising drives, and get-out-the-vote operations conducted through the Internet and mobile phones. After the 2006 mid-term elections, the power of new media—once the domain of "political insurgents" who lacked money and support from the political establishment—is now fully recognized by mainstream American politicians. Many candidates in the 2008 presidential election, including Democratic frontrunners Hillary Clinton, Barack Obama and John Edwards, used the Internet to announce the formation of their exploratory committees or candidacies.

In Hong Kong, an advanced economy with a very different political system and culture, access by average citizens to digital technologies is comparable to, and in some ways surpasses, access in United States. But the use of new media in politics by Hong Kong civil society still has a long way to go to match the sophisticated new media strategies that have been adopted in America. The potential for further development, however, is clear. Since 2003, more and more Hong Kong citizens are using new media in the democracy movement. Without much guidance from pro-democracy politicians, ordinary citizens spontaneously used websites, e-mail, online video and cell phone messaging to mobilize their families and friends to participate in democracy rallies attended by tens of thousands; to get out the votes for pro-democracy candidates in elections; and to use Internet radio to express opinions seldom found in the self-censored mainstream media.

Apart from the U.S. and Hong Kong, there are other international examples of political changes facilitated by new technologies. For example, average citizens used mobile phone text messaging in the People Power II demonstrations in the Philippines that led to the downfall of former President Joseph Estrada in 2001.

Do these developments signal the dawn of digital democracy? The idea has excited many who believe in the power of information technology to transform the world. Skeptics, however, claim that the real victories of digital democracy are actually more limited and gradual than many predicted. After all, the new media are simply tools to facilitate bottom-up, people-based participation in many aspects of civic life. How "You" use the new media tools matters more than the technological possibilities.

This paper examines how the American and Hong Kong civil societies have explored the use of new media to promote democratic participation and change political realities. The choice of the United States and Hong Kong for comparison is made because the two are well-developed international economies with widespread access to advanced information technologies; but the political, social, and cultural environments are different. This paper chronicles recent developments on the strategic use of the Internet in the U.S. elections as well as the spontaneous use of online and mobile media during democracy and social movements in Hong Kong. The conceptual and empirical discussions aim to shed light on several questions. What are the potential benefits and limitations of new media as a civic tool? What factors should be considered when using new media for political purposes? How can civil society groups and individual activists adopt the new media technologies in politics? What strategies and new media applications have been used, and why? What has been the impact on political outcomes so far? In what cases has new media succeeded, backfired, or made no difference, and why? What have been the problems? What are the possible future directions and concerns?

Discussion of these questions is structured into four parts. Part 1 introduces the definitions and scope of major concepts adopted in the article, and discusses the theoretical potential and limitations of using new media in civil society. Part 2 identifies general key factors for civil society activists to map out a new media strategy: legal, social, economic, cultural considerations and the ecology of traditional media, which differ from society to society. Part 3 uses case studies of Hong Kong and the United States to illustrate the application of digital media to political participation in different political systems and cultures. The concluding section compares the impact of the use of new media on the politics in the two societies; examines the problems arising from this development; and looks to the future of new media applications.

The means and results of the political use of new media in the American and Hong Kong civil societies are dissimilar in many respects due to the political, social, and cultural reasons. Of particular interest is that the American liberal netroots have used the new media strategically and systematically to challenge the Republican Party, whereas Hong Kong citizens have spontaneously used new media (without a coherent proactive strategy from civil society leaders) to mobilize participation in the democracy movement. In both cases, the use of new media increased democratic participation by the otherwise apathetic masses. Both cases support several generalizations about how new media may increase participation in politics. First, it reduces frictions in political mobilization particularly in the areas of fund raising, voting, and participation in protests; and this is especially useful at the times of general discontent in the society. Second, it fosters a sense of individual empowerment among citizens, thereby reducing political apathy. Third, so far political insurgents (those out of office or out of the mainstream) have more effectively experimented with alternative media than incumbents, who enjoy advantages in resources and access to the traditional mass media. Fourth, in election campaigns, the more competitive the race, the higher the incentives are for the candidates to explore creative use of digital media.

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Rikkie L K Yeung

Hong Kong–Beijing Relations

Thu, 20 Sep 2007 09:00:00 -0400

Event Information

September 20, 2007
9:00 AM - 12:30 AM EDT

Kresge
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

A new and modernized China has been the vision of countless scholars, statesmen, and patriots since the late 19^th Century. But the 20^th Century was a sobering experience for China in its search for the path to modernization. Alan Leong explored how close the Chinese are to that vision; where China is heading as a nation and where China stands in the international community; and what the role of Hong Kong is in the 21^st Century in China’s modernization.

Alan Leong is a Legislative Councilor of the Hong Kong Special Administrative Region (HKSAR), representing Kowloon East. In March 2007 he ran against Donald Tsang, the incumbent Chief Executive of the HKSAR, in the first contested Chief Executive Election held since the reversion of sovereignty to China in 1997. Prior to this, Leong had a successful career as a barrister in private practice, and was the first Senior Counsel appointed after the establishment of the HKSAR. He served as Chairman of the Hong Kong Bar Association from 2001 to 2003. As Chairman of the Committee on Mainland Relations and Practice, he negotiated for the participation of Hong Kong barristers in China’s legal services after China acceded to the World Trade Organization. Leong is also a founding member of the Civic Party, which enjoys substantial support from the professional sector, and is widely seen by the Hong Kong public as a strong leader in the universal suffrage movement.

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0920hongkong

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Hon. Alan Leong

Legislative Councillor, Kowloon East

Tenth Class of Visiting Fellows Joins Center for Northeast Asian Policy Studies

Thu, 06 Sep 2007 12:00:00 -0400

Brookings President Strobe Talbott announced today the arrival of six new visiting fellows at the Brookings's Center for Northeast Asian Policy Studies (CNAPS). This year's fellows come from China, Hong Kong, Japan, Russia, South Korea, and Taiwan, and will participate in the center's ten-month program.

"I am delighted to welcome the tenth class of CNAPS visiting fellows to Brookings," said Talbott. "They are recognized leaders in their fields, and we are proud to have them as part of a signature program of the Institution. CNAPS has, over the past decade, established a reputation for excellence itself both here in Washington and in Asia. Year after year it has been able to attract visiting fellows of the highest standards, and this year is obviously no exception."

Dr. Weixing Richard HU (Hong Kong) is a specialist in China and Asian international relations. At Brookings he will research "China, the United States, and Future East Asian Regionalism: Managing the Changing Balance of Influence." Dr. Hu is Associate Professor in the Department of Politics and Public Administration, Faculty of Social Sciences, at the University of Hong Kong.

Mr. HUANG Ching-lung (Taiwan), a veteran journalist, is Deputy Director of Taiwan's China Times newspaper. His research project at Brookings is titled "A House Divided? Media, Politics, and Democratization in Taiwan."

Dr. Akihiro IWASHITA (Japan) will write on "A Northeast Asian Quadrangle in an Emerging Eurasian Order." He will examine the relationship between China and Russia and consider its potential impact on the U.S.-Japan alliance. Dr. Iwashita is a professor in Hokkaido University's Slavic Research Center.

Dr. LIM Haeran (Korea) will investigate "Democratization and Transformation Processes in East Asian Developmental States," with special attention to financial reform and industrial policy. Dr. Lim is Associate Professor and Chair of the Department of Political Science at Seoul National University.

Dr. PANG Zhongying (China) will research "Geo-political Changes and Regional Security Community Building" with an emphasis on potential areas for cooperation between the United States and China. Dr. Pang is professor of International Relations and Director of the Center for Global Studies at the School of International Studies at Renmin University in Beijing.

Dr. Georgy TOLORAYA (Russia), a specialist in foreign policy and Korea, will write about "The Korean Crisis from a Russian Perspective and Prospects for Russia-U.S. Cooperation." Dr. Toloraya has served the Foreign Ministry of the Russian Federation as deputy chief of mission at the Russian embassy in the Republic of Korea and economic officer in the former Soviet embassy in Pyongyang, among other positions.

Established in 1998, CNAPS promotes research, analysis, and exchange designed to enhance policy development and understanding on the pressing political, security, and economic issues facing Northeast Asia. The Visiting Fellows Program, the Center's flagship initiative, offers mid-career fellowships that bring up to six fellows each year from Northeast Asia to conduct research and interact with the U.S. policymaking and academic communities. Under the direction of Dr. Richard Bush, CNAPS also sponsors an array of policy-oriented seminars, discussions, and publications.

Can Hong Kong Maintain its Competitiveness?

Fri, 08 Jun 2007 00:00:00 -0400

Whether Hong Kong will be able to maintain its competitive edge in the future is currently unclear. The key issue is how the government and society will face challenges, and how they will try to reduce factor costs and the cost of collaborations with government. The trading cost in Hong Kong is already fairly low, so as it gradually integrates with the mainland, Hong Kong must try to maintain the transparency of its political, social, legislative and administrative systems.

Through economic integration with South China and Shenzhen in particular, Hong Kong shows promise in decreasing factor costs, e.g. if people from Hong Kong choose to live in Shenzhen, their purchasing power will increase as much as three to five times. Under these circumstances, even if their incomes were cut to two thirds, the people in Hong Kong will still be able to maintain their present living standards. Hong Kong will also be attracting more business activity from both the mainland and other regions around the world once costs of labor and real estate begin to decrease. As a matter of fact, that is exactly what most Hong Kong people are doing, And it is probably the only way to enhance the overall competitiveness of Hong Kong and South China in the long run.

Many people are worried that integration will cause short-term shocks to Hong Kong’s real estate pricing and employment, and thus there will be an attempt to stop or withdraw the process of integrating Hong Kong and South China. Many believe that the slow integration will benefit Hong Kong people in the short term, which is impractical and an illusion. The price of real estate in Hong Kong depends more on the city’s future development in the long run rather than any short-term factors. New York, London, and Tokyo have no isolating borders with their neighboring cities, but their prices still run high as they are centers of large regions of global economic activity.

Thus, the challenge Hong Kong actually faces is how to help South China attract multi-national corporations (MNCs), such as Fortune Global 500 companies, and later itself grow into a region of large global economic activity. If it lacks industrial bases in South China and relies merely on the non-convertible currency and the lack of transparency of legislative systems in China, Hong Kong’s role as an international trade and financial center will be precarious. Once South China is integrated, MNCs will not likely move out in five to ten years, as some fear. On the contrary, the investment banks of Hong Kong even now are able to move easily to Shanghai within a few months, and already some of their bankers spend more time in Beijing or Shanghai than in Hong Kong. Just as New York, London, and Tokyo get along and develop with their suburbs, whether there is a border or not, Hong Kong and South China could be integrated and develop together.

The integration of Hong Kong and South China requires a number of elements: approval by Beijing, courage and wisdom from citizens of Hong Kong and from the Hong Kong SAR Government, and especially close cooperation with South China. The key points of this process are that Hong Kong should help South China reduce trading costs, and in return the region should help Hong Kong reduce its factor costs. The economic growth in China demands that there should be a big economic collaborative region, like the East China Region with the centre of Shanghai, in South China. Hong Kong could also play a leading role in the Pearl River Delta just as Shanghai does in the Yangtze River Delta.

Hong Kong will never lose its position as the most important regional economic body of China. The gross foreign trade (about half of which is re-exports) is equal to that of mainland. In the capital market, half of Hong Kong’s listed companies are located in mainland or overseas. With the exception of mainland China, Hong Kong has completely integrated with world economic bodies. On one hand, those “ahead of their time” advantages are the foundation of Hong Kong’s competitiveness; on the other hand, it shows the importance of rapid economic integration between Hong Kong and the mainland.

Some collaboration systems should be established both to promote development and economic integration in the Pearl River Delta, and to build this region, including Hong Kong, into a real regional economic body or urban economic region. The central government, the Hong Kong SAR Government, Shenzhen’s municipal government and the provincial government of Guangdong should make frequent and substantive contacts for regional economic development strategies and collaborations.

There is much good the market cannot do, as seen with Deng Xiaoping’s suggestion of establishing the Shenzhen Special Economic Zone, developing Putong in Shanghai, and the western development strategy, etc. Those government-guided, long-term, reasonable, and practical development projects, together with supporting policies and investments, provided the necessary directions and guidelines. If not for the Putong development project of Shanghai, and if not for the government-funded infrastructural construction, the investments from the non-governmental organizations would have substantially decreased.

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Publication: Xinhua Daily Telegraph

International Monetary Arrangements: Is There a Monetary Union in Asia's Future?

Barry Eichengreen — Sat, 01 Mar 1997 00:00:00 -0500

During 1995-96 the yen-dollar exchange rate endured a cycle of violent fluctuation. From 100 yen at the beginning of 1995 the dollar fell to 80 yen in April. At that point worried central bankers in Japan, the United States, and Europe intervened and halted the dollar's decline. The U.S. currency then trended sharply upward, most recently breaching the 120-yen barrier in late January. Concern for the strength of the yen was replaced by worries about its weakness: alarm grew that an undervalued yen would fan conflict over the U.S.-Japan current account balance and make life difficult for Japanese firms that import components from East Asian suppliers.

There is no question that this cycle created problems for both the Japanese and U.S. economies. It discouraged international trade by forcing firms to hedge exchange risk by purchasing "cover" in the forward market. And it created special difficulties for a Japan seeking to restructure and streamline a depressed economy. An exchange rate of Y80 intensified the pressure on Japanese exporters of manufactures. The problems experienced by the tradables sector deepened the distress of financial institutions holding claims on manufacturing firms. The economy's deflationary crisis was thus compounded by the yen's appreciation in 1995. And while depreciation in 1996 relieved the domestic profit squeeze, the yen's volatility complicated investment planning. Japanese producers may be discouraged from developing sustainable outsourcing strategies and shifting production to other parts of East Asia. The sudden improvement in competitiveness may distract producers and policymakers from the search for a permanent solution to the structural problems of the Japanese economy.

Looking for a Quick Fix

The 1995-96 yen-dollar dustup elicited the predictable demands for international monetary reform. If the major industrialized countries that make up the Group of 7 could only agree to establish a new system of pegged-but-adjustable currencies or exchange rate target zones, observers argued, these painful exchange rate fluctuations could be avoided. And if the seven could not reach agreement as a group, then the countries whose currencies were being affected should establish a bilateral target zone. Thus, we have heard repeated calls for the establishment of a target zone for the yen-dollar rate or a common basket peg, surrounded by fluctuation bands of plus-and-minus 10 percent, for nine East Asian currencies (those of China, Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand).

The matter, unfortunately, is not so simple. Stabilizing exchange rates by establishing a new system of pegs, bands, or target zones would require significant compromises of domestic policy autonomy. Intervention by central banks is effective only if it sends credible signals of future shifts in monetary and fiscal policies--that is, when there is no conflict between domestic and international economic policies.

But in today's world, conflicts between domestic and international economic objectives are inevitable. The removal of controls on international capital movements and the development of modern information-processing technologies over the past several decades permit billions of dollars to be traded across borders at the stroke of a key. The domestic policy independence that capital controls once afforded national monetary and fiscal authorities has become a thing of the past. Currency traders, no longer limited by controls, are free to attack an exchange rate as soon as they begin to suspect that the government is less than totally committed to defending it--a practice that can greatly increase the cost of defending the currency peg. With the end of the Cold War and the disintegration of dominant political coalitions in countries like Italy and Japan, governments are necessarily fragile and hesitant to put the domestic economy through the wringer to defend the exchange rate at any cost. Weak governments find it infeasible to pursue the international economic policies needed to maintain a durable currency peg.

Thus schemes to peg the dollar, the yen, and the deutsche mark against one another, as had been the practice until the Bretton Woods international monetary system collapsed in the early 1970s will prove unavailing. Exchange rates between these currencies will continue to float against each other.

Small Countries, Big Problem

For the United States and Japan, large countries that remain relatively closed to international transactions, this arrangement, while painful, is bearable. For small open economies, where a larger share of production is typically sold on international markets, the dislocations caused by exchange rate swings can be excruciating. Because the financial sector is small relative to global financial markets, a shift in market sentiment or in interest rates in the United States can elicit a flood of capital in flows that leads to a dramatic real appreciation or massive outflows that cause the exchange rate to depreciate alarmingly.

Whether these small open economies are in Europe, Latin America, or East Asia, they find it exceedingly difficult to live with exchange rate fluctuations. They are thus prepared to take drastic steps to limit exchange rate volatility. In some cases they have done so by replacing their central banks with currency boards. This approach has been used by countries with exceptional problems with inflation and financial stability, such as Argentina and Estonia. A parliamentary statute or constitutional amendment requires the board to tie the domestic currency to that of a major trading partner. Argentina's currency board can issue a dollar's worth of currency only when acquiring a dollar of reserves, effectively pegging the peso-dollar exchange rate at one to one. Currency traders do not question the monetary authorities' commitment to the currency peg, since the latter are required by law to defend it. But a currency board leaves the monetary authority little leeway to act as a lender of last resort in the event of problems in the banking system. And once the inflationary crisis has passed, countries find it hard to eliminate their currency board and reacquire monetary flexibility without exciting fears of a return to the bad old days. A person with an overeating disorder may be inclined to padlock the refrigerator and throw away the key, but he may regret the extremity of the step once starvation sets in.

Another solution to the problem of exchange rate instability is a monetary union, like that the members of the European Union are currently seeking to establish. Monetary unification banishes exchange rate volatility by abolishing the exchange rate. But it requires the participants to share responsibility for their common monetary policy. Conveniently for the small open economies of Europe, the larger partner they wish to join in monetary union, Germany, may be prepared to compromise its monetary autonomy in return for reacquiring a foreign policy role in the context of a European Union foreign policy.

A Single Asian Currency?

The question for the 21st century is whether analogous monetary blocs will form in East Asia (and, for that matter, in the Western Hemisphere). With the dollar, the yen, and the single European currency floating against one another, other small open economies will be tempted to link up to one of the three. But the linkage will be possible only if accompanied by radical changes in institutional arrangements like those contemplated by the European Union. The spread of capital mobility and political democratization will make it prohibitively difficult to peg exchange rates unilaterally. Pegging will require international cooperation, and effective cooperation will require measures akin to monetary unification.

The day when the countries of East Asia including Japan will be prepared to create a single Asian currency (or, for that matter, when the countries of the Western Hemisphere are prepared to join the United States in a monetary union) remains far away. The political preconditions for monetary unification are not in place. Operating a monetary union requires some pooling of political responsibility. History provides very different prospects for this in Western Europe and East Asia. Proponents of European integration can trace their antecedents back for hundreds of years. Jeremy Bentham advocated a European assembly, Jean-Jacques Rousseau a European federation, Henri Saint-Simon a European monarch and parliament. By the middle of the 19th century, intellectuals like Victor Hugo could speak of a United States of Europe. In the 1920s, the Pan-European Union lobbied for a European federation and attracted the support of Aristide Briand and Edouard Herriot, future premiers of France. Konrad Adenauer and Georges Pompidou, two leaders of the postwar process of European integration, were members of the Pan-European Union. The ideal of European integration is intimately connected with the liberal and democratic principles of the European Enlightenment and has roots in centuries of European history.

East Asia, in contrast, lacks a comparable tradition of political solidarity. It lacks a Jean Monet or Paul Henri Spaak to speak for regional integration. In part this reflects the ideological distance between China's communist government and market-oriented regimes elsewhere in East Asia. By contrast, in postwar Western Europe, variants of the social market economy were embraced by virtually all the members of the present-day European Union.

At a deeper level, East Asia lacks a Benthamite-Rousseauian-Saint Simonian heritage of collective democratic governance through integration. As Peter Katzenstein puts it, ?the notion of united sovereignty . . . central to the conception of continental European states, does not capture Asian political realities." Not only in China do the regions resist the attempts of the center to exercise its political will through the operation of political and legal institutions. The idea of a centralized state with a monopoly of force that regiments its citizens through the superimposition of a common set of institutions is a European conception, not an Asian one. Asian civil society is structured by ritual, ceremony, and economic networks as much as by force and law.

Consequently, integrationist initiatives in Asia have proceeded not through the creation of strong supranational institutions but by establishing loose networks of cooperation. It is revealing that the Asia Pacific Economic Cooperation forum, which is essentially just a consultative body, has succeeded where initiatives to create smaller, more cohesive Asian analogues to the European Economic Community or the European Free Trade Association have not.

Gazing far into the 21st century, one can imagine the development of a single Asian currency analogous to the Euro, the prospective single European currency. In a world of open international capital markets and politicized domestic policy settings, that will be the only alternative to floating exchange rates. As the economies of East Asia grow still more open and interdependent, pressure will build to work toward this goal. But as yet the political preconditions are not in place. An Asian monetary union is at best a very distant prospect.

Authors

Barry Eichengreen