Hong Kong's transition to capitalism

...Privatization requires billions of dollars of capital, and much of that was supposed to come from Hong Kong's buoyant stock market...

...Thirty members of Parliament, or half the number of seats, in the new legislature will come from functional constituencies formed from professions and trades, and ten seats are to be chosen by an eight-hundredperson committee, which includes ex-officio members from the National People's Congress in Beijing...

...The flip side of this story is that Guangdong is now China's richest province...

...BEYOND PUBLIC housing, Hong Kong also has most of the standard features of welfare states in Western Europe...

...In the last six years of the colonial government, welfare spending increased at a real rate of at least 10 percent annually, leading many businesspeople to worry that Hong Kong was heading for welfare statehood...

...Hong Kong has always been, and will continue to be (according to the Basic Law, Hong Kong's mini-constitution), an executive-led government...

...Since the handover, however, Tung Cheehwa's government has less to fear from the political left...

...In fact, things could have been even worse without intervention from the Chinese government: interest rates were cut on the mainland so as to stimulate domestic demand and support the Hong Kong dollar, which was only the second time in history that one of the world's great economic powers altered its macroeconomic policy with the aim of supporting a minor currency (the other example is the U.S...

...Colonial Hong Kong became a global byword for the spirit of free enterprise...

...The reader may be left wondering how Hong Kong can afford such an extensive social welfare program, given the low rate of taxation...

...At that point, the question will not only be whether the new administration will fail in its commitment to respect social and economic rights...

...Nonetheless, the South China Morning Post predicted that next March's budget will include a reduction in the corporate profits tax...

...During the colonial era, some analysts explained this by pointing to Chinese suspicions of British intentions: new welfare initiatives by the Hong Kong government were perceived as part of a British plot to denude the Hong Kong treasury of money and to leave the region in disarray with mounting debts...

...The chairman of a commission on university funding, Chase Manhattan managing director Antony Leung Kam-chung (who has also been appointed to Tung Chee-hwa's Executive Council and put in charge of education policy), has announced plans to cut funding for higher education by 10 percent over the next three years, with the likelihood of a further 10 percent cut after that...

...Notwithstanding recent turbulence on the stock market, the "fundamentals," as mainstream economists say, remain sound...

...Under this system, policy secretaries devised policies, persuaded the administration to support them, and then lobbied the legislature to adopt them—all functions that are carried out by ministers in most democratic countries...

...The president of Tung Shipping was Tung Chee-hwa, who is now the chief executive of the Hong Kong government...

...Tang, who was appointed to Tung Chee-hwa's executive council, claimed that the laws would hurt competitiveness...

...The more acute observers detect a slow and subtle erosion of political freedoms in the long term: for example, election rules recently introduced by Hong Kong's provisional legislature will make it more difficult for democrats to be elected in the future, but these complex tinkerings with the political machinery will disappoint those looking for a headline-grabbing story...

...THE IMPACT of this alliance could already be felt in the budget passed just before the handover, a budget prepared with the participation of the Chinese government...

...Perhaps none of this should come as a surprise...

...The most crucial exDISSENT / Winter 1998 15 planation, however, lies in the fact that less than half of the government's revenue comes from direct taxation...

...The Chinese government, mistrustful of British intentions and incensed by Governor Chris Patten's refusal of its request for private consultation before he went public, replaced the last legislature under British rule with a "provisional legislature" composed of handpicked "pro-China" forces...

...However, the Chinese communists are to blame only in the sense that well-connected mainland Chinese firms had contributed to a dangerously overheated market...

...Assuming that the government maintains the peg, the future does not look bright for the property sector...

...Hong Kong's social welfare system was launched by Lord Murray MacLehose, the first diplomat with a socialist background sent to the colony...

...DISSENT /Winter 1998 of reducing public participation in the political process while stacking the next legislature with people who depend on favors from the regime in Hong Kong or Beijing and answer to narrow special interests, particularly the business elite...

...Critics warned that this scheme does nothing for the poor and could spark a fresh wave of property speculation...

...Moreover, the system has been popular within the community: Anson Chan, the chief secretary, is consistently chosen in public opinion surveys as the territory's most well-liked public figure (she is more popular than democrats such as Martin Lee and Emily Lau, not to mention the "pro-China" forces...

...The colonial government firmly opposed the idea that taxpayers' money should be used to subsidize unprofitable firms and sunset industries...

...The government may face pressure to crack down on "trouble-makers" for the sake of social stability, and its commitment to civil and political rights in Hong Kong will also be put to the test...

...Tung explained that the suspended laws would have disrupted the "harmonious relations" that existed between employers and employees...

...The latter income is derived mainly from the proceeds of the popular Mark Six lotteries and the Hong Kong Jockey Club, and this money is used to finance welfare services through grants and loans...

...By the end of 1996, the cumulative value of Hong Kong's realized direct investDISSENT / Winter 1998 21 ment in China reached $100 billion...

...In any case, it is difficult to be too optimistic for the long term...

...At the apex of this new structure stands shipping tycoon Tung Chee-hwa, the chief executive...

...In other words, the number of people who have been lifted out of poverty as a consequence of economic integration with China is greater than the number who have lost out...

...Of course, what seems like the opening up of markets and social institutions with fair participation for all may simply mask the appearance of a new Chinese elite...

...A representative of the Elderly Rights League, however, said that her group was "very disappointed" with this measure, arguing that the increased assistance was far lower than the $362 recommended in a survey commissioned by the legislative council in 1994...

...To be fair, Tung has announced some measures to deal with areas of social welfare that were neglected by the Patten administration...

...Ousted legislator and unionist Lee Cheuk-yan replied that "it is adding fuel to the fire to require more people from the lower and middle classes to pay tax when they are already under pressure to make ends meet...

...The government, however, had to pay a severe price for defending the currency...

...But this explanation does not cover everything: the new Hong Kong government has been left with huge cash hoards (more than $46 billion in fiscal reserves, with a projected surplus of $7.8 billion this year), and still the Chinese government has been signaling its opposition to further welfare spending...

...In the recent Hong Kong budget, income from land sources was $7.7 billion.* This was an increase of 63.8 percent over earlier estimates, and it occurred because the government sold more land to take advantage of a buoyant property market...

...The government provides flat-rate allowances for vulnerable groups, such as the elderly and the disabled, and means-tested aid is provided to raise the income of individuals and families to a level at which basic and "special" needs (including spectacles and dentures) are met...

...I would like to report that a ruthless, free-marketoriented economic system has been tempered with a concern for socialist equality...

...Peaceful demonstrations proceed as before, leading democrat Martin Lee has not been thrown into jail or forced into exile, the press has not reined in its criticisms of the executive, and most academics are not particularly concerned about political pressure...

...At that time, Chinese officials felt uncertain whether locals would support reversion...

...The outgoing government had boosted spending on the environment by 60 percent in recent years, but there are signs that the new chief executive, Tung Chee-hwa, plans to shift strategies: one of his first policy statements indicated that the second stage of a muchneeded sewage treatment system would be delayed because his priority was to encourage industrial development...

...This would lead to rising unemployment and more hardship...

...It is worth noting that public housing is a highly valued commodity in Hong Kong...

...Xu Jiatun, then serving as Beijing's top man in Hong Kong explained in his memoirs that "a general fear .. . [of] the end of the world prevailed...

...As Milton Friedman put it, "To see how the free market really works, Hong Kong is the place to go...

...The new chief executive, Tung Chee-hwa, is riding high in the polls...

...More significant for the long term, the provisional legislature has recently introduced election rules for the new legislature in 1998...

...The slower growth of welfare spending, he said, shows that "the Hong Kong government has knuckled under to pressure from the Chinese government...

...But from the perspective of a prominent unionist, "it just shows that the government is controlled by business tycoons...

...Grassroots critics, however, worry more about the class makeup of Exco members: nearly all are successful businessmen...

...One of them, Leung Chun-ying, a wealthy owner of a property surveying firm, will be in charge of housing policy...

...there are long queues for that public good...

...Goods produced by Hong Kong's competitors began to look relatively cheap, especially after Taiwan finally caved in to devaluation pressures...

...This follows a period of rapid growth of higher education in Hong Kong that gave unprecedented opportunities of upward mobility to Hong Kongers from underprivileged backgrounds: the percentage of the seventeen-to-twenty-year-old age group that could receive tertiary education in Hong Kong increased from 5 percent to 18 percent in less than ten years...

...Most end up working in low-paying service jobs without much hope of upward mobility, and the unlucky ones are permanently unemployed...

...dollars...

...Contrary to the expectations of doom and gloom, the handover to China, or the "takeover," as the New York Times put it on July 1, did not have a devastating impact on the territory's civil and political liberties...

...It does this by carefully controlling the amount of land that is released for sale: if land were to be released too quickly, property values would be reduced, and the government's revenue would be affected...

...Of the sixty seats in the new legislature, twenty will be chosen by the citizens in the constituency where they live...

...Meanwhile, potential new entrants to the market are restricted by the huge cost of paying land-conversion premiums that are the bedrock of government revenues...

...Even the chairman of the pro-business Liberal Party said the government could have well afforded to give a higher increase in Social Security payments, but had failed to do so...

...The Hong Kong branch of Friends of the Earth, meanwhile, has attacked the new government's approach to the environment...

...Under the new regime, however, student fees are increasing, and all new appointees at the University of Hong Kong are hired on three-year, non–tenuretrack contracts (the implications for academic freedom do not have to be spelled out...

...There is some truth to this view...

...Yip, who has been doing business with China since the late 1970s, made a fortune in Hong Kong and the mainland for his privately held company, Renful Group, which has interests in real estate development and manufacturing...

...Libertarians abroad look with envy upon Hong Kong's tax rates, but a closer examination of the "Hong Kong system" might temper this enthusiasm...

...In any case, the Hong Kong economy looks set to prosper so long as it continues to operate as the gateway for investment in mainland China...

...The most powerful is Tung Chee-hwa's "special adviser," Paul Yip Kwokwah...

...Tung has appointed several Exco members to head policy task forces, which is a new practice, and already tension seems to be growing between the civil servants and Exco members...

...Hong Kong enjoyed the party but must face the fact that generating sustainable increases in wealth involves more than flipping cheap high rises every few years...

...Moreover, Tung's executive councillors seem more inclined to deal with budget surpluses by cutting taxes than by increasing welfare spending: two Exco members have spoken out publicly in favor of cutting the corporate profits tax to 15 percent...

...It is also worth noting that Hong Kong provides some welfare aid "with Chinese characteristics": in accordance with the traditional Confucian norm of filial piety, taxpayers get allowances for taking care of elderly parents at home...

...The large majority of primary and secondary schools are either free or heavily subsidized, and the territory's eight tertiary institutions all receive most of their funds from the public coffers...

...The government plans to double the size of the city's port, already the world's second largest, over the next ten years, which is expected, according to its own forecast, to double the number of fume-belching trucks and contribute to a 50 percent drop in air quality by 2011 (Hong Kong already has a serious air pollution problem, caused primarily by the widespread use of a highly toxic form of diesel fuel that is banned in most developed cities...

...Everyone DISSENT / Winter 1998 17 wanted to flee with their money...

...Huang Chen-ya, a spokesman for the Democratic Party, called the budget "extremely miserly to the elderly and the disabled...

...Moreover, there are many generous personal allowances under Hong Kong tax law, with the effect that 53 percent of the territory's workforce did not pay any income tax...

...What is interesting is that these cutbacks are being implemented in a context in which the government is flush with money, unlike similar cuts elsewhere, where austerity in higher education is driven primarily by the need to close budget deficits...

...One important factor is that Hong Kong does not have to support a defense industry (one of the few advantages of being a colony and a "special administrative zone" of sovereign overlords...

...Even more than Reagan's America or Thatcher's Britain, the territory was touted as the paradigm case of a laissez-faire economy favored by neoclassical economists...

...In 1996, the big three developers sold 6.7 million units, fewer than in 1992...

...But it is worth pointing out that Chinese economic interests in Hong Kong are not monolithic...

...Xu himself defected to the United States in 1990...

...The new administration, however, looks set to radically transform this system, All incumbent secretaries, including Anson Chan, have been reappointed to their posts, but it appears that their "ministerial" functions will be taken over by eleven Beijing-appointed executive council (Exco) members...

...One of the last acts of the outgoing legislature was to pass five laws significantly boosting workers' rights in Hong Kong...

...The Hong Kong government, however, could not afford to devalue the dollar: the local currency had been pegged to the U.S...

...Today, the Housing Authority is the largest landlord in the world...

...So why did Hong Kong's stock market crash...

...Anson Chan herself publicly complained that Tung does not understand the intricacies of government...

...Colonial Hong Kong: Myth vs...

...The main explanation for the Chinese Communist Party's antiwelfarism is rather that it has chosen to enter into a strategic alliance with Hong Kong's business class...

...Most distinctively, Lord MacLehose launched a public housing program that was meant to house the three hundred thousand people still living in squatter huts or temporary housing...

...In 1996, profits of corporations in Hong Kong were taxed at 16.5 percent, and salaries were taxed at a maximum of 15 percent (less than the seemingly implausible flat tax rate of 17 percent proposed by Steve Forbes in the 1996 Republican primary...

...As Yi-zheng Lian, the editor-in-chief of the Hong Kong Economic Journal (Hong Kong's premier business daily in Chinese), points out, various Chinese concerns are jockeying for position and influence in Hong Kong, and this relatively open competition may steer economic development in a healthy direction...

...Foreign critics tend to worry most about heavyhanded economic interference by Chinese "red capitalists," but the most immediate effect of the change of sovereignty has been to end the political patronage that was so conspicuous during colonial rule...

...M OST GOVERNMENT land is sold to three real-estate developers: Henderson Land, Sun Hung Kai Properties, and Cheung Kong...

...One year after assuming the governorship in 1972, Lord MacLehose announced that public housing, education, medical, and social welfare services would be treated as the four pillars of a fair and caring society...

...DANIEL A. BELL teaches political philosophy at the University of Hong Kong...

...A large chunk of the government's revenue, to repeat, comes from land transactions, but 6 percent of the revenue comes from "betting duty...

...It was widely reported abroad that the British government's last-minute decision to push for faster democratization in Hong Kong by increasing the number of directly elected seats in the legislature came to an illfated end...

...Hong Kong has an affordable public transport system that covers nearly every nook and cranny of the territory (the buses and subways are technically privately owned, but the government has substantial equity in most transport companies and it has the power to make or break companies by granting franchises and monopolized routes...

...The increasing poverty rate is partly explained by social factors—the rising proportion of elderly people and single-parent families—but recent economic integration with China has also played a role...

...However, the most widely celebrated feature of Hong Kong's economy—the strikingly low rates of taxation—requires some background explanation...

...During that period, prices increased fourfold and profits doubled...

...According to a recent study carried out by the Hong Kong Social Security Society, one in seven Hong Kongers survives on less than $11 a day...

...Removing the pegged exchange rate would have undermined the credibility of the Hong Kong government (after multiple assurances that the peg was "sacred") and could have led to massive capital flight...

...Not coincidentally, the Democrats attract most of their support from the poor and the working class, and they tend to favor more spending for social programs...

...Tung has also proposed to freeze legislation that seeks to protect Hong Kong's shrinking Victoria Harbor from developers and land reclamation...

...The government, in other words, has an interest in maintaining high property values—currently the highest in the world—if it is to maintain its policy of low taxation...

...Hong Kong's welfare state was developed under this system, which operated for nearly a quarter of a century...

...The reality, however, is almost the exact opposite...

...This will likely penalize the Democratic Party, which won sixteen of the twenty geographical seats under the first-pastthepost system employed in 1995...

...dollar for the last fourteen years, and the peg provided an important source of stability, especially in these uncertain times...

...Many Hong Kongers live in third world conditions, and the need to pay astronomical residential property prices is widely viewed as an indirect form of taxation...

...Critics of this cozy arrangement between the government and major developers All dollar figures are U.S...

...What's left of the manufacturing sector will be decimated by competitive pressures...

...Having said this, there is another, perhaps more desirable, sense in which colonial Hong Kong deviated from the myth of a laissez-faire economy with the government limiting itself to the role of the "night watchman...

...Even in its most "democratic" moments—that is, following the introduction of direct elections in 1991—the legislature rarely initiated legislation...

...The more serious worry is that the stock market crash will usher in a recession...

...Most noteworthy, Tung has promised to increase Social Security payments to the elderly 20 DISSENT / Winter 1998 by $47 a month...

...In 1973, following a report by management consultants McKinsey and Co., the Hong Kong government delegated much power to top civil servants known as policy secretaries...

...The Transition to Capitalism In a strange paradox of history, the nominally socialist Chinese government consistently opposed the introduction of further social welfare programs in Hong Kong...

...Reality There is, however, another, less well-known story to tell about Hong Kong: the impact of the transition on social and economic rights...

...it operated primarily as a forum for criticizing and refining legislation proposed by the executive...

...Notwithstanding this heated debate in the legislature, the budget was passed with a slim majority...

...In response, China adopted the strategy of pumping investment into the territory and of aligning itself with local capitalists, which was seen as necessary to maintain the economic viability of Hong Kong...

...Compared to the record high of August, the Hang Seng was down by nearly 40 percent...

...The main culprit is the regional currency crisis in Southeast Asia...

...Whatever the flaws of this arrangement, few doubt that policy secretaries—meritocratically selected according to rigorous criteria of excellence —carried out their tasks with integrity, in ways that looked beyond their own personal interests...

...He heads the Hong Kong Policy Research Institute, which has recently tried to collect information on human rights groups in the region...

...To the surprise of many, the handover to China has not had a negative impact on Hong Kong's economy...

...High interest rates hurt Hong Kong's property sector, and since seven out of ten listed companies invest in property, the stock market took a nosedive...

...Local capitalists, for their part, have returned the favors: the property tycoon Li Ka-shing built a $130 million glass high-rise in central Hong Kong, which was offered as a gift to the Chinese Foreign Ministry...

...The problem with this view, however, is that the "pro-China" Democratic Alliance for the Betterment of Hong Kong has also made demands for higher spending on welfare...

...The Chinese government is concerned because it may have to postpone its privatization plans for money-losing state-owned enterprises, which was a central plank of the last Communist Party congress...

...The main explanation for low tax rates, perhaps surprisingly, is not low welfare spending...

...As the distinguished American sociologist Daniel Bell (no relation) put it, "I always assume—this is the latent Marxism in me— that when sizable fortunes are built in small city-states, it is because of an interlocking arrangement between the oligarchies and the government...

...Housing prices have gone up by 30 percent since the beginning of this year, and Tung has responded by proposing a home starter loan of $75,000 for young professionals and middle-income families...

...The editors of the Asian Wall Street Journal, which is not known for its socialist tendencies, commented that "the arrangement is a means 18...

...According to Senator Alfonse D'Amato (R-NY), chairman of the Senate Banking Committee, the dramatic fall of the Hong Kong market was a "lesson for all freedom-loving people around the world" of the dangers "now that the Communist Chinese have taken over...

...Lo's salary, to be paid by taxpayers, will be $236,000 per year...

...Karl Marx, The Communist Manifesto, 1848 HONG KONG'S "transition" seems to have faded from the international headlines...

...There is an excellent public health care system: private hospitals are actually going out of business because clean and efficient public hospitals are well subsidized (the government pays 97 percent of the costs) and indiscriminately accept patients at minimal charges (there is a $7 daily user fee, irrespective of the real costs of treatment, and patients can also get heavily subsidized prescriptions, unlike, say, Canada's health care system, where patients must pay market fees for medicine once they leave the hospital...

...Hong Kong companies employ nearly six million workers in the province, which is more than ten times the size of Hong Kong's own manufacturing force...

...The government's new orientation is also being felt in Hong Kong's tertiary institutions...

...So for those who care only about impartial justice—as opposed to those who experience their lives as bound up with the good of the Hong Kong community—this might be seen as a piece of good news...

...Tang added that the tax net should be widened, since "there are hardly any people who would mind paying a few hundred dollars or a thousand-odd dollars on taxes...

...British workers are no longer given the automatic right to work in Hong Kong...

...The most obvious losers were the three big property magnates, who each lost roughly two billion dollars in two separate days of trading (though nearly half of this amount was recovered on October 29, when the stock market jumped by 18.8 percent...

...Why did this happen...

...Most noteworthy, Hong Kong's manufacturing sector has been almost entirely transferred to the southern province of Guangdong (where labor is cheaper and workers' rights are practically nonexistent), with the consequence that Hong Kong's industrial workers now find it much harder to find decent jobs in Hong Kong...

...In one notorious example, the Bank of China helped to save the Tung Shipping Group and its public arm, Orient Overseas, from collapse...

...There were no tax holidays, tariff incentives, exemptions from licenses or controls, or privileged access to transport facilities designed to lure foreign investors...

...The British corporation Cable and Wireless held the local telephone monopoly until 1995, and the government is currently negotiating to end its international call-monopoly franchise...

...It is, of course, those buying new homes and renting from the private sector who pay the price for this policy...

...POSTSCRIPT: In two weeks of hectic trading last October, the Hang Seng index (Hong Kong's stock market index) dropped by more than 25 percent...

...The traditional dominance of the Hong Kong and Shanghai Banking Corporation, which held seats on the executive council, is being challenged by the Bank of China...

...As the South China Morning Post notes, however, 22 DISSENT / Winter 1998 "this is hardly a cause for concern...

...Perceiving this weakness, currency speculators attacked the Hong Kong dollar...

...Following the handover, the Beijing-appointed Provisional Legislature voted to suspend these laws, with the exception of two relatively trivial ones that increased compensation for victims of occupational deafness and made May 1 into a legal holiday...

...With less money to spend, Hong Kong's consumers might stay at home and the service sector will suffer...

...These laws, includDISSENT / Winter 1998 19 ing one that gives unions the right to use collective bargaining to negotiate workers' salaries and fringe benefits, and another that protects workers against unfair dismissal for taking part in union activities, were immediately condemned as "dangerous" by the chairman of the Federation of Hong Kong Industries, Henry Tang Ying-yen...

...The origins of this alliance can be traced to the early 1980s, when China first prepared for the Hong Kong handover...

...This explains the rather curious phenomenon that many hospital wards in Hong Kong are decorated with plaques from the Hong Kong Jockey Club...

...In terms of the actual exercise of power, however, it is worth pointing out that the legislature was never meant to play a significant role...

...These policies would only widen the poverty gap and create an unhealthy atmosphere in society...

...Especially galling to the critics were the give-aways to the rich, such as the slashing of the duty on wine from 90 percent to 60 percent...

...Still, one cannot help but notice the large gap between this reality and the myth of an open and competitive market where only talent and luck determine the economic winners...

...The emerging political elite also includes tycoons who exercise power while staying in the background...

...These developers sit on huge tracts of land, drip-feeding apartments onto the market so as to maintain high property prices...

...More than three million Hong Kongers, or 52 percent of the population, live in subsidized housing, most of whom rent flats from the Housing Authority with rents set at one-fifth the mar16 DISSENT / Winter 1998 ket level (the rest have bought subsidized flats under various home-ownership schemes, with prices discounted 50 percent from those in the private sector...

...The Hong Kong government actually derives much of its revenue from land transactions...

...A leading economist denied this and a constitutional lawyer pointed out that Hong Kong's Basic Law states that the International Labor Convention (which includes the right to collective bargaining) shall apply in the territory —but to no avail...

...Members of the powerful Preparatory Committee, for example, included nearly all of Hong Kong's twenty richest people...

...There is a drive to make the universities more "efficient," which involves importing techniques from the realm of business studies...

...To earn the support of corporate bosses, the Chinese government organized timely interventions on behalf of Hong Kong companies...

...They were recently forced to declare their financial interests, and several hold directorships in some of Hong Kong's biggest companies...

...So we can predict more social unrest...

...Silver Linings...

...The heads of two of the property firms can now be found on the list of the world's ten richest men...

...Beijing had strongly criticized the 14.7 percent increase in spending on social welfare in 1996-1997, and the new budget cut the increase to 9.4 percent...

...Federal Reserve Bank's decision to cut interest rates on August 5, 1927, so that the British chancellor of the exchequer, Winston Churchill, could avoid the political ignominy of devaluing the pound against the U.S...

...The fact of the matter, however, is that Hong Kong already is a welfare state: in 1995-1996, Hong Kong's government spent 47 percent of its public expenditure on social services, more than Singapore and Taiwan and only slightly less than the United Kingdom...

...Moreover, its research showed that 13 percent lived below the poverty line in 1991, compared to 8 percent in 1971—notwithstanding the development of Hong Kong's welfare state since the early 1970s...

...So the real power shift in Hong Kong arises from changes in the composition of the executive branch...

...OT SURPRISINGLY, it did not take long for the new administration to make explicit its pro-business orientation...

...In short, the most tangible change in Hong Kong's "way of life" since the handover—at least from the perspective of the "worst off"— has been the steady erosion of social and economic rights...

...The new functional constituencies will revert back to the old system of corporate voting where the franchise is narrowed down to maximize the clout of the business elite, with the number of voters (mainly wage laborers) slashed by 2.5 million...

...The Tung Chee-hwa administration has also appointed a senior special assistant, Andrew Lo Cheung-on, who worked for Tung at his family shipping firm, Orient Overseas...

...A complex form of proportional representation will be employed to elect representatives for these seats...

...The Chinese government, less worried about foreign interference, seems to have relaxed its grip over the territory...

...China also reached out to many onetime enemies when forming advisory bodies to lay down policies for post-British Hong Kong...

...The territory's land is technically owned by the government, and the government fills its coffers by selling fifty-year leases to developers (the fact that there are no absolute private property rights to land will come as another surprise to boosters of "Hong Kong-style" libertarianism...

...The Hong Kong Chamber of Commerce welcomed the budget as providing a "sound fiscal and economic background" for the return to Chinese rule, but the budget was condemned by grassroots activists who expected that, given the huge surplus, the government would provide more aid to the needy...

...But it remains to be seen if Hong Kong's poor will benefit from these developments...

...The concept of functional constituencies is a legacy of British rule, but Patten, Hong Kong's last governor, broadened the groupings of most constituencies to include ordinary employees, many of whom voted for the Democrats...

...In the words of a representative of a coalition of seven grassroots organizations (including union and religious bodies), the government has "formulated a series of policies to benefit and protect the interests of business since the handover...

...His duties include maintaining a "regular liaison with the Chief Executive's constituencies and the Central People's Government" in Beijing...

...It spent billions of dollars of Hong Kong's reserves battling the speculators, and it raised interest rates to sky-high levels to protect the dollar...

...argue that the system could be overhauled by such means as forcing developers to pay profits tax rather than an up-front premium to the government, but this legacy of colonial rule looks set to remain in the foreseeable future...

...currency after he took Britain back on to the gold standard at a cripplingly high rate...

...The government, afraid of depleting its reserves (to be fair, the argument that it needs massive reserves to fend off currency speculators no longer seems so implausible) will be even more reluctant to increase welfare spending...

...The distortions of colonial rule also influenced the workings of Hong Kong's universities, and there has been progress on this front as well: expatriate lecturers were given housing benefits that amounted to $6,000 a month, but this kind of discrimination has been abolished for new appointees...

...Cathay Pacific, a predominantly British corporation, holds all landing rights at the Hong Kong airport, but a number of relatively new local and Chinese airlines have indicated that Cathay's monopoly will have to end soon...

...Hong Kong does not have unemployment insurance, but with unemployment rates that rarely rise above 3 percent, this may be less of an issue than in Western Europe...

...More commonly, the legislature was a rubber stamp, and it looks set to resume this "traditional" role in the future (moreover, written consent will have to be given by the chief executive before bills relating to government policies can be introduced in the new legislature...

...Other analysts allude to the fact that much of the impetus for recent increases in welfare spending came from prodemocracy parties in the legislature who were opposed to Chinese rule...