Situation Analysis: 3 Years
After Hong Kong's Handover

Over the last three years, the political situation in Hong Kong remains stable, and the international community remains positive towards the general situation in Hong Kong;

■The Hong Kong economy has picked up steam since the second half of last year;

■The people of Hong Kong are increasingly dissatisfied with the performance of the Hong Kong SAR Government;

■Hong Kong is increasingly "mainlandized", and signs of an erosion of autonomous powers are appearing;

■The governmental relationship between Taiwan and Hong Kong remains restricted;

■The People's Republic of China's (PRC) promise of "One Country, Two Systems" has been tested by 102 controversial cases that were widely reported by the local press;

I. General Evaluation

Looking over the political situation in Hong Kong, owing to the mainland's continued support for the Hong Kong Special Administrative Region (HKSAR)'s Government (HKSARG), the concept of "one country, two systems" remains fairly operational in Hong Kong. However, the local press has reported on 102 controversies that seem to challenge the promise of "one country, two systems" and "no change for fifty years", sowing doubts and worries underneath the prosperity and stability.

Overall, the operation of the HK political system remains to be within that specified by the Basic Law, but the people of HK are increasingly dissatisfied with the ability of the HKSARG to govern. Signs of a eroding autonomy appear. In particular, the independence of the judiciary and the press freedom have been in doubt by the influence from the mainland. The relationship between Taiwan and Hong Kong has been hampered by the self-restraint of the HKSARG. However, a mechanism for interaction between the mainland and Hong Kong appears to have been established over the last three years. As for the economy, apart from real estate, other sectors of the economy appear to be reviving, despite it being hurt by confidence problems, at least in the short term.

The following is a detailed overview of the situation over the last twelve months:

1. The operation of the political system of HK remains to be within that specified by the Basic Law:

Even though the executive-led administrative style has been tested many times, such as by the case of the NPC intervention in the Immigration case, and the inappropriate statement made by Wang Fengchaio and He Chiming, but the overall situation remains to be within the bounds of the Basic Law.

2. The establishment of a mechanism for the friendly interaction between the mainland and Hong Kong:

With more exchanges between the mainland and HK, there are now more information exchange mechanisms established between the mainland and HK. Both sides have signed many new co-operative agreements and adopted beneficial measures. With the establishments of the Bureau of Hong Kong and Macao Affairs of the State Council's Taiwan Office in the mainland and the Liaison Office of the Central People's Government in HKSAR, the mainland appears to be using Hong Kong to try to increase its influence over the affairs relating to Taiwan. As to the economy, the two places are now increasingly tied together, and with the accession of the mainland to the WTO, there is expected to be more business exchanges and visits. As for social policy, those issues concerning the human rights of the people of Hong Kong, such as mechanisms for the repatriation of convicted felons or wanted criminals, and an informant service for Hong Kong people being kept in custody in the mainland, we have seen positive developments and a basic understanding between the two sides, but solid written agreements have as yet been concluded.

3. The HK people are increasingly dissatisfied with the performance of HKSARG:

Several opinion polls suggest that the people of Hong Kong continue to be dissatisfied with the government, and the popularity of Chief Executive (CE) Tung Chee-hwa remains low. For example, the Chinese University's (CUHK) survey in June indicates a satisfactory rating of 10.6%, down from 25.6% last year, and Tung's favorable rate was only 53% by those surveyed, with more than half of the respondents against Tung serving a second term. Overall, the main points of dissent remain to be over the slow pace of the economic recovery, policy mistakes such as those over the policy on the property market, and the inability of the HKSARG officials to embrace the changing situation and to understand the people better.

4. Hong Kong's democracy remains unable to counterbalance the government:

While the press has been keen on further progress on democracy, the HKSARG remains skeptical, and the relationship between the SARG and the Legislative Council (LEGCO) remains tense. According to the Chinese University's survey in April, about 30% of the respondents were dissatisfied with the progress regarding Democracy in HK. With the new Legco elections coming up, several senior and popular legislators have decided not to seek a new term of office. This shows that Hong Kong's democracy has only limited influence over the powers of the HKSARG.

5. The autonomy of HKG has been gradually eroded:

The local press has reported 44 cases of infringements of freedom, human rights and the rule of law. With 26 such cases after the first year of the handover, 32 cases in the second year after the handover, and 44 after the third, Beijing's promise of "no change for 50 years" (N50Y) appears to be shaky. The obvious examples are Deputy Director of the PRC Liaison Office in Hong Kong Mr. Wang Feng-chao's intervention on the reporting of news that concern Taiwanese independence, and Deputy Head of the Taiwan Department of the Liaison Office Mr. He Chi-ming, who suggested that Hong Kong businesspersons should not trade with those Taiwan businesspersons who advocate Taiwanese independence. The British Foreign Office,fot the first time, called such statements "in clear violation of the spirit of the Sino-British Joint Declaration". With the mainland still doing all they could, it remains likely that such incidents would continue in the future, thus challenging the promise of a "high degree of autonomy" to Hong Kong.

6. The economy recovers, but is hampered by shaky confidence :

The Hong Kong economy has become stable since June last year. The HKSAR government predicts growth of 6% in the coming year. The unemployment rate has been improved, but deflation remains at an all-time high. The people of HK remain skeptical towards the future of the property market, and the stockmarket is still influenced by events overseas, thus slowing down the growth of the economy within a short period of time.

7. The independence of the judiciary remains in doubt:

While the Judiciary remains fairly independent, controversies such as the NPC's intervention on the Immigration cases have made the HKSARG criticized and questioned by the international community and the people of Hong Kong. According to the Global Competitiveness report by the IMD (International Institute of Management Development in Switzerland), Hong Kong's competitiveness has been adjusted down from seven to fourteen. The WTO's ranking of trading nations has also seen Hong Kong down from ninth to tenth place. The reports of 2000 economic prospects of the Asian Development Bank also sees Hong Kong's GDP growth lower than the other Asian countries in the coming two years. Hong Kong's judicial quality has also fallen to third place according to the Political and Economic Risk Consultancy Limited. Foreign investors remain skeptical over whether Hong Kong can keep its judicial independence from the influence of Beijing. All the major global observers and commercial organizations listed above have demoted Hong Kong's rankings in business competitiveness and judicial independence, sending signals that political intervention may already hamper Hong Kong's judicial independence.

8. Press freedom is uncertain, and self-censorship appears inevitable:

While HKSARG remains somewhat tolerant towards the press, the mainland has strengthened its influence. With Vice-Premier Qian Qichen announcing that Hong Kong may not be used to promote the theory of "Two States", Wang Fengchiao, Deputy Director of the PRC Liaison Office in Hong Kong, warned Hong Kong media not to advocate "Two States Theory" or Taiwanese independence. The HK web site "" even blocked Taiwanese and Tibetan independence messages, showing that the mainland's influence over Hong Kong is strengthening. Beijing will influence more over Hong Kong media's reports on the Cross-Strait issues and the gray areas of the "one country, two system" will be squeezed.

9. The international community remains concerned over the situation in Hong Kong:

The UN, the US, the EU, and Amnesty International have regularly published their observation reports on the human rights, rule of law and progress on democracy in Hong Kong. As for the freedom in Hong Kong society, and basic human rights, the evaluation opinions are still positive, but these reports express worries for the NPC's interpretation of the Basic Law , the possibility for Hong Kong to become a center for the smuggling of mainland weapons and illegal immigrants (IIs), the transfer of Cheung Man-yee, the former head of the Radio Television Hong Kong and the Government's director of broadcasting, to a new post in Tokyo, and Beijing's intervention in Hong Kong's autonomous affairs.

10. Taiwan-Hong Kong relations remain restricted:

The relations between Hong Kong and Taiwan, primarily in non-governmental areas such as trade, investment and travel, remain generally unchanged over the past year, but governmental relation is still limited. According to Qian Qichen's "7-points", the official relations between Hong Kong and Taiwan are Beijing's responsibility to deal with. The HKSARG, therefore, is rather conservative and "rather left than right" over its relation with Taiwan. It even prefers to set its own bounds over affairs concerning Taiwan and therefore prohibits a breakthrough on HK-Taiwan relations. Our Hong Kong Affairs Bureau's director Mr. Jang, Liang-Ren, remains unable to assume his post in Hong Kong, further hampering relations between both sides.

11. 102 controversies reported by the media :

According to the reports of the local press, there had been 102 controversial incidents reported by the media over freedom, human rights and the rule of law, testing Beijing's promise of "No Change for 50 Years." For example:

A. Beijing's intervention on Hong Kong's autonomy:

Such as PRC officials conducting investigation on crimes in Hong Kong, mainland China's intervention on the purchase of Hong Kong Telecom by Pacific Century Cyberworks, Mr. Wang Fengchao's(the Deputy Director of the PRC's Liaison Office in Hong Kong)statement on press freedom, and Mr. He Chiming's (the Deputy Head of the Department of Taiwan Affairs of the Liaison Office) statement on the freedom to trade.

B. The HKSAR Government restricting its own powers:

This includes HKSAR government officials saying that new regulations on prohibiting treason and secession would not be drafted without consulting "the Central Government" in advance. The Government refused to help pro-Democracy activists visit mainland China, and the ICAC dares not investigate the institutions with mainland capitals.

C. Self-censorship by the press:

Such as's (13% of its US-listed shares owned by the Xinhua Press Agency) subsidiary blocking opinions that are pro-Taiwan and Tibet independence.