China assures Hong Kong economic push

Beijing looks to provide Hong Kong with much-needed economic support

HONG KONG, China (CNN) -- President Jiang Zemin will be dispensing what pundits call 'steady-the-heartbeat' pills when he comes to Hong Kong on Sunday to mark the fifth anniversary of city's reversion to Chinese rule.

In what could be his last official visit to the Special Administrative Region (SAR), Jiang, 75, will try to reassure its people that the motherland will do whatever it takes to boost the sagging local economy.

The erstwhile Pearl of the Orient is in its worst recession in recent memory, with zero growth last year and an unprecedented 7.4% jobless rate.

Much of the people's anger is directed at Tung, Beijing's hand-picked chief executive, who has proven a weak and indecisive leader during his first five-year term.

To reassure the Hong Kong populace -- and to back up Tung, who has just been given a second term -- Jiang and his top aides are expected to announce in the coming months a package of new deals for the SAR.

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While the details of the goodies are still being worked out, Jiang is expected to point out in his July 1 speech that "with the mainland economy doing so well, Hong Kong cannot go wrong."

Chinese and Hong Kong sources familiar with Beijing's SAR policies say the central government is contemplating a plethora of dispensations for Hong Kong.

For example, in a move dubbed 'moving water from north to south' (water means money in Chinese slang), Beijing is expected to encourage firms ranging from traditional state-owned enterprises (SOEs) to IT start-ups, to invest in Hong Kong or transfer part of their operations to the metropolis.

"SOEs and other firms may be encouraged to set up offices or even headquarters in Hong Kong to take advantage of its financial expertise and sales networks," said a Chinese source.

"All along, only provinces and directly administered cities -- and companies with the same administrative rank -- are allowed to set up offices in Hong Kong. In future, most cities may be able to do so."

In internal papers, Chinese economists have estimated that around 10,000 companies in southern China alone may want to establish outlets in the SAR.

It is understood that Premier Zhu Rongji, who played a big role in choking off 'hot money' going from the mainland to Hong Kong in the mid-1990s, has had some new thinking on this matter.

Infusing funds

Zhu and his aides have reportedly indicated that Beijing will approve a substantial injection of funds into Hong Kong under specific conditions.

Firstly, precautions must be taken against corruption and the loss of state assets.

Moreover, the movement of capital must be based on commercial and market considerations, not administrative or bureaucratic decrees.

In the past year, Hong Kong businessmen have also asked Beijing to allow China's 60 million gumin (frequent stocks buyers) to buy stocks and shares issued in the SAR.

However, a positive response has yet to come from senior cadres, who are worried that this will have a detrimental impact on the mainland's already jittery bourses.

While capital may be moving from north to south, schemes are being devised to relieve Hong Kong's unemployment woes by persuading more of Hong Kong's 250,000 jobless laborers to seek their fortunes north of the border.

One proposal on the drawing board is that local administrations in Shenzhen and other parts of the booming Pearl River Delta will provide re-training to Hong Kong workers with a view to employing them later on a permanent basis.

Shenzhen and quite a few neighboring cities, which are dependent on migrant laborers from rural provinces who have little desire to stay in Guangdong for good, think there may be advantages to hiring more dependable staff from Hong Kong.

Other measures being contemplated to help Hong Kong out are centered on the concept of a mainland-Hong Kong "closer economic partnership arrangement," which was agreed upon between the central and SAR governments last January.

Tung's aides and the SAR business community have been lobbying Beijing to lower or abolish tariffs on mainland-bound Hong Kong products.

Central authorities' favor is also being sought regarding infrastructure planning in southern Guangdong with a view to turning Hong Kong into a logistics hub for southern China.

These dispensations will come on the heels of other "super-special policies" already granted the SAR.

For instance, to help Hong Kong's hotel and retail businesses, Chinese provinces and cities have scrapped their limits on the number of Hong Kong-bound tourists.

And so as not to take business away from Hong Kong, Beijing has asked Shanghai to at least temporarily stop bidding for a Disneyland franchise -- and Shenzhen to postpone the opening of its second stock market.

Dangerous mentality

Analysts say Hong Kong's economic dependence on Beijing had spawned a culture of compliance in the territory

While recession-hit Hong Kong businessmen and workers may be thankful for the mainland's apparent generosity, a dangerous mentality of dependence has set in.

While Hong Kong was not too long ago teaching mainland cadres about the virtues of free competition, the SAR is in many areas already lagging behind go-go cities such as Shanghai or Shenzhen in entrepreneurial derring-do.

Singapore-based Sinologist Zheng Yongnian, who has done research on China-Hong Kong relations, pointed out that one casualty of the SAR's economic integration with the mainland could be Hong Kong's unique, quasi-independent identity, as well as its proud tradition of hacking out a path of its own.

With Hong Kong yielding more of its initiatives to China, Zheng said: "It is not an exaggeration to say that Hong Kong has already become half a state-owned enterprise."

Then there is the inevitable spillover into the political arena.

Many observers fear that excessive reliance on the motherland would be detrimental to "one country, two systems" as well as "a high degree of autonomy of Hong Kong" – which are Beijing's pledges for the SAR.

This is despite Premier Zhu's reassurance earlier this year that even if economic integration were to take place, Hong Kong would not lose its special status.

"Economics is economics, politics is politics," said Zhu, who seemed oblivious of the basic Marxist tenet that economics underpins -- and provides the basic structure for -- politics and culture.

City University of Hong Kong business Professor Li Shaomin pointed out economic dependence on the mainland had spawned in the SAR a "culture of compliance, a tendency for the elite to curry favor with Beijing and to anticipate Beijing's wishes."

For Hong Kong's man on the street, of course, the rice bowl matters more than high principles.

He seems resigned to the fact that in return for Beijing's economic lifeline, the SAR may have to settle for a slower pace of democracy -- and a higher degree of the 'Sinicization' of China's most international city.