The Ties that Bind — page 2

Tang's assertion that the territory's manifest destiny is to lead southern China's manufacturing belt—by supplying business and marketing sophistication and helping to raise capital—is supported by history. Over the past quarter-century, Hong Kong played a pivotal role in the rapid development of the Pearl River Delta into a thriving manufacturing base. Guangdong's industrial output increased by more than a hundredfold to $256 billion between 1978 and 2003, largely because Hong Kong provided the province with capital and equipment. Hong Kong companies today are the biggest investors in the Pearl River Delta, accounting for more than $80 billion, about 70%, of Guangdong's total foreign investment. According to one study, Hong Kong firms last year owned or operated 53,300 factories in the province, employing some 10 million workers. Taken together, the economies of Hong Kong, Macau and the rest of the Pearl River Delta are bigger than those of Switzerland or Austria.

Still, there are many hurdles preventing Hong Kong from taking on a central role in the region. For a start, officials in Guangdong's fast-growing cities like Shenzhen, a center for high-tech manufacturing, and Guangzhou, the region's old trading capital with a population 32% larger than Hong Kong's, see the capitalist enclave as a competitor, not a beloved big brother. "It's not possible for Hong Kong to become the center of the Pearl River Delta," Lin Shusen, Guangzhou's former mayor and currently its Communist Party secretary, told TIME. "I think this area should have its own center city, and I think that center city will be Guangzhou."

Indeed, Pearl River Delta cities are developing numerous projects designed to reduce dependence on Hong Kong as a transport hub. A new international airport with a capacity of 25 million passengers is opening in Guangzhou this summer to siphon travelers away from the territory's Chek Lap Kok airport. Shenzhen is racing to develop its own ports to handle freight that usually passes through Hong Kong, the world's busiest port. With terminal-handling charges about $100 less per container box in Shenzhen, its ports enjoyed a 40% increase in traffic last year compared with Hong Kong's 4% rise. Farther up the Pearl River, in Guangzhou, city officials lobbied Beijing for a deepwater port at nearby Nansha. After Hong Kong Chief Executive Tung Chee-hwa spent much of his 2003 policy address extolling the virtues of pan-regional cooperation, Lin delivered a thinly veiled gibe: "There are some projects that we need to develop, and we hope Hong Kong won't expect us not to."

Following the July 1 protests, however, Beijing stepped in—and Hong Kong suddenly got virtually everything it wanted. Officials in several Guangdong cities had for years fiercely opposed Wu's cross-delta bridge, for example. But on Aug. 4, Beijing finally gave the project the thumbs-up, just five days after a study favoring it was released by China's State Development and Reform Commission. "The speed may have been linked to the political situation in Hong Kong," observes Michael Enright, a business professor at the University of Hong Kong. "The notion of pushing Pearl River Delta-Hong Kong interaction is at the top of the list."

Publicly, Guangdong officials now sing the territory's praises. "Guangdong and Hong Kong are as close as brothers," says Guangdong Governor Huang Huahua. "We depend on each other like lips and teeth." The partnership looks like it will go far beyond mere lip service. Beijing is backing a bold initiative by nine southern provinces, plus Hong Kong and Macau, to form a regional economic bloc that would have roughly the same population as the European Union. By coordinating economic policy, avoiding duplicate projects and reducing interprovincial trade barriers, this nascent organization hopes to compete with the rising economic powerhouse to the north: Shanghai and the Yangtze River Delta. Along with improving rail links between Guangdong and Hong Kong, government ministers outlined plans for 30,000 km of new highways in the region. "Hong Kong's economic hinterland will be expanded," Chief Executive Tung said in Guangzhou in early June. "The many opportunities in the region will provide a new impetus for Hong Kong's economy, relieve our economic slowdown and create more jobs."

There are other grandiose plans to tie Hong Kong to the mainland. Days after Beijing approved Wu's bridge, China's Vice Premier Zeng Peiyan was on hand to celebrate the start of construction of the $400 million, 5-km Western Corridor—a bridge-and-highway system connecting Hong Kong to Shenzhen. When it opens in early 2006, the bridge will enable truckers to complete more than one round-trip per day between factories in the delta and Hong Kong's ports, ferrying plastic Christmas trees and computer monitors to the world's Wal-Marts more efficiently and potentially halving shipping times to Hong Kong.

The ties binding Hong Kong to mainland China are not only physical but financial. In February, Hong Kong banks became the first foreign banks to be allowed to offer renminbi accounts, cracking open a door toward freer trade in the Chinese currency. Mainland companies are also pursuing stock-market listings in Hong Kong at a record rate. Last year, mainland firms raised $6 billion through initial public offerings (IPOs) of stocks in Hong Kong, up 260% from the previous year. And despite economic cooling measures from Beijing, they have raised more than $2.3 billion so far this year. The IPOs have not only boosted Hong Kong's stock market—but have helped the mainland by exposing more Chinese managers to the stringent demands of foreign investors.

Chinese Premier Wen Jiabao said in March: "Our principle is whatever is conducive to Hong Kong's prosperity and stability, to the common development of Hong Kong and the mainland, we will actively do it and give our full support to it." This is an immensely seductive deal, particularly to the territory's powerful business interests: Hong Kong gets rescued from the economic scrap heap, but it may be obliged to trade political autonomy for this promise of prosperity. Mainlanders have largely accepted such a trade-off, but will Hong Kongers be bought off in the same way? Pro-democracy advocates say no way. "Hong Kongers aren't going to say, 'The economy has improved so let's forget about democracy,'" insists Joseph Cheng, a political-science professor at the City University of Hong Kong who supports democratization.

But others say that whatever drives a wedge between Hong Kong and the mainland could imperil the territory's future. The economic reality, says John Meredith, group managing director at Hong Kong-based logistics operator Hutchison Port Holdings, is "that we are in a transition" and that "we're still too Hong Kong-centric." Like it or not, say the pragmatists, there isn't time to squabble about lofty political ideals when the mainland's support is so crucial to the territory's mutating economic role. "Unless Hong Kong continually reinvents itself, China isn't going to wait," warns Shan Weijian, a Hong Kong-based managing partner of U.S. investment fund Newbridge Capital. Indeed, if Hong Kong doesn't adapt itself quickly enough to a changing China, it could be left singing those little-town blues.

With reporting by Carmen Lee/Hong Kong

1 | 2

	Hong Kong's Defiance [Jun. 14, 2004] China warns the city to forget democracy and get back to business. But many Hong Kongers aren't listening Viewpoint: "Trust Us" [Jun. 14, 2004] Hong Kong wants good governance, not independence, writes Anson Chan Shocked Jocks [May 25, 2004] Hong Kong's incendiary political climate claims another outspoken radio host Who's in Charge Of Hong Kong? [Apr. 09, 2004] To the dismay of democracy advocates, China is tightening its control over the territory More Related Items | Search all issues of TIME Magazine