Recent events have made some people fear for Hong Kong’s future. Some businesses are suffering badly. Some have gone out of business. We are officially in recession. Perhaps the saddest aspect is the split in our society. You are identified by the ‘colour of your shirt’; families are at odds. Workplace colleagues are careful what they say to each other. No-one quite knows what anyone else is thinking or feeling. And we say ‘be safe’ as we say good-bye to each other.
Hong Kong will never be the same again.
In my close to 40 years here, I have heard this widely said – and believed – during at least eight crises. Each time it was true; each time change took place. Our City reinvented itself and moved on. This will happen again. Let me explain why I believe this, by looking at five of our previous crises.
Hong Kong was one of the last British colonies. The Governor, top officials and senior posts in both Government and large companies were expatriate British. Manufacturing was thriving; Hong Kong was known for its cheap goods, cheap labour and bustling harbour.
It had absorbed millions of immigrants from China. In 1967, the Police had fought off thousands of rioters who, emulating Mao’s Red Guards, wanted the British out. 50 people were killed, and thousands imprisoned. In 1977, the Police themselves were the focus of concern and the ICAC was formed. This did not make the Police happy and they went on strike.
There was then a scandal that could have been politically terminal. A young policeman committed suicide in 1978. He was homosexual, as were many senior members of the British establishment. Rumours were that there had been a coverup, a murder even. Homosexuality was illegal in Hong Kong then. It was a tense time for the British and Hong Kong Governments. The long-running court of enquiry avoided damaging disclosures in its report in 1981 and the crisis passed by.
The city not only survived this period but developed its business potential and profitability. At the time, though, many believed this was impossible.
Britain took over Hong Kong Island in 1842, after defeating China in the First Opium War. After the Second Opium War, Beijing was forced to also cede Kowloon in 1860. In 1898, to enforce its control of the area, the UK leased additional land, the New Territories, agreeing to return them to China in 99 years.
In 1980, few expected Hong Kong to return to China. After all, it was mostly British territory. But China, taking its long view of history, wanted all Hong Kong back. The British accepted that China could take it back if it wanted to. Pragmatic negotiations took place, mostly in secret, to arrange a handover that would be beneficial to all sides. In 1984 Margaret Thatcher and Deng Xiaoiping signed a Joint Declaration to determine how this would happen. ‘One country, two systems’ was born.
The 1983/84 period was another troublesome period for Hong Kong. The economy was weak because of the uncertainty. Stock prices fell – and stayed low. Home prices dropped. In 1983, the Hong Kong dollar had to be firmly pegged to the US dollar to keep the currency stable from speculators.
For many, there seemed to be no future for the Territory with China in charge. China itself was also emerging as a vibrant economy. Hong Kong’s manufacturers found that they could make things much more cheaply in the mainland. Many Hong Kong factories closed in a short period. Factory workers had none of the skills needed by the growing service sector. Unemployment soared.
However, a goal to expand the number of university graduates in Hong Kong from less than 2% of the population to more than 18% by 1994 had profound economic effects. From 1984 to 1994, around 35,000 school leavers did not enter the labour market as they always had. When they became available after three years, they were no longer interested in clerical work. As a result, employers faced vacancy rates that regularly exceeded 30%. For at least a decade, average wages grew by more than 10% a year. In some years there were two salary increases, each averaging at least 10%. This gave everyone more purchasing power.
In 1987 there was a stock market crash. The Hang Seng index fell to below 800. Its effects, though severe, were short-lived. By 1989, Hong Kong people were rich – and they knew it. The future looked bright. 1983/84 was over. 1997 was a long way off.
June 4th, 1989 changed everything. Again.
Events in Beijing shook the world. Hong Kong, its future now legally tied to the mainland, felt especially insecure. The progress made in its economy and optimism about its future with China evaporated in one weekend. Markets fell. Property crashed. The splits between pro and anti- China sentiment that had always existed, were evident again with marches and protests. Middle class families began emigrating; people asked themselves if they were foolish to stay or foolish to go.
Hong Kong would never be the same again.
Yet, little by little, Hong Kong recovered. China’s economy continued to grow at over 7% a year and absorb major investment from the West. Hong Kong became a bridge and facilitator. Global companies set up headquarters in Hong Kong, being the easiest way to access China.
Hong Kong once more saw a rosy future within China. Every company in the world wanted to be part of the global phenomenon that was China; Hong Kong was where they started. Hong Kong companies quickly followed and set up their own operations, facilitated by a China, eager to show a favourable face of reassurance to Hong Kong. 30th June 1997 came and went. Thousands of global reporters got rather bored and invented news.
Yet, in the background, serious financial problems were disturbing Asia.
On 2 July 1997, Thailand allowed the baht to become free floating. It fell almost 50%. This precipitated a series of attacks on other Asian currencies, including the Hong Kong dollar. Its linked exchange presented an open invitation to global speculators. The stock market crashed. Property prices collapsed. Confidence in Hong Kong rapidly dwindled.
Hong Kong would never be the same again.
However, in 1998, the SAR Government decided to use reserves to support the Hong Kong Stock Exchange as well as the Hong Kong dollar. As fast as short-selling overseas speculators sold Hong Kong stocks, the SAR Government bought them. The market stabilised and within a year the Government was able to unwind its positions through Tracker funds sold to the public at generous discounts. This enabled many Hong Kong people, who had never thought of investing, to take a part in Hong Kong’s economic progress.
2003 saw SARS, arguably one of the biggest threats not only to Hong Kong but the world. Many people died. Businesses declined. Offices were closed. Visitors to Hong Kong dried up. Asset values plummeted again. The future of Hong Kong looked bleak.
Through the diligence and sacrifice of doctors and scientists, Hong Kong overcame SARS. Low asset prices proved an irresistible buying opportunity. China became only the third country to put a man into space and soon was to become the world’s second largest economy. Hong Kong too felt pride.
Hong Kong survived and prospered.
In 2008 the global financial crisis shook Hong Kong again. This time the global economy suffered, arguably even more than Hong Kong’s.
A basic and incomplete measure of Hong Kong’s economic health is its GDP.
Here we see the depths of each of the crises I have described (as well as others) and the speed with which Hong Kong recovered. In the middle of each crisis, there seemed to be no way out. Doom seemed inevitable.
But each crisis brought its own solution. Hong Kong changed and was not the same as before. There are things that need changing in Hong Kong today. We will succeed in making those changes because we must and because we can.
Hong Kong will not be the same again.
We shall adapt and move on as we always have – and rightly so.