Spring Thaw In Hong Kong

Last winter, Hong Kong had a grave case of the chills. As Governor Christopher Patten pushed to lock in democratic reforms before the Chinese takeover in 1997, the colony's future overlords in Beijing lashed out relentlessly, slamming Patten as an imperialist meddler and blocking one commercial deal after another. China's outbursts shook business confidence in the colony. In one week in December, the Hong Kong stock market plummeted, losing 17% of its value. Says asenior Hong Kong official: "The Chinese abuse machine was at its very zenith."

Six months later, the machine is off. Relations between Britain and China have quietly taken a turn for the better, as Beijing seems ready to compromise on economic issues. Talks on constructing Hong Kong's new airport resume early this month, after a seven-month hiatus. The British and Chinese will also meet in mid-June for a fifth round of talks on Hong Kong's future. And Beijing has signed off on three major projects that straddle 1997.

The Chinese mood swing, combined with the U. S. decision to renew China's most-favored-nation trade status, is giving Hong Kong's economy a big lift. The stock market index hit seven record highs in recent weeks (chart). Many analysts think it is headed for 8,000 by yearend, from 7,325 now. The property market is bullish, too, with real estate prices rising up to 20% in recent weeks.

Why Beijing's sudden turnabout? Hong Kong officials say China now seems willing to separate economics from politics. That change likely is a result of quiet pressure from billionaire Li Ka-Shing and other Hong Kong magnates, who started cozying up to Beijing years ago. "China's policies were effectively hurting its closest allies in Hong Kong," says a local official, "and they told Beijing to ease off." Power struggles in Beijing also may be a factor. Premier Li Peng, one of Patten's harshest critics, hasn't been seen in public since April. In his absence, more reform-minded leaders, such as Vice-Premier Zhu Rongji, may be calling the shots.

LOW PROFILE. Beijing has other reasons to be on its best behavior. By bullying Hong Kong, China would have made it more difficult for the Clinton Administration to extend its MFN trade status. Beijing also is eager to host the Olympics in the year 2000 and to gain entry into the General Agreement on Tariffs & Trade. Even so, there are no clear signs that China will now accept greater democracy in Hong Kong. "Beijing is smiling on one side and holding tight on the other," says a Western diplomat in Beijing. "An obvious decision was taken to cooperate on economics and maintain a hard line on sovereignty."

Patten has helped to defuse tensions by keeping a low profile. While the governor says he isn't backing down, he still has not set a time frame for sending his proposals on political reform to the legislature. While waiting nervously for their governor's next move, Hong Kong's business leaders can only hope Beijing's abuse machine will stay in cold storage.