We're Betting On Hong Kong

Listen closely on July 1, and beneath the noise of firecrackers celebrating China's reunification with Hong Kong you will hear a low, thunderous roar from across the mainland. The equivalent of "Show me the money" in Cantonese, Mandarin, Fujianese, Shanghainese, and a dozen other dialects will resound as millions of people demand a piece of Hong Kong's good life. Beijing's Communist rulers are betting they can absorb a dynamic, hip, capitalist society and control its influence over the rest of China. We're betting they can't. We believe the injection of Hong Kong's market economy and freewheeling culture into Chinese society will tip the delicate balance of power between Beijing centralizers and provincial decentralizers, Communist Party freedom-phobes and high-tech information lovers, party hacks and entrepreneurs.

Our hunch is that the takeover does not mean an end to Hong Kong, but rather the beginning of the endgame for what will eventually be seen as the relatively short-lived (for China) Chinese Communist era. Naturally, predicting that capitalism, prosperity, and the growth of a middle class will trump dictatorship is a gamble. We could be wrong. But we have enough confidence in the market economy's transformative power to place the long-term bet. And we believe that intelligent U.S. policy toward China can tilt the odds in favor of the market, hastening the transformation.

Here's why we think Hong Kong values will eventually triumph over those of Beijing. For starters, Hong Kong is already winning. Over the past 20 years, Hong Kong capital, contacts, and culture have played key roles in transforming China from a totalitarian to an authoritarian society. This distinction is not merely semantic. In the 1970s, China was an absolute dictatorship with a state-owned economy run by the Communist Party. Today, power is widely dispersed. People can move about freely, villages can elect their own leaders, and tens of thousands of students study abroad. The state owns only 40% of the economy (less than in France), and its share is shrinking. A middle class is rising alongside the new entrepreneurs who want more autonomy, easier access to global capital and markets, more foreign technology, and a more standard code of law.

Individual Chinese are joining in, as well. They are launching their own businesses, moving to different cities to get work, and absorbing cool Hong Kong culture. Today, mainland pop artists sing of going "to that wonderful world," that beacon of hope and prosperity--Hong Kong. In fact, Hong Kong is one big schoolhouse for China's budding business managers, drilling them on transparency and contract law.

Of course, things could get bad quickly. Hong Kong is a source of everything Beijing wants and everything it fears. If they believe Hong Kong's way of life threatens their political survival, China's rulers will stomp on it. Beijing risked its economic success to brutally crush dissent in Tiananmen Square. It could do it once again. But crushing Hong Kong would be costly. With the end of Communism, the current dictatorship must legitimize its rule by offering its people a higher standard of living. Hong Kong embodies prosperity to the Chinese, and that, in the end, is Hong Kong's trump card.

It's a pity that so few in Washington share our optimism. An unusual coalition of liberals and conservatives is organizing to snatch that trump card away from Hong Kong. Religious conservatives, labor unions, environmentalists, protectionists, campaign-reform advocates, human rights activists, and leftover, hard-line anti-Communists are banding together to deny China normal trade ties with the U.S. Many want to launch a new cold war against China. They are united in their ignorance of what has been transpiring there. Paradoxically, this coalition is profoundly anti-business: It shows no faith in the ability of its own economic system to transform China.

How strange and sad. The anti-China coalition, believing Beijing will crush Hong Kong, would actually help it by denying China most-favored-nation status. This would only hurt Hong Kong and the dynamic parts of Chinese society. We think that Hong Kong values will win the day, and extending MFN will surely help. It took Taiwan and South Korea four decades of growth to make the transition from dictatorship to democracy. It's only reasonable to give the Middle Kingdom, halfway down the road, time to finish the journey. We say give China as much capitalism as it wants.