Is Hong Kong Headed For A Showdown Over Democracy?

Martin Lee is in no mood to forgive. The chairman of Hong Kong's Democratic Party scored a huge victory in the May 24 elections. His party and its allies won 60% of the popular vote for the Legislative Council. But because popularly elected seats comprise only a third of the Council, Lee will remain in opposition. And he has no intention of helping Chief Executive Tung Chee-hwa and his pro-China government as they face a mounting sea of economic problems. "They run the place, we don't," snaps Lee.

After the election, Tung is weaker than ever. His natural allies, the pro-business Liberal Party, failed to secure a single one of the 20 directly elected seats. The party remains in the Council only because it took 9 of the other 40 seats mostly reserved for business and professional organizations. "This [vote] was a backlash against business," says economist Michael E. DeGolyer at Hong Kong Baptist University.

Lee and his supporters claim their landslide is a mandate for change. They want all 60 Council seats and the Chief Executive to be directly elected in 2000. Tensions will rise, as Tung is loath to act quickly. He was chosen for his job by a small coterie of pro-Beijing apparatchiks, so his own democratic legitimacy is weak. He has spent months defending clumsy moves to protect Chinese interests, such as exempting Xinhua, Beijing's news agency, from Hong Kong laws. Besides, Tung is struggling to deliver on his implicit contract with Hong Kong's citizens: prosperity in exchange for limited political rights.

ANGRY VOTERS. Indeed, ordinary voters are getting madder by the minute as Hong Kong is sucked into the vortex of Asia's imploding economy. Unemployment has shot up to 3.9%, from just 2.4% before China's takeover last July--a painful level in a city with few benefits. The stock market has lost all its gains since the start of the year. And real estate prices have fallen steeply, between 30% and 40% since July.

Worse is yet to come. On May 26, Tung warned that Hong Kong is headed toward a recession. Local businesses are now griping that stingy banks are creating a credit squeeze by refusing to grant loans because of soaring bad debts. That will send unemployment up. Already, about 2% of workers still with jobs are rated as underemployed and likely to be on the streets soon, say economists. Hong Kong is losing competitiveness to lower-cost rivals around the region. Meanwhile, the labor force keeps growing as Chinese immigrants pour in. "We may have to live with higher unemployment for a long time," says Ian Perkin, Hong Kong General Chamber of Commerce economist.

Tung may try to salvage the situation through economic measures. He may, for instance, offer retraining programs, infrastructure spending, or industrial development schemes. But unless he implements a convincing program, says economist Joseph Y.S. Cheng of the City University of Hong Kong, "he will come under tremendous criticism. People now expect the government to do something."

Tung has rigged Hong Kong's political system so that opponents such as Lee can never have real power. But that is no guarantee that Tung can govern effectively. Even with a rubber-stamp legislature during his first year in office, he made a series of missteps. He is flailing as the local economy gets singed in Asia's meltdown. New Legco elections in two years give critics every incentive to rail against Tung's autocratic policies. More Hong Kong people may join Lee's demand for genuine democracy in Hong Kong as Tung fails to deliver on his promises of prosperity and stability.

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