Online Extra: Q&A with Hong Kong's Donald Tsang

The island's Secretary for Administration talks about easier border crossings and economic complementarities with the mainland

Since taking over as Hong Kong's Chief Secretary for Administration on May 1, Donald Tsang has taken steps to couple Hong Kong's economy with that of the mainland, especially neighboring Guangdong Province. China promised Hong Kong that it would pursue a policy of "one country, two systems" after it resumed sovereignty of the former British colony in 1997. And while Tsang's predecessor, Anson Chan, was concerned about preserving the sanctity of the "two systems," Tsang has put the emphasis on "one country" -- especially from an economic standpoint.

Still, Tsang and the government have lagged behind expectations, according to the public and the business community, which have grown increasingly impatient about border-crossing delays. Tsang says the government is now committed to a round-the-clock open border, at least for passengers, but he stresses that increased hours would have to go hand in hand with increased demand. He also says Beijing's approval would be necessary if border hours were to be extended. Tsang spoke to BusinessWeek's Asia Regional Editor Mark L. Clifford and Asia Correspondent Bruce Einhorn at his office on Nov. 13. Here are edited excerpts of their conversation:

Q: Could you talk about economic integration and the controversy over opening the border more widely?

A: First of all, I never liked the word "integration." Integration implies that we are becoming one uniform economic entity. It is not in the national interest if Hong Kong should become a socialist enclave.

What we are talking about is exploiting the complementarities between Hong Kong SAR [Special Administrative Region] and the mainland, and to build synergies rather than trying to converge the Hong Kong system [with] the mainland system or force the mainland to copy the Hong Kong system. I would rather like to use "building synergies" rather than "integration" as a description of our economic relationship.

The second thing is the question of border-opening. It is a very unnecessarily [emotional] one. From the bureaucrats' point of view, from our point of view, it is a question of need. We will respond to market demand. I can see the merit of a 24-hour opening. But then you have to [look at] the facilities actually available on the ground. We are already operating the busiest checkpoint in the world for passengers at Lo Wu and the busiest checkpoint for trucks at Lok Ma Chau.

It is not a question of not doing our best. The fact is that the growth in traffic has been so enormous that we have not been able to [increase] both the hardware and the software to support that traffic, to provide people with comfortable and convenient passage. That has been gradually overcome.

When we talk about manpower, it is not only a question of what we want to do. It's also [whether] the mainland authorities are able to meet our needs, as well. They have customs people, security people, immigration people -- all of them are centrally deployed, commanded through Beijing. It is not in the hands of the Shenzhen authorities or the Guangdong authorities.... Then, of course, they have the money concern on their side, in terms of staff overtime, etc.... It is not a question of Hong Kong dragging its feet. Not at all.

Shenzhen does not pay for the customs officials. Shenzhen does not pay for the immigration officials. Of course they want [a border open round-the-clock]. I want it.... Beijing is helping, but Beijing just wants us to justify our case. I think I can justify up to midnight. I cannot justify beyond midnight. Nor can Shenzhen, for that matter.... It's a question of need.... It will become 24 hours before too long.

Q: It has been four years since the return to Chinese sovereignty. How do you rate economic integration?

A: I don't like the word "integration." Sorry.

It was a pretty slow start in the beginning because we came from different economic and historical [backgrounds]. We had to build up friendship and trust. The economic priorities of Hong Kong were elsewhere: Why spend a lot of energy on the mainland market? Then the Asian financial crisis set in. Then [this year] the difficulties of our major trading partners became a real fact. And the growth in mainland China highlights the need for us to look elsewhere. It is in Hong Kong's interest to work harder to build up those connections with the Pearl River Delta -- the mainland in general and the Pearl River Delta in particular.

Since I took over as Chief Secretary, I have made it a point of building up those connections in a serious way. I have been warmly responded [to] by the Shenzhen officials and by the Guangdong officials. I think we are making progress. What we have achieved over the last five months [has] exceeded the total achievement in the previous four years. This can grow exponentially. As we build up more trust, we can do something more innovative, more interesting together.

Q: Why is Hong Kong doing so badly while the mainland is doing so well?

A: We are a much more externally oriented economy.... Our weaknesses are pretty universal [and reflect the worldwide slump], but our strengths are unique -- being our geographical location in the center of Asia, being a Special Administrative Region of China, [a country] which is growing very fast, being an international financial center, and having a convertible currency which is not available in the mainland of China. So we will be the money-changer for the whole nation as the nation enters into a high level of trade and becomes a member of the World Trade Organization.

Q: What are you doing to make it easier for mainland tourists to come to Hong Kong?

A: From Jan. 1 there will be no quota on tourists from the mainland. [Now] only five or six tourist agencies can provide [trips] to Hong Kong. [Then] any tourist agency in the mainland will be able to do that. [An improved multiple-entry permit system for frequent mainland visitors will also be instituted.]

On the hardware side, we have an agreement on a western crossing to Shenzhen, and a spur rail line [from the northern town of Sheung Shui to the crossing at Lok Ma Chau] is now being put on a construction program. We have other plans afoot, like a rail connection to our container port, and our rail project will be connected with the metro system in the Shenzhen area. All these things are coming to fruition.

Q: What is your comment on a proposal to have Hong Kong adopt the Chinese renminbi as its official currency?

A: We are mandated under the Basic Law [Hong Kong's mini-constitution] to have a truly convertible currency. It is not constitutionally possible for us to link ourselves to any nonconvertible currency, even if that is the currency of the motherland.

Q: Would it be a good idea if you could?

A: If the renminbi is a fully convertible currency, then it becomes an option for us to consider.

Q: Why are people in Hong Kong so worried?

A: Hong Kong is always worried about things. It is part of our national psyche. It doesn't mean that we are losing the game. The GDP of the Pearl River Delta is much larger than [that of] the Shanghai [area], and the Pearl River Delta is growing just as fast as Shanghai. Even if Hong Kong sits on its hands and does nothing, it will take Shanghai 22 years, at its current 8% growth rate, to reach the Hong Kong level.

Q: How will Hong Kong benefit from China's entry into the World Trade Organization?

A: WTO is a great thing for Hong Kong. In the short term, because of the lowering of tariffs, China's [import] of goods will rise. The bulk of that will physically come through Hong Kong. Those goods that come through Hong Kong will also make use of our banking and insurance services because of the convertible currency.

Second, we are the largest investors in the mainland -- the largest investor in each and every province. We are penetrating each and every province. Ahead of the opening of this market, we have a head start against our competitors.

But the most significant part is in professional services. Our lawyers and accountants will find their services in great demand in the mainland because of our language ability and better knowledge of the mainland. [Also], while firms in the mainland will grow, there will be a greater demand for raising foreign exchange. The best place for doing that is in Hong Kong.

    Before it's here, it's on the Bloomberg Terminal.