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Asymmetric federalism

The position of the Hong Kong dollar would be maintained. Even the lease of land would be valid after 1997 for 50 years with some stipulations.


The century of humiliation for the Chinese began with the Opium Wars beginning in 1839. Chinese tea became a part of the British drinking habit in the 19th century, but the Qing dynasty did not have any inclination to buy manufactured items from Britain. The demand for tea was enormous leading to a balance of payments crisis as the Chinese insisted that the payment be made either in gold or silver. The imperial and expansionist government of Queen Victoria was averse to using the country’s reserves of gold and silver and the tea importation tax imposed by the British was a large percentage of the British economy. To offset this balance of payment crisis the British administration forcibly exported opium from the Indian subcontinent to China. Opium for the British would be the barter for tea. The Chinese government objected to this huge export of narcotics forcibly by a foreign power. At that time the ill-effects of opium were less known and for the majority of the Britishers it was a medicine.

But the Chinese experience was different and alarming because the addiction impacted the economy and the armed forces. In England, liberal leaders like Gladstone (1809-98) recognised the dangers of opium use and objected to its export but the special interest group that made a huge fortune out of the opium trade which included even the grandfather of Franklin D Roosevelt (1882-1945) could easily resist such opposition. This powerful interest group sidelined the rational and moral objections of liberals like Gladstone. The Qing government found to its dismay that the ban on opium was ineffective as the British merchants could easily smuggle the drug into China. To stop it in 1839, the Chinese officials took direct action destroying 20,000 bales of opium, each chest containing 140 pounds of this narcotic. An angry Britain declared war to protect its illegal but very profitable trade. The first opium war lasted from 1839 to 1842. During the war Britain invaded the Chinese mainland and occupied the island of Hong Kong on 25 January 1841, using it as a military garrison. China had to cede Hong Kong to Britain by the Treaty of Nanking.

Thus, Hong Kong became a crown colony of the British which lasted till 1997. But the dispute over the opium trade was not resolved and that led to the second Opium war (1856-60). The settlement of the war through the first Peking convention was ratified on 18 October 1860 by which Britain acquired the Kowloon peninsula and stone cutter’s island. But security concerns regarding the free port developed by the British worried them as it was an isolated island surrounded by many islands under Chinese control. To settle it on 9 June 1898, the British signed a deal with the Chinese to lease Hong Kong, Kowloon and the new territories which included an important river and more than 200 small islands. The British tried for outright ownership but the Chinese, though weakened by the first Sino-Japanese war of 1895, could still negotiate a legally binding lease for 99 years. After Mao’s stewardship, and during the initial years of Deng’s rule, two basic principles were spelt out as a process of socialist modernisation: (1) reunification of the motherland and (2) building a proper security apparatus for the nation. Praising the work begun by Chairman Mao, it narrated how China has developed in the past 35 years.

The impact of this was not only that China has been able to create a socialist society, but it had also changed the ‘course of human history’. It also mentioned the counter revolutionary activities of the Gang of Four and praised Mao for guiding the nation with proper policies with emphasis on adaptability to ever changing situations. On this basis, the nation achieved stability, unity, democracy, and the rule of law. Deng used to remind Chinese audiences that the Chinese have the longest unbroken civilization of more than 5,000 years. The implication of this was that the interlude of foreign domination was a mere hundred years, and the Chinese were destined to get back their ancient pride in a modernized way. This longer historical perspective was a basic policy of Mao as well, as he strategized that though they could easily run over Hong Kong and Macao he followed a game of patience with “long term planning and full utilization of the present colonial governance of Hong Kong”. Deng who never publicly denounced Mao’s excesses unlike Khrushchev’s denunciation of Stalin, followed the Mao-Zhou strategy and steered the reunification process by a novel innovation of “one country, two systems”.

Margaret Thatcher after her triumph in the Falkland Islands War (1982) and her re-election with a larger majority tried to explore the feasibility of returning to China the new territories including the main Hong Kong whose lease would expire in 1997 but keeping the southern tips of Kowloon peninsula and Hong Kong islands protecting British primacy. But she could not pursue this policy as her close advisers had pointed to the indefensibility of such an arrangement. Thatcher realized holding on to Hong Kong beyond 1997 was not possible. She used her diplomatic skills to negotiate with the Chinese authorities what she thought would be the best deal for inhabitants of Hong Kong. But the people were not consulted and by and large they were unhappy with the deal. Two important issues dominated British thinking: one was sovereignty, and the other was immigration. Thatcher wanted to avoid large-scale immigration for the fear of losing support within the Conservative Party. On the other hand, if she unconditionally handed over Hong Kong then questions would be raised as to why she put all her strength in retaining the Falkland Islands in which many British soldiers lost their lives.

But realizing that talks could not be postponed, a secret UK government document cautioned Thatcher “what she could not do particularly in light of the recent Falkland Islands problem, was simply to announce, ‘we had conceded sovereignty over Hong Kong’.” After protracted negotiations both sides agreed to a compromise ‘One Country Two Systems” which would have Hong Kong governed by its basic law but accepting Chinese sovereignty and control. China received sovereign rights over the entire territory, while accepting that Hong Kong would enjoy a considerable degree of autonomy for fifty years ending in 2047. This had been thought through over a long period, since the Third Plenary Session of the Chinese Communist Party in December 1978. It evolved to settle the unsettled questions of Hong Kong and Taiwan. It was a policy of accepting totally different systems within one nation ~ a population of one billion following the socialist model, whereas understanding the different historical evolution of Hong Kong and Taiwan and contemporary circumstances, it was appropriate to accept their capitalistic systems. This position announced in 1984 was to ascertain the period of transition from 1984 to 1997.

The emphasis was on this crucial period of 13 years and the framework was specified. The position of the Hong Kong dollar would be maintained. Even the lease of land would be valid after 1997 for 50 years with some stipulations. There would be no enhancement of the number of personnel and their pay in the government services. Without consultation with mainland China, no administrators were to be imposed on the Hong Kong Special Administrative Region. The British Hong Kong Government would ensure that there was no flight of capital. The emphasis was on cooperation between the Chinese and British governments. Basis this agreement, the expectation was that one country, two systems would work during this period of transition. Such a plan of peaceful transition of power would “serve as an example for other nations in settling the disputes history has bequeathed to them”. The pragmatism of the Communists to maintain the status of Hong Kong and the colony’s economic system to supplement foreign currency for China was guided by self-interest.

To achieve it a vast network of businesses and banks were owned by the Communists in the colony, the most important of which was the Bank of China through which profits of Communist-owned businesses and banks and lucrative amounts of remittances were transferred to Beijing. This was more than half of China’s foreign exchange earnings. This economic reason created confidence in the residents of Hong Kong that China would not attempt to annex Hong Kong as it was immensely useful to China. The 1967 riots that took place in Hong Kong as a spill over of the cultural revolution in China was out of a fear that in case of Hong Kong being annexed, Hong Kong communists would be termed as revisionists. The Gang of Four added to this feeling but Mao and Zhou had no such intent and Hong Kong’s status continued to remain intact even after the riots. The colonial British administration did not think of drastic democratic reforms or participation of the local people as there were only token reforms.

The handling of Macao and Hong Kong by the Chinese leadership under Mao-Zhou and subsequently under Deng prove the essential pragmatism of the Communist leadership. They were not in a hurry because they realized it was a major source of maintaining contact with the wealthy western nations and, after the split with the Soviets, a counter-balancing force. The question of democracy became muted as the British administration never seriously thought of incorporating the local inhabitants in the decision-making process. It showed that a party state can conceive strategies which would be dismissed as heresy by traditional Eurocentric Marxists but yielded positive results for Chinese development and survival.

Without any foreign aid China could manage its affairs and could accommodate a form of asymmetric federalism while within its own power structure it was unthinkable. After the transfer of power, the relative importance of Hong Kong has diminished as it now handles only 3 per cent of Chinese trade. But in per capita income it is far ahead of China, with an income of $49661 against China’s $12,551. But it is also ahead of Great Britain whose per capita income is $32,555. However, many Chinese universities have surpassed Hong Kong in world ranking. As the present balance is working well, it can safely be presumed that even after 2047 the special status of Hong Kong would continue.