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Hong Kong's Margaret Fong takes on trade issues
The Washington Diplomat / November 2004

By Larry Luxner

The personalized District of Columbia license plate on Margaret Fong's BMW reads "HKSAR" — a tribute to Hong Kong's unique, often misunderstood status as a Special Administrative Region of China.

Because Hong Kong is not a country (and never has been), it obviously cannot have an embassy. Yet the former British colony boasts a population of 6.8 million and a GDP exceeding $160 billion. That translates into per-capita income of $23,800, nearly 25 times that of mainland China.

Likewise, Hong Kong's four-story economic and trade office just off Dupont Circle is far bigger than many bona fide embassies.

Fong, who was appointed in August to run that office after having previously served there from 1997 to 1999, says her job is 'to ensure that we're talking to everybody we need to talk to — Congress, think tanks and other D.C. opinion makers — to make sure they know the Hong Kong story."

And what a story that is.

Situated at the southeastern tip of China, this wealthy 1,102-square-kilometer enclave of capitalism comprises Hong Kong Island, the adjacent Kowloon Peninsula and the New Territories with its 235 outlying islands.

In 1997, Great Britain's 99-year lease on Hong Kong expired, leaving London no choice but to turn over its richest and most important colony to Beijing. Hong Kong's inhabitants — with memories of the 1989 Tianenmen Square massacre still fresh in their minds — trembled at the thought of Communist China brutally suppressing their society's democratic institutions and freewheeling economy.

"It was obvious that when we started to discuss the transition, there would be a lot of concern about Hong Kong's future. Everybody thought there could suddenly be an upheaval," said Fong, whose first tour of duty here began just after the handover. "We had lived under the British system for 150 years, and we were used to a way of life we were comfortable with and hoped to maintain."

Fortunately, she said, their worst fears never materialized.

"Everything went smoothly, and the Chinese government today fully recognizes the capitalist system which has been working for so long, and therefore devised this formula of one country, two systems," Fong told the Diplomat. "We enjoy all the freedoms that we previously had — freedom of religion, freedom of the press and freedom of assembly."

On the other hand, Asia's financial crisis of 1997-98 hit just as China assumed sovereignty over Hong Kong, seriously threatening its prosperity. It took awhile to recover, but the economy finally turned the corner and is now stronger than ever.

In the first quarter of 2004, Hong Kong's economy expanded by 7%. In the second quarter, its GDP jumped by 12.1%. Overall, said Fong, Hong Kong expects to end this year with GDP growth of 7.5%, compared to 9% growth for China as a whole.

"We now have a closer economic partnership agreement with mainland China, sort of like a free-trade agreement. The fact that we actually have such an agreement is a demonstration of our two systems," she said.

Hong Kong also has its own currency, the Hong Kong dollar, which currently trades at 7.8 to the U.S. dollar. In fact, says Fong, "we are in charge of all daily issues other than foreign policy and defense. That is set out in our Basic Law of 1997."

As director of the Washington office, Fong oversees a staff of 20, including six diplomats. She reports to Commissioner Jacqueline xxx, who is Hong Kong's highest-ranking bureaucrat in the United States and who supervises not only the Washington office but also similar offices in San Francisco and New York.

"We have had a very good relationship with the United States for many years and have been working very closely on all fronts including textiles, high-tech goods — mainly computers — and intellectual property issues," she said.

On another issue, the bird flu epidemic, Fong says there's nothing to worry about when it comes to Hong Kong.

"After the unfortunate incidents of 2001, we have had no incidence of bird flu in Hong Kong," she told us. "There has been bird flu in the rest of the region, but Hong Kong has taken very special precautions and most of our live poultry comes from mainland China. Whenever there's a hint of a problem, we stop the importation of poultry immediately."

Fong, 40, was born in Hong Kong. She studied English literature at the University of Hong Kong, then spent a year at Oxford. Her last job before coming to Washington in 1997 was assistant private secretary to Lord David Wilson — the former governor of Hong Kong.

"We still had telegrams then, and we started every day by reading telegrams," she recalled. "From 1993 to 1997, I was working in the constitutional affairs branch. That experience was particularly worthwhile, because I saw the whole process of ensuring how we would preserve everything we had under British rule."

After that, Fong joined the finance branch to supervise the funding of Hong Kong's massive public works program. In 1997, upon coming to Washington as deputy director of the Hong Kong Economic and Trade Office, she was put in charge of export control, intellectual property rights and congressional relations.

"It was a very interesting time. Everybody wanted to talk to me," she said of her first stint in Washington. "I love this city, but now it's changed. Overall, people are much more concerned these days about homeland security."

Fong returned to Hong Kong in 1999 and joined the transport branch as deputy secretary. In that capacity, her portfolio covered a wide range of responsibilities from road safety and traffic management issues to build-operate-transfer infrastructure projects. She was also in charge of planning for new road and rail networks both within Hong Kong and linking with the Pearl River Delta in mainland China.

"There's a clear border, both a physical border and an immigration border between Hong Kong and the rest of China," she explained. "You need a permit of some sort to get from one side to the other. For a long time, Hong Kong people have been going to China for tourism and business."

These days, tourism is flowing in the opposite direction as well.

In July 2003, mainland China began allowing its citizens to visit Hong Kong on an individual basis. Previously, Chinese citizens could visit the enclave only as part of organized tour groups. This new scheme alone has brought 3.5 million additional tourists to Hong Kong during the first nine months of 2004.

Tourism now accounts for 5% of Hong Kong's GDP, with over 20 million visitors expected this year. Of that total, about five million will be American citizens.

One project sure to attract even more visitors is Hong Kong Disneyland, which will be connected to the city center by a 30-minute express train. The theme park will generate 18,000 new jobs when it opens in late 2005 or early 2006, and is expected to draw 5.6 million visitors in its first year of operation, rising to 10 million after 15 years.

Yet Hong Kong's most important industry is banking.

One of the world's undisputed financial centers, Hong Kong at the end of 2002 had 133 licensed banks, of which 10 were U.S. banks. Seven of the top 10 U.S. banks maintain branches in Hong Kong; in addition, Hong Kong has nine restricted-license banks and three deposit-taking companies owned by U.S. interests. Most of these institutions are engaged in money-market operations, foreign exchange and securities. Several are also active in domestic banking, including mortgage lending and trade financing.

The total assets of U.S. financial institutions in Hong Kong stands at $63.3 billion, representing 8.2% of Hong Kong's total banking sector. Customer deposits at those institutions is around $28 billion, or 6.6% of Hong Kong's total.

More impressive statistics: 3,609 overseas companies had regional operations in Hong Kong as of June 1, 2004. This includes 256 regional headquarters of U.S. firms involved mainly in wholesale, retail and import/export trades. Other major lines of business include transportation and related services, finance, banking and manufacturing.

Some 50,000 U.S. citizens reside in Hong Kong, making Americans one of Hong Kong's largest expatriate communities.

Among Hong Kong's traditional advantages: a simple and low tax structure, the absence of foreign-exchange controls, a corruption-free government and the free flow of information.

"Hong Kong people are mature and pragmatic," said Fong. "They know they have the right to express their views, and they do it in a very peaceful manner. The fact that tens of thousands of people took to the street in a recent demonstration and there was no incident or disorder — not even anyone pushing over a trash can — says a lot about how responsible we are."

Perhaps that explains why the United States today accounts for nearly $25 billion worth of inward direct investment in Hong Kong.

In 2002, Hong Kong imported $1,409 in U.S. goods per inhabitant, substantially higher than per-capita U.S. imports from Mexico ($858), Taiwan ($757), Australia ($641), South Korea ($447) and Japan ($381). Also in 2002, the Hong Kong government purchased $225 million in U.S. goods, representing 39% of total contracts awarded that year.

Hong Kong's per-capita income, while not as high as Japan or Australia, exceeds that of Singapore, New Zealand and Taiwan. And Hong Kong already accounts for 70% of all direct investment in China's Guangdong province, a center of export-based manufacturing.

Fong says it's important for Hong Kong to have a say in China's future — not just for economic reasons but also to ensure that the former colony's democratic traditions remain intact.

"We want constructive dialogue, and we are engaging not just the community but also all 60 legislators, both Democrats and pro-business groups," Fong said. "It's especially encouraging to see even the Democrats saying that they want an active dialogue with the mainland government. We believe this will be a major step forward."

Perhaps no one is looking as closely at Beijing's "one country, two systems" policy towards Hong Kong than Taiwan.

With 23 million people, Taiwan also has a booming, export-based economy. Many of its inhabitants, and some of its politicians, would like to see Taiwan become an independent nation, though China — which views the island as a renegade province — has threatened a military invasion if Taiwan gets too vocal in its demands for independence.

Asked if the Hong Kong experience has any relevance to Taiwan, Fong demurred as any good diplomat would.

"Whether by our successful example Taiwan would then feel it's a formula that could also apply to them, is very much for the Taiwanese to decide for themselves," she said.

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