AFAR (Association for Asian Research): Article 23 and Its Impact on Hong Kong's Economy

1. Article 23 and its Background:

   Endangering free flow of information and "One country-two systems"

2. Responses to Article 23:

   Concerns from:

   Governments of the US, UK, EU, Canada and other countries;

   190,000 people signed against it;

   Bankers, lawyers, journalists, etc.

3. Changes in Hong Kong's Economy in the Last Five Years

   From low inflation to deflation;

   Two recessions;

   Property prices down 60%,

   Unemployment rate from 1.3% to 7.8%,

4. Impacts of Article 23 on Hong Kong's Economy

Less freedom of free information flow;

Out flow of human capital and real assets;

Bring damages to business environment.

Article 23 and Its Impact on Hong Kong's Economy

Tianlun Jian

On September 24, 2002, the Hong Kong Special Administrative Region (HKSAR) released its proposals for Anti-Subversion legislation (Article 23). The HKSAR gave a three-month consultation period. Ever since, it has become the main focus for the media, government, lawyers, bankers, investors, businessmen, and people from all walks of life in Hong Kong. People around the world are concerned about the future of Hong Kong since the "One Country-Two Systems" promise is endangered. Demonstrations have been occurring ceaselessly in Hong Kong and around the world. Over 60,000 people in Hong Kong demonstrated against the enactment of Article 23 on December 15, the largest since the Tiananmen Massacre in 1989.

Background

Article 23 was added to the Basic Law of Hong Kong after a million of Hong Kong's people demonstrated to support students' democratic movement in June 1989. The Central Government of P.R. China added Article 23 to avoid future demonstration of Hong Kong people against the central government. The final draft of Article 23, published in April 1990, states: "The Hong Kong Special Administrative Region shall enact laws on its own to prohibit any act of treason, secession, sedition, and subversion against the Central People's Government, or theft of state secrets, to prohibit foreign political organizations or bodies from conducting political activities in the Region, and to prohibit political organizations or bodies of the Region from establishing ties with foreign political organizations or bodies."

However, in the consultation document of Article 23 enactment, the following are found:

1. Any branch of an organization that is part of an organization banned by the central government of PRC under state security reasons can be banned in Hong Kong at any time, and the Hong Kong government does not have to conduct any independent investigation. (In other words, laws in mainland China apply in Hong Kong.)
2. The concepts of government and country are confused and exchangeable in the proposed document. In a democratic country, citizens are empowered with the right to monitor and check the government, whereas the proposed enactment of Article 23 makes opposing the government the same as opposing the country.
3. In the proposed enactment, police are allowed to enter residential buildings and arrest people at any time without court warrants and evidence.
4. Any speech deemed as instigative can be regarded as illegal, including oral, written and electronic forms; people who express or hear such speech and fail to report such speech are regarded as guilty.
5. Permanent residents of Hong Kong are under the power of this law, no matter where they reside. People who are in Hong Kong are also under the power of Article 23, regardless of nationality, including people who visit or transit through Hong Kong. Violations of Article 23 can result in jail time or a life term in prison.

Responses to Article 23

Members of the European Parliament, and officials of the US Department of the State, U.K., Canada, and New Zealand have expressed concerns about the Article-23 legislation. By December 24, 190,000 people had signed against the proposed enactment of Article 23. Those who are familiar with Article 23 fear that its lack of clarity would provide officials with an opportunity to prosecute and persecute any individual or group deemed a "threat to national security" by the PRC. The enactment of Article 23 would allow Mainland China to assimilate Hong Kong and turn it into a police state.

The New York-based Committee to Protect Journalists (CPJ) has said Article 23 would present a "...grave threat to freedom of expression in Hong Kong (and) if enacted, this legislation will send a clear message to Hong Kong journalists that coverage of sensitive issues, especially Chinese politics, will no longer be encouraged or even tolerated."

According to a December 4 report by AFP, some banks in Hong Kong were considering relocating if the proposed Article 23 is passed, out of the fear that the laws would restrict the free flow of information.

Frank Martin, president of the American Chamber of Commerce in Hong Kong, expresses common concerns, "We don't want to see any erosion in the legal system or any of the institutions that have made Hong Kong a regional financial center. That includes the rule of law, the independence of the judiciary, the free flow of information and all of the fundamental freedoms that are guaranteed under the Basic Law."

Lee Cheuk Yan, General Secretary of the Hong Kong Confederation of Trade Unions (HKCTU) stated, "Article 23 of the new law would allow the Chinese government to ban any Hong Kong organisation deemed to be 'affiliated' to a mainland organisation classified as a threat to national security. Given that independent trade unions are categorized in this way in mainland China, this law threatens the very existence of free trade unionism in Hong Kong." The International Confederation of Free Trade Unions (ICFTU) has joined the HKCTU to oppose Article 23, stating that its implementation "will allow the Government to use the law as a weapon to curtail people's rights."

Changes in Hong Kong's Economy in the Last Five Years

Hong Kong is characterized by its high degree of internationalization, business-friendly environment, rule of law, free trade and free flow of information, open and fair competition, well-established and comprehensive financial networks, and a well-educated workforce complemented by a pool of efficient and energetic entrepreneurs. Hong Kong is widely recognized as an international financial center and free trade center.

However, during the past five years, there has been a downturn in Hong Kong's economy. Its economy has gone through two recessions since the mainland China took it over in July 1997 (1998, and Q3 2001 through Q1 2002). Property prices have continuously fallen since July 1997. They have dropped 60% to 70% from their peak achieved in the third quarter 1997. Hong Kong stock prices also fell about 50% since July 1997. Currently, it is still at a four-year low.

Source: Hong Kong Government.

Deflation has been a phenomena in Hong Kong's economy in recent years. Since the beginning of 1999, Hong Kong's consumer price index has continuously been falling. In recent months, it dropped at an annual rate of over 3%. Consequently, business sentiment has been low. Retail sales also have declined for more than a year.

Source: Hong Kong Government.

Historically Hong Kong had an active labor market with low unemployment rates ranging around 3%-4%. The unemployment rate decreased in the mid 1990s. In July 1997 when PR China resumed its sovereignty of Hong Kong, the unemployment rate reached a low of 1.3%. However, since then it has continuously climbed up. By July 2002, Hong Kong's unemployment rate went up to 7.8% and currently remains above 7%. Yet, Hong Kong's unemployment rate underestimates the true unemployment situation. This is because in Hong Kong if one of the family members is at work, then none of those who are unemployed will be able to collect unemployment benefits. Thus, Hong Kong people do not have the incentive to report unemployment. So the real figure is much higher than officially reported. The actual figure could be well beyond two digits. For people in the mid forties and fifties who used to work in manufacturing sector, the unemployment rate could be as high as 40%.

Source: Hong Kong Government.

Impacts of Article 23 on Hong Kong's Economy

Economics and politics are often related. When evaluating a project, investment analysts and consultants often have to evaluate the political risk and country risk of the relevant country. In the case of China, a country of totalitarianism, economists and political consultants will talk about the impact of leaders stepping down, the impact on reform process and on some companies. But these are all considered "state secrets" in the mainland China, and will also be considered "state secrets" in Hong Kong according to the consulting document of Article 23.

From a broader perspective, lawyers, consultants, economists, and investment analysts often provide services based on their analysis of current policies. Likewise, government officials when making a new policy will often consult with lawyers, economists, bankers, etc. for their professional opinions. It is thus difficult for such professionals to assess whether the information is a state secret. With the term "state secrets" so vaguely defined, lawyers, bankers, and consultants may find themselves in prison unaware of the crimes they have committed, since the rule of law is turned into the rule of man.

Economists and analysts will often write reports about China's policy. Some may conclude it will be bad to invest in the market. Such reports are sent out to thousands of clients. If they are convinced, and the market goes down, would this be considered what brought instability to the country, thus committing subversion?

To avoid the risk of imprisonment, such professionals would either leave Hong Kong or censor themselves. In either case Hong Kong's economy will be hurt. As a matter of fact, some businessmen have begun to restrict themselves, reluctant to comment on Article 23 for fear of that their business interests in mainland China will be damaged.

Currently in Mainland China, information exchange is strictly monitored. According to Amnesty International, China has arrested at least 33 Internet users for online "subversion." China has also banned over 500,000 international websites, closed down numerous Internet cafés throughout the country, and installed monitoring software to track usage on computers in remaining cafés. Scholars, medical researchers, and journalists have been arrested and tortured merely for using the Internet. Undoubtedly, such actions would extend to Hong Kong if Article 23 were implemented.

Hong Kong has always been known for its rule of law, the independence of the judiciary, the free flow of information and all of the fundamental freedoms that are guaranteed under the Basic Law. All these freedoms have contributed to Hong Kong's status in the international community, and its appeal to investors. Implementing the proposed Article 23 would curtail these freedoms overnight. Without such freedoms, Hong Kong would lose its competitive position and its status of international financial center. The business environment would be damaged and the troubled economy is likely see higher unemployment rates. The brain drain that took place around 1997 is likely to occur again. Service sectors, like media and financial services, will be hurt the most.

*Dr. Tianlun Jian is a corporate economist in Boston.

From: http://www.asianresearch.org/articles/1128.html