The Turnover of Hong Kong: How does

it continue to influence the Asian

financial city to present date?
-By Jaemin Lee-
Introduction

It was on the 1st of July in 1997 when Hong Kong was finally returned to
China after over 100 years of the British colonial rule. The initial prospect on
Hong Kong regarding the handover was far from positive. In fact, two years
before Hong Kong reverted to Chinese sovereignty, Fortune magazine carried a
cover story with the title “The Death of Hong Kong” in 19951, showing concerns
about the future of Asia-Pacific financial center under the socialist Chinese
regime. In addition to that, there were a number of known experts expressing
doubt about Hong Kong maintaining its status as a key global business hub in
Asia.
After the Sino-British Joint Declaration was signed in 1984, a lot of people
emigrated because they feared that Hong Kong would no longer enjoy the
political and social stability that had been guaranteed under the British colonial
administration.2 Despite all these concerns about the handover, Hong Kong
continues to be one of the most important financial cities in the world. The
Global Financial Centers Index 25 published in March of 2019 rated Hong Kong
as the 3rd most important financial city in the world, with only New York and
London occupying the 1st and the 2nd in the overall ranking.3 Hong Kong’s
economic stability nowadays can perhaps be attributed to the mutual
agreements China and Britain had ratified in the early 1980s. Even though China
remains as a socialist state to the present date, it had promised in the Sino-Joint
Declaration that the financial city that it would maintain its status quo for the
next 50 years after the handover.
However, recently, it seems that people living in Hong Kong have
increasingly been discontent about the growing influence of the Chinese
authorities in Hong Kong’s politics. Back in September of 2014, when I first came
to Hong Kong to start my university years, there was a series of protests called

1 McGowan, Joe. “The Death of Hong Kong.” THE DEATH OF HONG KONG - June 26, 1995,
archive.fortune.com/magazines/fortune/fortune_archive/1995/06/26/203948/index.htm.
2 Lui, Tai-Lok, et al. “Routledge Handbook of Contemporary Hong Kong.” Introduction: The Long

Transition, 2018, pp. 6–7., doi:10.4324/9781315660530.

3 Yeandle, Mark, and Mike Wardle. “The Global Financial Centers Index 25.” The Global Financial

Centers Index 25, Long Finance, Mar. 2019,

www.longfinance.net/media/documents/GFCI_25_Report.pdf.
the Umbrella Movement. I was not aware of the backgrounds because I hardly
knew about Hong Kong back then, but the movement provided me with a motive
to take interest in the contemporary studies of Hong Kong.
Having lived in Hong Kong for over two years, I am now better aware that
Hong Kongers have been discontent with the extent of democracy guaranteed in
the city’s politics. However, I have always wondered whether the handover of
sovereignty that took place decades ago continues to play a role in shaping the
political and socioeconomic landscape of the city. Through this research, I will
analyze the extent of influences the Sino-British Joint Declaration and the
turnover of sovereignty have had on Hong Kong. Initially, I was looking forward
to researching on how the handover of Hong Kong explains Robert Putnam’s
Two-Level Game Theory. However, from the further studies on the topic, I
learned that even though the international and domestic backgrounds of the two
states may explain why Hong Kong remained under the British colonial rule after
the Second World War, they do not clearly show the win-sets from the two levels
that played a crucial role in the ratification of the treaty. For the resources, I will
be relying on secondary data analysis and the dependent variables for the
following research are: (1) Socioeconomic Aspects of Hong Kong and (2) Politics
of Hong Kong.

Background

The colonization of Hong Kong took part in three phases during the 19th
century. Hong Kong Island was first occupied by Britain in 1841, and the
cessation was later formalized in the Treaty of Nanking after the Opium War had
ended. The Kowloon Peninsula then fell under the British sovereignty in 1860,
and in 1898, the lease of the New Territories for a period of 99 years was ratified
by Britain and China.4
After the Second World War, Franklin Roosevelt requested Churchill that
Britain return Hong Kong to China, which was then rejected by the British Prime
Minister. Even though Hong Kong was more of a military liability during the war,

4Lui, Tai-Lok, et al. “Routledge Handbook of Contemporary Hong Kong.” Introduction: The Long
Transition, 2018, pp. 3., doi:10.4324/9781315660530.
the strategic and symbolic value of the colony was significant to Britain. In
addition to that, in order to win the favor of the communist regime, the British
government withdrew recognition from Taiwan and accorded de jure
recognition to Mainland China in 1950. On the other hand, even though China
had been receiving internal criticism for allowing Hong Kong to remain under
the British colonial rule after the Second World War, the Communist Party chose
not to take compelling actions to regain the sovereignty of Hong Kong. There are
two possible reasons that help explain why China did not explicitly take actions
to reclaim the city. As mentioned by Li Hou, who had served as a vice-director of
the Hong Kong and Macao Office of the State Council, China was aware that using
violent measures to reclaim Hong Kong may possibly result with the United
States’ intervention, and that with economic embargo imposed on China, it
would have to rely on Hong Kong to connect with the outside world. Eventually,
the international and domestic backgrounds of both Britain and China allowed
for the former’s retention of sovereignty over Hong Kong during the mid-1900s.5
However, the future of Hong Kong spurred controversy when the 99-year
long leasing of the New Territories that had been signed in 1898 was coming
closer to an end. Starting from the late 1970s, Hong Kong’s governor Murray
MacLehose visited Beijing for a number of times to start talks regarding the
colonial city’s future. Initially, MacLehose suggested that the land grant be
approved for a term beyond 1997, which was then rejected by the Chinese
government. Even though China had allowed Hong Kong to remain under the
British colonial administration, it had never intended to let go of the city
permanently.6 To further discuss the future of Hong Kong, British Prime Minister
Margaret Thatcher visited China in 1982 and jointly declared with the Chinese
government that their talks on the city’s future would continue. In the first phase
of the negotiation talks, the two sides failed to reach an agreement because
Britain insisted that the three treaties that had been signed in the 1800s were

5 Siu-Kai, Lau. “The Hong Kong Policy of the People's Republic of China, 1949-1997.” Journal of
Contemporary China, vol. 9, no. 23, 2000, pp. 78–83., doi:10.1080/106705600112065.
6 Siu-Kai, Lau. “The Hong Kong Policy of the People's Republic of China, 1949-1997.” Journal of

Contemporary China, vol. 9, no. 23, 2000, p. 86., doi:10.1080/106705600112065. "In a letter to
the United Nations dated 8 March 1972, China demanded that it inform its relevant committee
that Hong Kong and Macao did not at all fall under the ordinary category of colonial territories
and should not be included in the UN's list of colonial territories covered by the declaration on
the granting of independence to colonial countries and peoples."
valid whereas China asserted that it had always held sovereignty over Hong
Kong.
In March of 1983, the British government finally recognized that China
had sovereignty over Hong Kong all along, and eventually, on the 19th of
December in 1984, Chinese Premier Zhao Ziyang and British Prime Minister
Margareth Thatcher signed the Sino-British Joint Declaration that China would
resume its sovereignty over Hong Kong from the 1st of July in 1997, and that the
city would maintain its status quo in the next 50 years after the handover under
the “One Country Two Systems” framework.

The Impact of the Handover

After the handover in 1997, the Hong Kong Basic Law, which had been
drafted on the basis of the Sino-British Joint Declaration, replaced the city’s
colonial constitution that had been effective before China regained its
sovereignty over Hong Kong.
As promised in the bilateral treaty, Hong Kong continues to keep its status
quo after the handover. It maintains its own currency, Hong Kong Dollars,
operates a separate postal system with its own stamps, and has its own national
air carrier and police forces. In addition to that, since Britain and China had
agreed that Hong Kong would be allowed to “participate in relevant international
organizations and international trade agreements”7, the former British colonial
city continues to be a member of a number of organizations such as the WTO.
What can be inferred from the following facts is that Hong Kong has a number of
aspects that a nation would have. However, as shown from the Article 153 of the
Basic Law that states, “The application to the Hong Kong Special Administrative
Region of international agreements to which the People’s Republic of China is or
becomes a party shall be decided by the Central People’s Government,” Hong

7Langer, Lorenz. “Out of Joint? – Hong Kong's International Status from the Sino-British Joint
Declaration to the Present.” Archiv Des Völkerrechts, vol. 46, no. 3, 2018, pp. 311–318.,
doi:10.1628/000389208785969015.
Kong’s autonomy is not guaranteed when it comes to ratification of international
treaties.8

In addition to that, contrary to what many people had worried about,

Hong Kong continues to function as the key global business center in the Asia-
Pacific region under the One Country Two Systems framework that allows the
city adopt a capitalist market economy. As stated in the Articles 5 and 115 of the
Hong Kong Basic Law, Hong Kong has been free from the direct influence of the
socialist policies implemented in Mainland China and has been adopting the
policies that allow for free trades and movements of assets and capitals.
Financial companies including investment banks and accounting firms use Hong
Kong as the headquarter for the Asia-Pacific region, and non-financial firms have
also established their regional corporate management center in the former
British colonial city.9
However, even though maintaining the status quo has contributed to
Hong Kong retaining its status as one of the main business cities in Asia, there
have been criticisms on the loss of manufacturing sector and the lack of social
mobility that have resulted from the unchanging Laissez-Faire capitalist market
system. Initially introduced by John Cowperthwaite, who had served as the
Financial Secretary of Hong Kong during the colonial era, the Laissez-Faire
model was adopted to allow for businesses to operate without the government’s
intervention to maximize their profits.10 Without doubt, the following economic
model has played a crucial role in developing Hong Kong into one of the major
cities in the world, but on the other hand, excessive investments in stocks and
real estates have led to dramatic inflation in the city.11 As a result, Hong Kong’s
industrial sector fell into decline because factory owners could no longer afford

8 “Basic Law Full Text - PDA - Chapter (7).” Basic Law Full Text - Pda - Chapter (7),
www.basiclaw.gov.hk/pda/en/basiclawtext/chapter_7.html.
9 Meyer, David, et al. “Routledge Handbook of Contemporary Hong Kong.” Hong Kong: China’s

global city, 2018, pp. 414-429., doi:10.4324/9781315660530.

10 “Official Report of Proceedings.” Legislative Council of Hong Kong, Hong Kong Legislative

Council, Mar. 1966, www.legco.gov.hk/1966/h660324.pdf. "For I still believe that, in the long
run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a
free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a
Government; and certainly the harm is likely to be counteracted faster."
11 So, Alvin Y. “The Economic Success of Hong Kong.” Sociological Perspectives, vol. 29, no. 2,

1986, pp. 250–251., doi:10.2307/1388960.

to maintain their costly factory sites. Back in the 1960s, it was Hong Kong’s
manufacturing sector that contributed significantly to the city’s economy.
However, as of the 2010s, the manufacturing industry contributes to less than 10%
of the city’s economy and as demonstrated by the achievements Shenzhen has
made in research and development, the former British colony no longer has a
competitive edge in technology.12 In addition to that, leaving the Laissez-Faire
system unchanged has eventually created a society where rich capitalists
dominate the economy. For example, studies in 2016 show that the median
household income of the top 10% was around 44 times greater than that of the
bottom 10%.13 To sum up, what can be seen from the following facts is that
Britain and China’s agreements on leaving the economic system unchanged has
contributed to maintaining the city’s status as a global business center and has
also brought side effects that seem to be more apparent nowadays. However,
what remains unknown is whether Hong Kong would have been different or not
without the handover because there is no clue about whether the British
colonialists would have brought changes or not to the status quo if Hong Kong
remained as a British colony.

Having ratified the Sino-British Joint Declaration, the National People’s

Congress stated in the Basic Law that Hong Kong would enjoy a high degree of
autonomy under the One Country Two Systems Framework. However, because
the ‘high degree of autonomy’ has never been explained specifically, whether
Hong Kong is actually autonomous or not remains controversial to the present
date.
Back in the 1980s, China was aware that they needed the support of Hong
Kong’s capitalists in order to accommodate the Laissez-Faire economic model
under the One Country Two Systems framework. To win their favor, the Chinese
government not only guaranteed the capitalists that their investments and
property rights would be protected but also granted them with opportunities to

12 Chen, Xiangming. “Lost in Competition.” Routledge Handbook of Contemporary Hong Kong,

2018, pp. 517–521., doi:10.4324/9781315660530-30.
13 Wong, Michelle. “Hong Kong's Wealth Gap Greatest in 45 Years. What Can Be Done?” South

China Morning Post, 16 Oct. 2018, www.scmp.com/news/hong-

kong/society/article/2165872/why-wealth-gap-hong-kongs-disparity-between-rich-and-poor.
replace the British colonial administrators after the handover. On the other hand,
the capitalists feared the possibility of losing their influence in Hong Kong after
the handover and believed that relying on the Chinese authorities was their best
bet to protect their economic and political interests.14 Eventually, the
cooperation of the Mainland Chinese government and the capitalists led to the
formation of the current political system that has been criticized by the Hong
Kongers for its failure in implementing democracy. The election process of the
Chief Executive, for example, has been subject to criticism and eventually
triggered the Umbrella Movement in 2014 because the Election Committee that
people condemn for being pro-Beijing has been selecting the final candidates for
the position.15
In the early years after the handover, China did not intervene with Hong
Kong’s internal affairs and allowed for a high level of autonomy in the former
British colonial city. It seemed that the coexistence of Hong Kong and China
would go well under the One Country Two Systems framework until in 2003
when the new Hong Kong policy introduced by the government triggered a mass-
protest. Ever since then, people living in Hong Kong have become increasingly
dissatisfied with their government they believe is pro-Beijing and Mainland
China, and as surveys conducted by the University of Hong Kong in 2017 shows,
only 3.1% of the young Hong Kongers identified themselves as Chinese.16 As
mentioned by Brian Fong in his article, ‘One Country, Two Nationalisms: Center-
Periphery Relations between Mainland China and Hong Kong, 1997-2016’,
whereas the identity of living as a Hong Konger was built upon the
socioeconomic edge over mainlanders from the 1970s to 2000s, the identity “has
been revived against a new backdrop of “us” resisting the “invaders.”17 Overall,
the handover of Hong Kong from Britain to China fundamentally changed the

14 Lui, Tai-Lok, et al. “Routledge Handbook of Contemporary Hong Kong.” Introduction: The Long
Transition, 2018, pp. 7., doi:10.4324/9781315660530.
15 “Explainer: What Was Hong Kong's 'Occupy' Movement All about?” Edited by Robert Birsel,

Reuters, Thomson Reuters, 24 Apr. 2019, www.reuters.com/article/us-hongkong-politics-

occupy-explainer/explainer-what-was-hong-kongs-occupy-movement-all-about-
idUSKCN1S005M.
16 Cheng, Kris. “HKU Poll: Only 3.1% of Young Hongkongers Identify as Chinese, Marking 20 Year

Low.” Hong Kong Free Press HKFP, 21 June 2017, www.hongkongfp.com/2017/06/21/hku-poll-

3-1-young-hongkongers-identify-chinese-marking-20-year-low/.
17 Fong, Brian C. H. “One Country, Two Nationalisms: Center-Periphery Relations between

Mainland China and Hong Kong, 1997–2016.” Modern China, vol. 43, no. 5, 2017, pp. 19.,
doi:10.1177/0097700417691470.
former British colonial city’s political system, created conflicts between the
public and the government, and also shaped the ways Hong Kongers identify
themselves.

Conclusion

What could be inferred from the following research is that the handover
of Hong Kong played a significant role in shaping the former British colonial
city’s politics. While it is true that Hong Kong maintaining its status quo under
the One Country Two Systems framework contributed to the city retaining its
significance in finance and suffering from wealth discrepancy and loss of
industrial sector, it is also arguable that Hong Kong could have been the same in
the way it is without the handover because it was the British colonial
government that introduced the economic model of positive interventionism.
However, there is no doubt that the handover fundamentally changed the whole
political system of the city by replacing British governors with local businessmen
and by creating the electoral system that eventually caused local residents’
dissatisfaction.
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