Deng Xiaoping and the Transformation of China (92 page)

Throughout the Cold War from 1949 to 1978, Hong Kong had been China's most important window to the world. The British colonial government allowed Communists and the Guomindang in Hong Kong to co-exist, even spy on each other there, so long as they refrained from open warfare and allowed the British colonial government to maintain law and order.
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Beijing used Hong Kong as a place to earn foreign currency, import technology, and gain information about the world. Until 1978, however, the window was open only a crack, and the mainland's relations with Hong Kong were highly restricted. China could have cut off the water and food shipments to Hong Kong, but it chose not to, even during the Cultural Revolution. In the 1960s the Soviets, tired of hearing Chinese accusations of revisionism, terrorized the people of Hong Kong by arguing that if China were so anti-revisionist, it could prove it by overrunning the imperialist colony on its doorstep. Beijing responded that Hong Kong was a historical problem that would be dealt with at the proper time. In essence, Beijing chose to “keep a long-term perspective and make full use of Hong Kong.”
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Deng wanted to prepare carefully before dealing with the issue of “resuming sovereignty” over Hong Kong, and in 1978 he had not yet begun to develop a roadmap for doing so. For the moment, Deng would offer little more than a general reassurance that China would keep Hong Kong prosperous. On August 19, 1978, however, Liao Chengzhi, following Deng's lead, reassured a group of Hong Kong visitors that Hong Kong could keep its present system for a long time and that China would not conduct mass campaigns in Hong Kong.
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In November 1978, even amidst the fervid activity of his visits to Southeast Asia and his preparations for becoming China's preeminent leader, Deng took time to welcome the Hong Kong shipping magnate Y. K. Pao, who was then the best-known and perhaps richest Hong Kong businessman.
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Deng grew to appreciate not only Pao's success, but also his first-hand knowledge of world business matters, his shrewd observations of the world political leaders whom he had met, his frank appraisals of the mood of Hong Kong businessmen, his pragmatism, and his sincerity in wanting to help with China's modernization. No other family outside the mainland developed as close a relationship with Deng and his family as the Y. K. Pao family.
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In November 1978 the two men focused their discussion on the role Hong Kong businesspeople might play in creating a modern China.

In December 1978 Li Qiang, China's foreign trade minister, was dispatched to Hong Kong to explore how Hong Kong might help China's modernization efforts, particularly in Guangdong. While visiting Hong Kong, Li announced for the first time that China would accept foreign investments and would welcome loans. Li also invited Governor Murray MacLehose to visit Beijing. Deng knew that Governor MacLehose was a Chinese-speaking official, highly respected in London, who had good working relations with Communist representatives in Hong Kong, and he knew that the fate of Hong Kong after 1997 would eventually require careful consultation with the British.
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The oral invitation to MacLehose was followed by a formal written invitation, the first letter to a Hong Kong governor by a Chinese minister. Governor MacLehose recognized the historical importance of this gesture, commenting, “It was a serious initiative, against the background of the modernization program. Everyone agreed: of course I should go.”
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(For more on the role of Hong Kong in the four modernizations, see
Chapter 14
.)

Deng had taken an interest in Hong Kong ever since his ship had stopped there in 1920 on its way to France, and he had become more familiar with it in the months he spent there while assigned to lead urban uprisings in Guangxi from 1929 to 1931.
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Deng knew the basic colonial history: that the island of Hong Kong had been ceded to Great Britain by treaty after the Opium War in 1842; that Kowloon, the tip of the mainland, had been ceded by treaty in 1860; and that the ninety-nine-year lease to Great Britain for the New Territories north of Kowloon would expire in 1997. Like other Chinese patriots, he regarded all three “unequal treaties” as invalid because they had been forced on China when it was too weak to resist.

From 1949 to 1978, the Communists had maintained organizations within Hong Kong and had a small following of ordinary citizens.
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Suspicions abounded between the Communists and all others, including the Guomindang, British, and Americans, but most Hong Kong residents, frightened of possible consequences, avoided all politics like the plague. The branch of the Communists' New China News Agency (NCNA) in Hong Kong published newspapers, magazines, and books; sent back secret as well as public reports on Hong Kong and the outside world; and housed officials assigned from the Ministry of Foreign Affairs. The Hong Kong branch of the Bank of China handled mainland financial interests. China Resources conducted business on behalf of China's Ministry of Foreign Trade and Chinese regional governments. China also had its own retail outlets, its own intelligence organizations, left-wing schools, and labor unions in Hong Kong. In reports to
Beijing, all these organizations exaggerated the support for communism in Hong Kong, thus causing Deng and other officials to underestimate the extent to which ethnic Chinese residents in Hong Kong were in fact content with British rule. In fact, most residents feared what China, having just undergone the Cultural Revolution, might do to Hong Kong.
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By the time Governor Sir Murray MacLehose met Deng in Beijing on March 24, 1979, some British diplomats had begun to suspect that they would have to give up sovereignty in 1997, for once the lease on the New Territories had ended and those areas were returned to China, the remainder of Hong Kong would not be viable as an independent administrative unit. Yet how could the Beijing government—fresh from the Cultural Revolution, with no experience governing a modern capitalist city, and with a record of ending all private business in the mainland in the early 1950s—possibly provide the wise leadership required to keep Hong Kong stable and prosperous? Not only the foreign businesspeople in Hong Kong, but also the ethnic Chinese living there had serious doubts. Hong Kong government officials and many ordinary citizens hoped that even if Britain gave up sovereignty in 1997, China would still allow British officials to continue to administer Hong Kong.
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British officials en route to Beijing knew that Deng would want to talk about what Hong Kong could do to help China's modernization. But to their surprise, Deng, in his opening remarks to Governor MacLehose, mentioned the issue of Hong Kong's eventual fate. He declared that a negotiated settlement should be based on the premise that Hong Kong was a part of China, but that for a considerable period of time, into the next century, Hong Kong could continue its capitalist system while China practiced socialism.
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Although it would be three years before Deng formally presented his “one country, two systems” policy, the outlines of it were presented to Governor MacLehose at this initial meeting.

MacLehose and his fellow China specialists realized that if they raised with Deng the issue of possible British administration after 1997, they would be courting an outburst. They thus decided to approach the issue indirectly, by raising the problem of how to assure those signing fifteen-year leases that those agreements would still be valid after 1997. In the same vein, MacLehose mentioned the concerns of Hong Kong investors about making new loans, mortgages, and other investments when it was unclear what would happen after 1997. MacLehose suggested changing the wording of official documents, which specified that the leases would expire after 1997, to “as
long as the Crown administers the territory.” Cradock, who accompanied MacLehose, records that Deng apparently did not understand the difference between the fifteen-year business leases and the ninety-nine-year government lease for the New Territories as a whole.
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In any case, Deng avoided expressing an opinion on the leases, but he did say that investors should put their hearts at ease.
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In response to British expressions of concern that mainland officials would be assigned to Hong Kong, Deng answered immediately that China would take measures to avoid the problem.

When MacLehose returned to Hong Kong, he did not publicly announce the details of his discussions in Beijing. But he did pass on Deng's reassuring message that China would not damage the interests of investors. Hong Kong residents were enormously relieved to hear this, which reinforced the impression of the more open mood in China and the reports in the Hong Kong media of Deng leading China on a more pragmatic path after the Third Plenum. Over the next year, Hong Kong real estate and stock prices rose dramatically.
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During the following months a number of high-ranking British officials flew to Beijing for discussions with Deng and other Chinese officials, and Hua Guofeng visited Britain in November 1979. All the British officials conveyed to their Chinese counterparts the same basic message: it was essential to make an early decision about Hong Kong. But Deng was not yet ready to begin negotiations; instead he simply reiterated what he had told MacLehose in early 1979—that Hong Kong could keep its own system after 1997 and that China would protect the rights of investors.
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An important breakthrough for Deng in dealing with Hong Kong occurred when the December 1980 Politburo meetings resolved the historical issues of Mao and the fate of Hua. This development meant that Deng no longer had to worry about conservative opposition to allowing Hong Kong to remain as a capitalist city for half a century after China resumed sovereignty. After he installed his new team of Hu Yaobang and Zhao Ziyang, Deng had reason to feel confident that his administration could acquire the capacity to govern a modern capitalist city.

In early 1981, then, Deng was ready for negotiations over the future of Hong Kong to begin. After Reagan became president in 1981, Deng knew he could not make swift progress on Taiwan. And by focusing on Hong Kong, patriotic youth who might have protested against the weak Chinese government's failure to make progress on Taiwan's return could turn their attention to
the struggle to regain sovereignty over Hong Kong, where Deng had all the leverage he needed to succeed. China had so many troops on its side of the border that the small garrison of British troops in Hong Kong could not provide meaningful resistance. China also controlled Hong Kong's water and food supplies. Moreover, by early 1981 China had already established working relationships with Y. K. Pao and other Hong Kong business leaders. And the one country, two systems policy, prepared originally to deal with Taiwan, could be adapted easily to provide the framework for relations with Hong Kong. Success in reassuring Hong Kong people might even reduce the fears of a wary Taiwanese public about its reunification with the mainland.

In March 1981, the Hong Kong and Macao Affairs Office called a meeting in Beijing to discuss the future of Hong Kong.
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At the meeting, Deputy Foreign Minister Zhang Wenjin conveyed Deng's views that if they did not take back Hong Kong, they would not be able to face their ancestors, the billion people in China, their descendants, and the people in the third world. Once Zhang had communicated Deng's views, the issue was resolved, for no one dared to suggest that China would consider allowing Britain to administer Hong Kong after the lease on the New Territories ran out.
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It was unlikely that Britain would send troops to defend Hong Kong, but Britain was just then considering sending troops to the Falklands and China could not rule out the possibility that the British might do the same in Hong Kong. Deng, always prepared for the worst-case scenario, resolved the question of how China would respond if Britain sent troops. In September 1982, a week before Prime Minister Margaret Thatcher arrived in Beijing, Deng met with Li Xiannian and others and told them that as a last resort China was prepared to use force to secure Hong Kong.

Once Deng had made a firm decision to resume full sovereignty, Chinese officials began preparing drafts for internal discussions about how the Chinese might govern the colony after 1997. Deng, too, read the reports on Hong Kong and began hosting more leaders from the Hong Kong business community. For instance, when the pro-Beijing Hong Kong businesspeople who were members of the NPC attended NPC meetings in Beijing, Deng invited them for special sessions in which they exchanged views on Hong Kong.
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Deng, like other Chinese officials, worried that in the years between 1979 and 1997 Britain might leave behind “poison pills” that would complicate
the problems of governing after China resumed sovereignty in 1997. Britain might try to drain Hong Kong's assets by allowing British companies to engage in large public works projects, leaving the government in debt. It might lease so much of the land that it would leave little for the Chinese to earn income from after 1997. The British might increase the salaries of government officials, which would make it difficult for China to balance the budget after 1997. At the time, Deng did not anticipate what he and others would later consider another poison pill, the weakening of government power by “democratic” reforms.

Beijing's basic stance on the future of Hong Kong was presented at a United Front Work Conference held from December 21, 1981, to January 6, 1982. Preliminary negotiations began as soon as the conference ended, when on January 6, 1982, Foreign Minister Humphrey Atkins met with Premier Zhao Ziyang. At this meeting, for the first time, Beijing was ready to begin negotiations and discuss concrete issues. Zhao told Atkins that Hong Kong would remain a free port and a commercial and financial center, and China would ensure its continued prosperity. At the end of the visit, it was announced that in return for Hua Guofeng's visit to Britain in November 1979, Prime Minister Margaret Thatcher would visit China in the fall of 1982 as the two sides began to negotiate in earnest.
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In March 1982 Deng formally approved the basic proposal developed at the January conference and forwarded it to the party center.