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HONG KONG: One Country, Two Systems, but Will It Be
Free?

Colony 'Already a Part of China'

While the world frets about Chinese impact on Hong Kong business, mutual need long ago knit the two regions together. This web of economic interdependence is seen as the territory's safety net--and its best defense.

June 15, 1997|EVELYN IRITANI | Times Staff Writer

HONG KONG — Patrick Wang had just about decided to build a new factory in Thailand when a business acquaintance persuaded him to make a trip across the border into China to the village of Shajing.

Wang, a leading Hong Kong manufacturer, was not prepared for the poverty that greeted him. Young children ran around bare-bottomed, and the villagers lived in dirt-floor huts.

But his skepticism faded when he asked the village chief why he should invest money there. "Because we have the most honest, hard-working people in all of China," the chief replied.

Fifteen years later, Wang is Shajing's biggest benefactor. As chairman of Johnson Electric, the world's largest producer of the tiny motors used in hair dryers, food processors and auto accessories, he has invested more than $100 million in four factories there and hired 13,000 people.

Over the past decade, Hong Kong firms such as Wang's--propelled by a labor squeeze and rising costs at home, and lured by China's low wages and cheap land--have transformed the Pearl River Delta into a reflection of the colony's former self. They employ more people across the border, 5 million at last count, than in Hong Kong.

And the goods produced on the China side in Hong Kong-financed factories flow back across the border to the colony to be processed and shipped through the world's busiest container port, which already handles more than half of China's sales to the world.

"For all intents and purposes, it could be argued that Hong Kong already is a part of China," said Al Stonehouse, president of the Diamondback bicycle company in Camarillo, Calif. He travels to Hong Kong four or five times a year to place orders for his China-built bicycles.

Indeed, while the rest of the world fretsabout the future of Hong Kong under China's "one country, two systems" policy beginning July 1, market forces long ago began moving these two disparate regions toward a "one economy, two systems" arrangement of mutual need and prosperity.

To business leaders here, this web of economic interdependence--stretching from the banks and stock market of Hong Kong to the apparel assembly lines in Chinese villages--makes the longtime British colony a "goose that lays golden eggs" too valuable to the mainland Chinese leadership to sacrifice.

"Hong Kong's ultimate security depends on Hong Kong's usefulness to China," explained David Chu, a leading businessman and Hong Kong legislator who gave up his U.S. citizenship as a show of confidence in the colony's future. "We Hong Kong people have always realized that."

To be sure, the uncertainty has led some of Hong Kong's wealthy to flee to cities such as Los Angeles, Toronto and Sydney. But those who stayed behind have prospered handsomely by strengthening their ties to China and exploiting Hong Kong's role as a financial and services entrepot for the mainland, according to Michael Enright, coauthor of "The Hong Kong Advantage," a new book on the Hong Kong economy sponsored by a group of Hong Kong business leaders.

And some say that by eliminating Britain, whose relations with China had grown increasingly testy in recent years, Hong Kong leaders could gain a more receptive audience in Beijing for the hands-off policy that the territory needs to maintain its economic vitality under the agreement that will govern this "special administrative region" for 50 years after the hand-over.

"It will be Chinese dealing with Chinese," noted Enright, a former Harvard business professor. "Hong Kong Chinese business leaders are far more influential than any politician, particularly a Western politician."

The 26,000 vehicles that cross the border between China and Hong Kong daily are testament to the breadth of this economic marriage. They illustrate that all the Hong Kong economic indicators--the stock and property markets, foreign investment flows, immigration trends--remain bullish in spite of the political jitters.

That's why Steven Nichols, president of K-Swiss, the upscale athletic shoe company based in Chatsworth, Calif., has no plans to scale back his operations in Hong Kong--the base for a Chinese manufacturing operation responsible for producing more than half his company's shoes.

In Hong Kong, Nichols taps into a service and transportation network that can place orders with factories across the border, coordinate the delivery of laces, soles and fabric, handle the export paperwork and get the finished product to Hong Kong for shipment to the United States, Japan and Europe.

"This little island has no natural resources, no agriculture, no land mass," Nichols marveled. "All they have is people that use their wits, and they do very well by it. Hong Kong works very well."

The story of Johnson Electric in many ways mirrors that of post-World War II Hong Kong, a place where personal and commercial interests have coincided for decades. And today, those interests call for one foot on each side of the Hong Kong-China border.

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