The UK’s 99-year lease of the Hong Kong New Territories expired on June 30th, 1997. It would have been impractical, if not impossible, to separate them from Hong Kong Island, ceded to Britain in 1842, and the Kowloon Peninsula, ceded in 1860, so all of them were ceded to China at the time of the Handover, as it was called.
The Sino-British Joint Declaration established the principle of “One country, two systems,” declaring that mainland China’s socialist system would not be applied to Hong Kong, which would be allowed to continue its capitalist system and its way of life for at least 50 years. The democratic Hong Kong Assembly was, however, replaced by a new body in which only a minority of the seats are elected locally.
Nervousness about what the Communist authorities might do, once they were in control, led to a mass wave of emigration from Hong Kong lasting over five years. Popular destinations included the UK, Singapore, Canada, Australia and the US. Vancouver was an especially popular destination. One million people left between the start of the transfer negotiations in 1984 and their conclusion in 1997. This was reckoned to have constituted a serious drain of talent and resources from Hong Kong’s economy.
Hong Kong prospered under economic freedom. Despite having no natural resources, it went from being a subsistence economy to a global economic superpower in a single generation. The one resource it had was the native talent of its people, unleashed by light taxation and regulation, plus free trade. China, whose own economy is increasingly capitalist, does not want to disrupt this wealth-creating economy on its doorstep. Yet it remains determined to monopolize political power in the hands of the Communist Party, meaning it has a delicate balancing act.
It has already provoked street protests by young people when it is heavy-handed in restricting the freedoms Hong Kongers have hitherto enjoyed. The recent protests about accused offenders having to face extradition to trials in mainland China is only the latest concern. Companies will be reluctant to do business in Hong Kong if their executives face extradition to kangaroo courts in China under the thumb of the Communist Party and required to follow its orders. Hong Kong is under the rule of law; mainland China is not. The Chinese have wisely backed down for now.
One thing causes China to tread more delicately than it might otherwise. It is Taiwan, regarded by the PRC as part of China, but which has operated as an independent and successful country for decades. It enjoys democracy and economic freedom. It is watching how China treats Hong Kong, and will never agree to integration into China if Hong Kong loses its free way of life and its free economy.