Liberal union: integrating Hong Kong and China.

Hong Kong's economy may be booming, but it faces an inevitable challenge to its burgeoning growth. The Sino-British Joint Declaration guarantees Beijing's noninterference in all governmental matters, barring territorial defense and foreign affairs, but it will expire in 40 years. As ten years have already passed since the 1997 handover, the need for both governments to promote integration is increasingly imminent so that by 2047, when Beijing's non-interference is no longer guaranteed, the full integration of the mainland and Hong Kong will be relatively seemless and efficient. The Wall Street Journal and the Heritage Foundation have ranked Hong Kong and mainland China 1st and 119th in economic freedom, respectively. Without careful planning, the integration of such disparate systems will undoubtedly result in political and economic unrest.

One of the most economically progressive schemes implemented by Beijing has been the establishment of Special Economic Zones (SEZs), most famously, that of Shenzen, China, which has attracted enormous foreign investment, including joint ventures and foreign-funded firms, 113 of which are international Fortune 500 companies. Due to its geographic proximity to Hong Kong and its economic prowess, Shenzhen stands as the most logical point of preliminary integration for Hong Kong. However, in order for greater China to continue economic liberalization, it will have to rely on Hong Kong for domestic economic stimulation. Steps toward integration taken now will be economically desirable for both parties. With governmental planning and strengthened economic ties between both regions, the economic unification of China and Hong Kong can become a form of symbiotic economic growth.

Shenzhen, in many ways mirrors Hong Kong; aside from being complete with its own international airport and stock exchange, it has high standards of living and education relative to the rest of the mainland. As of 2007, the Chinese Renminbi has surpassed the Hong Kong Dollar, carrying Shenzhen 19 spots higher on the global standard of living survey to be the fourth highest ranked Chinese city after Hong Kong, Beijing, and Shanghai. In many ways, Shenzhen has actually surpassed Hong Kong. Although both cities strive to increase their container ports, Shenzhen's 15 percent to 20 percent box volume growth outshines Hong Kong's 1 percent to 2 percent expansion. Shenzhen's factories boast the highest net worth of exports in China, reflected in its US$136 billion output in 2006. Indeed, much of Hong Kong's manufacturing industry has relocated to Shenzhen where labor and production costs are significantly lower. Furthermore, Shenzhen's human resources are highly coveted. Hong Kong's Chief Executive Donald Tsang seeks to increase the population from seven to ten million in an attempt to be more competitive with New York and London. Shenzhen's population--more than 2 million people officially and over 11 million unofficially--would provide Hong Kong with a much-needed larger work force. As one integrated metropolis, this Pearl River Delta will not only keep up globally, but domestically as well, as it faces increasing pressure from the Yangtze River Delta.

Shenzhen will also benefit from greater integration. Since its designation as a SEZ, the city has enjoyed special tax incentives and greater governmental independence in matters of international trade. Yet, after almost three decades of relative autonomy, Shenzhen has reached an economic growth plateau. While growth rates have ordinarily been approximately 15 percent to 17 percent, it has slowed recently to 13.5 percent. Also, fixed-income investments have only increased by 14.9 percent in Shenzhen while the national average is above 30 percent.

The solution to Shenzhen's economic slowdown may be just across the river. Hong Kong, with an economy currently twice the size of Shenzhen's, is the obvious economic partner for the reinvigoration of Shenzhen. Whereas the appeal for foreign companies to invest in SEZs have already peaked, Hong Kong's laissez faire, innovative economy can further fuel Shenzhen's growth. Future growth in China's SEZs, including Shenzen, will rely on local entrepreneurs and privately owned companies. Already, a large share of the existing capital is raised in Hong Kong, but according to the Bauhinia Foundation Research Center, greater integration could allow the two cities to achieve a combined net GDP of US$1.1 trillion by 2010.

To help ensure a smooth transition and increased governmental integration, increased fluidity of immigration and travel is necessary. Currently, with 150,000 people crossing the border daily, checkpoints are only open 17 hours a day. Though rejected in 1997, 24 hour checkpoints are being reconsidered. In addition, Hong Kong citizens currently may enter Shenzhen freely whereas Shenzhen citizens must apply for week-long passes. If the travel scheme is liberalized with Shenzhen citizens using electronic identity cards to cross the border freely, the estimated increase in the number of border crossings will approach 10,000 to 20,000 per day and encourage the employment of Shenzhen citizens in Hong Kong.

Ultimately, proposals for the integration of Hong Kong will have to be approved by Beijing. What is clear is that the two cities both stand to benefit from economic integration and cooperation. What stands in the way of such a clear symbiotic relationship? One of the greatest barriers to economic liberalization in mainland China lies in the governmental differences between cities. Hong Kong's liberalized government and free market values are both economically and ideologically removed from the heavily controlled economy of mainland China. Renewed skepticism of change and liberalization in mainland China hinders constructive business relationships as well as the prospect for a peaceful, efficient transition in 40 years. Ultimately, with extenstive business relations and increasingly permeable boarders for workers, these two cities will pave the way for economic relations and nurture each other in growth and prosperity.

senior editor

JANET LI