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43–149 CC








FEBRUARY 13, 1997

Printed for the use of the Committee on International Relations

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BENJAMIN A. GILMAN, New York, Chairman
HENRY J. HYDE, Illinois
CASS BALLENGER, North Carolina
EDWARD R. ROYCE, California
JAY KIM, California
TOM CAMPBELL, California
JON FOX, Pennsylvania
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
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SAM GEJDENSON, Connecticut
TOM LANTOS, California
PAT DANNER, Missouri
WALTER CAPPS, California
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
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Subcommittee on Asia and the Pacific
DOUG BEREUTER, Nebraska, Chairman
JAY KIM, California
JON FOX, Pennsylvania
JOHN M. McHUGH, New York
EDWARD R. ROYCE, California
HOWARD L. BERMAN, California
WALTER H. CAPPS, California
MIKE ENNIS, Subcommittee Staff Director
RICHARD KESSLER, Democratic Professional Staff Member
DAN MARTZ, Counsel
HEIDI L. HENNIG, Staff Associate
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    Mr. Jeffrey Bader, Deputy Assistant Secretary of State for East Asian and Pacific Affairs, Department of State
    The Honorable Dick Thornburgh, Kirkpatrick & Lockhurt, LLP
    Dr. Michael Oksenberg, Stanford University
    Mr. Timothy P. McKenna, Kerry Securities (America), Inc.
Prepared statements and biographical sketches:
Mr. Jeffrey Bader
Hon. Dick Thornburgh
Dr. Michael Oksenberg
Mr. Timothy McKenna
Additional material submitted for the record:
Statement submitted for the record by Congressman Kim
Hong Kong Rule of Law Mission Report (submitted by Hon. Thornburgh
Statement submitted for the record by Mr. Frank Ching, senior editor (Far Eastern Economic Review)

House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on International Relations,
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Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:36 a.m. in room 2172, Rayburn House Office Building, Washington, DC, Hon. Doug Bereuter (chairman of the Subcommittee) presiding.
    Mr. BEREUTER. The Subcommittee will come to order, the Subcommittee on Asia and the Pacific.
    This morning's meeting marks the first meeting of the Asia Pacific Subcommittee of the House International Relations Committee. I am Doug Bereuter, Republican Member from Nebraska and the chairman of the Subcommittee since 1994.
    We have, unfortunately, unexpected conflicts which are keeping Members from one of the most important hearings of 1997. The Speaker has called a conference for Republican Members unexpectedly, and Prime Minister Netanyahu is here. The Ranking Member, Mr. Berman, is at that meeting, but will join us a bit late.
    I would point out to anyone who is interested that the Asia Pacific Subcommittee was the first choice of more Members of the Committee on both sides of the aisle than any other subcommittee, and I think that is the second Congress in a row that that has been the case. I think it gives some indication of the importance that Members assign to Asia and to Asian-American affairs.
    I am extremely honored to be chairing the distinguished group of Members who have chosen to serve on the Asia Pacific Subcommittee. I have learned over the last 2 years that there are some Members who serve on this body with extraordinary knowledge and experience on Asian issues. I am particularly pleased to be serving again this year with the Ranking Member, Howard Berman, who was the Ranking Democrat in the previous Congress.
    In the 104th Congress, I think it is fair to say that we worked together in a truly bipartisan fashion on a wide range of issues, and I look forward to continuing that practice. In fact, I had a meeting scheduled with all House Republican Members this morning before it had to be canceled because of the Speaker's meeting.
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    I will say to the Ranking Member through his staff right now that I would look forward if he wishes to meeting separately with all Democrat Members to consider their priorities and interests for this Congress.
    I will mention, even though they are not here, that we have a number of new Members to the Asia Pacific Subcommittee and I will just briefly give you an indication of their service.
    On the Republican side this year we will have new Members, including Peter King, who is a Republican from New York in his third term. He has been selected by the Chairman under the revised committee rules to be the Vice-Chairman of the Committee. There are actually several Members who had wanted to serve who were very qualified, and I would have been pleased to have any one of them, including, of course, Mr. King, serve as Vice-Chairman.
    The second, Matt Salmon, is in his second term, a Republican from Arizona. He happens to speak Mandarin Chinese and is a special asset to us.
    Third, John McHugh, who is here, a Republican Member from New York State. He is a third-term Member, but his first term on the International Relations Committee. He is one of those rare Members who is a crossover, also serving on the National Security Committee.
    New Democrats include Alcee Hastings from Florida, a distinguished Member serving his third term in the Congress and on this committee; Walter Capps, who is here, first-term Member from California from Santa Barbara; Robert Wexler, first-term Member from Florida, a resident of Boca Raton.
    Gentlemen, I look forward to having your service on the Subcommittee. I think you will find it rewarding.
    Before I turn to the subject of today's hearings, let me make one brief comment about my goals and intentions for the Subcommittee. Two years ago to the very day when I held my first hearing as chairman, I outlined three priorities that would guide my actions. Let me restate those priorities.
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    First, the U.S. military naval presence and security commitment to the region must be sustained and enhanced both for the purpose of regional stability and in furtherance of our foreign policy goals and national interest.
    Second, the United States must better focus and augment its resources to defend our economic interest, expand our commercial opportunities and to ensure American competitiveness in the region.
    Last, mindful of the American commitment to our fundamental principles of democracy, pluralism and human rights, we must creatively utilize the most effective bilateral, regional and multilateral approaches to advance these principles in the region.
    Over the past 2 years, I have found that these over-arching objectives or principles served the Committee well. I remain committed to emphasizing these basic principles. Within the context of these basic guidelines, I will certainly attempt to address the specific concerns of my colleagues on this subcommittee whenever possible and with the assistance of the Ranking Member and Vice-Chairman will do that.
    I also sought to act whenever possible in as bipartisan a manner as possible, while continuing our responsibilities to conduct energetic oversight on the relevant activities of the executive branch. I intend to remain committed to this practice as well.
    Now to today's hearing. I have an opening statement. In less than 5 months, nearly a century of British rule will end, and Hong Kong will become a Special Administrative Region of China. Nobody knows exactly what will happen in Hong Kong on that night or in the ensuing months and years.
    This reversion is unprecedented in its complexity. Hong Kong, one of the world's most efficient economies, will become part of an emerging giant that has yet to integrate itself fully into the world economy and international community and which has only begun to experiment with democracy at the village level.
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    The United Kingdom and People's Republic of China have largely agreed on the basic rules for Hong Kong's reversion in the Sino-British Joint Declaration of 1984. For its part, China has agreed to grant Hong Kong more autonomy than international law requires.
    In Hong Kong's constitution, the Basic Law of 1989, the National People's Congress unveiled a ''one-country, two-systems'' arrangement for 50 years. During that time, Hong Kong is supposed to enjoy a high degree of autonomy except in the areas of foreign affairs and defense.
    It is rumored that over 7,000 journalists from around the world will be on hand at midnight on June 30, 1997, to witness the official handover. Presumably these journalists will be there to observe whether the transition goes smoothly.
    Already the press coverage on Hong Kong has become intense. In large part, the attention focused on Hong Kong by the international press has been fueled by misguided or heavy handed efforts by the Chinese Government to disband the current Legislative Council and replace it with a provisional legislature, to alter civil rights protections in Hong Kong and to improperly influence the extremely efficient and extraordinarily important civil service of Hong Kong.
    Clearly these actions must not go unnoticed by the international community and by the U.S. Government. In fact, they have not. For example, since November I am told that approximately 20 percent of the Members of the entire U.S. Congress have visited Hong Kong and expressed their support for Hong Kong's autonomy. This is amazing in light of the fact that congressional travel is declining dramatically, and I believe it indicates the interest and the importance that Members of the House and the Senate assign to this Hong Kong transition.
    This is the type of foreign travel by Members of Congress which should be encouraged because those Members who have been to Hong Kong will better know how to assist the international community in insisting on the preservation of Hong Kong's autonomy and the protection of the very substantial American interest in Hong Kong and in its future.
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    As a direct result of my concerns stemming from my recent visit to Hong Kong, I today will introduce legislation which outlines our interest, specifies our most important concerns and supplements the Hong Kong Policy Act of 1992 by requiring Presidential reports and action consistent with Section 202 of the 1992 Act.
    Most importantly, the legislation is absolutely clear in insisting that the People's Republic of China fulfill its promises of the Joint Declaration of 1984 to fully maintain Hong Kong's autonomy. Let me reiterate this point by reading you the statement of purpose contained in the legislation.
    ''The purpose of this Act is to support the autonomous governance of Hong Kong and future well being of Hong Kong people by ensuring the continuity of U.S. laws with respect to Hong Kong after its reversion to the People's Republic of China on July 1, 1997, and to outline circumstances under which the President of the United States could modify the application of U.S. law with respect to Hong Kong if the People's Republic of China fails to honor its commitments to give the Special Administrative Region of Hong Kong a high degree of autonomy.''
    It is in the U.S. national interest, the people's of Hong Kong interest and the national interest of the People's Republic of China that Hong Kong be allowed to retain its current autonomy. Only if Hong Kong is permitted to retain its autonomy will it continue to be the prosperous, efficient, free and dynamic place that has made Hong Kong what it is today.
    It is certainly becoming a cliche to say that Hong Kong is the goose that lays the golden egg, and it should be assumed that Beijing has no intention of killing the goose. Nevertheless, I believe that cliche is, for the most part, accurate.
    Despite the overwhelming attention to the important issues of the Legislative Council or civil rights in Hong Kong, American foreign policymakers must also be concerned about other transition issues which affect fundamental U.S. interest.
    For example, negotiations are currently underway between the United States and Hong Kong and the United States and China over a myriad of technical issues involving and including the extradition treaty, a bilateral investment treaty, a mutual legal assistance agreement, a prison transfer agreement, counselor functions and many other important issues. Moreover, we must be very careful to assure that Hong Kong continues to honor U.S. export control laws and regulations after the transition.
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    I believe that my Hong Kong Reversion Act will aid the Congress in wading through all the important issues in this complex transition by building on the Hong Kong Policy Act of 1992. It will require assessments and reports by the Secretary of State in very specific areas so the President can determine whether to maintain current U.S. law and policy involving Hong Kong.
    In addition, I am especially pleased to report that a team of specialists from the Library of Congress, led by Kerry Dumbaugh, has at my request just completed an excellent comprehensive report entitled Hong Kong's Reversion to China, Implications for the United States.
    This excellent report will also greatly assist the Congress in this important task. Members have it at their desk, and I have authorized the Congressional Research Service to release it today. It is an extraordinarily fine document. There are two to three pages of the report that were classified, and I will tell Members that those classified pages will be available to them at their request.
    Today we are very fortunate to have a distinguished group of witnesses to aid this subcommittee in its important oversight tasks, which I have just described.
    From the Department of State, we are honored to have Mr. Jeffrey Bader, the Deputy Assistant Secretary of State for East Asian and Pacific Affairs. Mr. Bader has held numerous posts at the State Department during his 21 years of service. Most relevant for our purposes today, he was Deputy Principal Officer at the Consulate General in Hong Kong from 1992 to 1995 and the Director of the Office of Chinese and Mongolian Affairs.
    In addition, we are very pleased to have the Honorable Richard Thornburgh, Professor Michael Oksenberg, and Mr. Timothy McKenna.
    The Honorable Richard Thornburgh is counsel at Kirkpatrick & Lockhart. He has a long distinguished career in public service as Governor of Pennsylvania, Attorney General of the United States, and Under Secretary General of the United Nations. Mr. Thornburgh's expert knowledge in the area of rule of law in emerging democracies provides a very valuable insight into one very important aspect of Hong Kong's governance and society.
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    I am very pleased the Minority selected Richard Thornburgh as their witness today. It is a good start. He is the founding member of the U.S. Committee for Hong Kong and led a delegation of the International Republican Institute to Hong Kong in 1994 to conduct a study of the rule of law in Hong Kong, guarantees for its legal system and under the Joint Declaration.
    Professor Michael Oksenberg is a senior fellow at the Asia-Pacific Research Center at Stanford University. In addition to being a prolific writer and expert commentator on Sino-American relations, Professor Michael Oksenberg formerly served as senior staff member of the National Security Council from 1977 to 1980, and he was the head of the East-West Center in Honolulu and served us very well in that capacity and testified a number of times.
    Mr. Timothy McKenna is the president of Kerry Securities of America where he provides brokerage services to U.S. institutional clients investing in Asia-Pacific equity markets. Mr. McKenna has 10 years of experience in Asia, also working in the financial service industry.
    I would now turn to our Ranking Member for his statement. I will let him make his statement as soon as he arrives.
    Is there any Democrat who wishes to say something as we begin this session?
    [No response.]
    Mr. BEREUTER. Thank you, gentlemen. We will reserve that right then for Mr. Berman when he comes.
    Mr. Bader.
    Mr. MANZULLO. Mr. Chair.
    Mr. BEREUTER. Mr. Manzullo.
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    Mr. MANZULLO. Please have a seat. I have to leave here in a few minutes. The Small Business Committee is organizing, and I am the Small Business Subcommittee Chair.
    Mr. BEREUTER. I will recognize you for an opening statement, sir.
    Mr. MANZULLO. I just want to apologize in advance for not being here when you give your testimony, but I want you to know that I will be reading it and digesting it.
    I see in the initial report here from CRS that this looks fantastic, and we are going to make sure that this and many of the speeches here are distributed to some of the colleges back home and many of the industries that are involved in exporting to Hong Kong.
    Thank you.
    Mr. BEREUTER. Thank you very much.
    Mr. MARTINEZ. Mr. Chairman, I have the same problem. I have a markup in the Committee on Education and the Workforce in just a few moments.
    Mr. BEREUTER. I will recognize the gentleman if he has an opening statement.
    Mr. MARTINEZ. I just wanted to say I am very interested in what is going on here in the testimony. I was in Hong Kong some time ago when the initial concern about the transition occurred.
    We met with a council there, and I forget the exact name of it, but it is one of the councils that have met more recently with Members that have traveled to Hong Kong. Their assurance was that the transition would go smoothly, but even when you talk with them about it it did not seem like they really and truly believed that and that they were as anxious about what would happen as we were.
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    I am very interested in what is going to take place here. I do have a staff person here who will be recording what is going on and get back to me with that information because I think it is something that we are going to have to face on July 1, and it is going to be very important to us in our trade and the rest of the world.
    Thank you.
    Mr. BEREUTER. Thank you very much.
    Secretary Bader, we look forward to your testimony. We would ask you to try to summarize your statement in 8 or 10 minutes. It is a very important, and its entire contents will, without objection, be made a part of the record.
    You may proceed as you wish.
    Mr. BADER. Thank you, Mr. Chairman. I do have a comprehensive statement, and I do intend to excerpt it and go through it rather quickly.
    Mr. Chairman, in less than 140 days, Hong Kong will revert from British to Chinese sovereignty. It is an opportune time to review Hong Kong's progress toward reversion and its implications for the United States.
    With a land area of only 420 square miles and a population of just 6.3 million, Hong Kong has become the world's eighth largest trading economy and a leading international financial center. Over the past two decades, the Hong Kong economy has more than quadrupled, and its per capita gross domestic product has tripled to about $26,000. Unemployment at the end of last year was only 2.6 percent. Regular budget surpluses have produced a secure fiscal environment, and Hong Kong has accumulated over $63 billion in foreign exchange reserves.
    Hong Kong has one of the most liberal trade and investment regimes. For the third year in a row, the Heritage Foundation has rated Hong Kong as the freest economy in the world. Hong Kong people live and work within a strong framework of law and justice without economic, social or political repression. The rule of law is well established, and freedom of expression is effectively guaranteed.
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    Hong Kong's intended status after reversion is spelled out in two important documents, the 1984 Sino-British Joint Declaration and the 1990 Basic Law promulgated by the People's Republic of China. Together, these documents are China's promise that although sovereignty will change, Hong Kong's way of life will not.
    According to the Joint Declaration, Hong Kong will retain a high degree of autonomy in all matters except foreign affairs and defense. The social and economic systems, lifestyle, and rights and freedoms enjoyed by the Hong Kong people in the post-July Hong Kong Special Administrative Region will remain unchanged for at least 50 years.
    The Basic Law says that the PRC socialist system and policies will not be extended to the territory. The Joint Declaration established a framework, along with the Basic Law, that can, if honored and effectively implemented, help assure that Hong Kong remains the vibrant and attractive place it is today.
    I then go on in my testimony to describe the important series of commitments that China has undertaken. I will skip those here in the interest of time.
    The key questions, of course, are whether China will honor this impressive set of commitments and how it implements them. The people of Hong Kong will make their own decisions about their own future, based in large measure on whether Hong Kong remains the kind of place to live and work it has been or whether it changes for the worse. For this reason, clear, positive signals from Beijing of its commitment to the letter and spirit of the Joint Declaration are essential to ensure Hong Kong's stability and prosperity.
    China's statements and actions to date have reflected a recognition that Hong Kong's future prosperity and preservation of its dynamic capitalist system are important. As China has become Hong Kong's largest investor and set up numerous companies in Hong Kong, it has increased its commitment to the success of the economic system.
    China has also taken a number of encouraging steps outside the economic area. For example, in 1995 Britain and China agreed upon, and the Hong Kong legislature approved, arrangements for a Court of Final Appeal in Hong Kong.
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    Also, after initial anxiety, expanded and productive contact between Hong Kong civil servants and Beijing now appear to promote confidence and mutual trust. Chief Secretary Anson Chan's decision to remain in her position after reversion is a particularly encouraging indication of continuity in this area.
    Unfortunately, Beijing has evinced less understanding of the need to provide Hong Kong with the same high degree of autonomy in the political area. Its approach to the Legislative Council, or Legco, has been particularly troubling.
    Briefly, the history. China and the United Kingdom failed to reach agreement on an election law to choose the 1995 Legco. Subsequently, in 1994, the Hong Kong legislature enacted an electoral reform law proposed by Governor Patten. China subsequently rejected this law.
    In December of last year, a 60-seat provisional Legislative Council was named by a 400-person selection committee, which is a group of Hong Kong residents appointed last year by Beijing's advisory Preparatory Committee. On July 1, the provisional legislature will replace the Legco elected in 1995 and will serve for no more than a year when a new Legco will be elected based on a new election law not yet passed.
    China's creation of a provisional legislature raises serious concerns. We have strongly supported the development of open, accountable and democratic institutions in Hong Kong and believe that Hong Kong's electoral reforms were a worthy step toward a fully elected legislative body. We have made clear our belief that China's decision to replace the current elected Legco was both unjustified and unnecessary.
    The provisional legislature obviously does not reflect the will of the Hong Kong people. We will watch closely to see what action it takes and how long it lasts. We hope its duration will be brief and the scope of its activity limited.
    In other statements or actions on political matters, Beijing has shown insensitivity to the way in which Hong Kong works and the wishes of its residents. For example, the Preparatory Committee's recent recommendation to repeal selected portions of Hong Kong's 1991 Bill of Rights Ordinance fueled widespread concern in Hong Kong and abroad that Hong Kong's civil liberties and individual freedoms will be restricted after reversion.
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    Freedom of expression and of the media will provide another indication of China's intentions. Hong Kong has enjoyed a tradition of free speech. Recent statements by PRC officials raise questions about whether Beijing understands what freedom of speech really means.
    On a positive note, I would add that we welcomed the recent release of Hong Kong journalist Xi Yang by Beijing. Xi Yang's 1994 imprisonment in China for reporting activities had been a matter of special concern in Hong Kong.
    U.S. interests. The United States has a significant interest in Hong Kong's successful transition. Hong Kong is our thirteenth largest trading partner. Our exports to Hong Kong total over $14 billion. Our two-way trade is over $24 billion. U.S. companies have almost $14 billion invested in Hong Kong. Some 1,100 resident U.S. firms employ 250,000 Hong Kong workers. About 36,000 American citizens live and work in Hong Kong. U.S. Navy ships visit Hong Kong at the rate of 60 to 80 port calls per year.
    Cooperation between the Hong Kong Government and U.S. law enforcement agencies make a real difference in our efforts to combat organized crime, drug trafficking, alien smuggling, and counterfeiting.
    Let me review briefly the basis of our policy and how we implement it. The Clinton Administration strongly supports the Joint Declaration. Also, the U.S.-Hong Kong Policy Act establishes domestic legal authority to treat Hong Kong as an entity distinct from the PRC after reversion.
    We will implement our policy, and have been doing so, through a regular dialog with leaders in Beijing, London and Hong Kong to provide our perspective on the transition process. We speak clearly about the factors that will keep Hong Kong the attractive and prosperous place it is today. Our public and private comments reiterate the themes key to Hong Kong's continued autonomy.
    We promote a framework of bilateral and multilateral agreements that support Hong Kong's autonomy. The United States and Hong Kong have signed an extradition agreement. We have initialed an air services agreement, a prisoner transfer agreement and a mutual legal assistance agreement with Hong Kong. We expect to conclude negotiations with Hong Kong on a bilateral investment treaty shortly, and we have expanded our law enforcement presence in Hong Kong by adding additional FBI and INS officers and by opening an office of the U.S. Secret Service last year.
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    We intend to continue to grant Hong Kong a separate textile quota. We also plan to maintain a separate export control regime with Hong Kong, providing it preserves the same effective controls over sensitive technologies in the future as it does now.
    High level visits in both directions are another way to underscore the importance of Hong Kong to U.S. interests. We welcome frequent visits to Hong Kong by Administration and congressional officials.
    I know that you in your statement, Mr. Chairman, referred to a number of recent congressional visits to Hong Kong. We are especially pleased that so many of you visited Hong Kong during the recent recess. I can say from personal experience having served in Hong Kong how valuable these congressional visits are.
    Above all, Hong Kong is a place people go to do business. The U.S. Government is far from the only important player that can influence Hong Kong's future stability and prosperity. The decisions and behavior of thousands of private companies and individuals from the United States and elsewhere will be at least as important in determining the Hong Kong of the future.
    One other factor. There may be no external, non-economic factor more important to Hong Kong's future than the state of U.S.-China relations. Hong Kong is often described as a bridge between East and West. When there is turbulence or instability on either side of the bridge or if the two sides move further apart, the bridge suffers.
    When missiles are lobbed over the Taiwan Strait or whenever the recurring MFN debate approaches, the anxiety level in Hong Kong rises markedly. This does not mean, of course, that we will not speak out or will not act to advance our interests in our relationship with China or our values. It is simply a statement of fact.
    Hong Kong's transition is a work in process that will play out over many years. On the one hand, the transition is proceeding better than most observers forecast when the Joint Declaration was signed in 1984 or after the military assault on Tiananmen Square in 1989. On both occasions, many predicted that massive emigration and capital flight would occur. Neither has. On the other hand, Beijing has made several moves or statements that could undercut Hong Kong's high degree of autonomy or its way of life.
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    Hong Kong's economy remains healthy and strong. The stock market and property values are at record highs. Hong Kong is not a city gripped by violence, panic or corruption, and emigration from Hong Kong has actually decreased over the past several years.
    In the end, the keys to Hong Kong's successful transition lie primarily in Hong Kong and Beijing. I would disagree with those who would discount the ability or will of the Hong Kong people to play a strong role in determining their future, but it is also critical that Beijing adhere to its commitment to preserve Hong Kong's high degree of autonomy.
    Beijing has compelling reasons to live up to its commitments. No country has benefited more from Hong Kong's success than China itself. Hong Kong is China's largest trading partner. Sixty-five percent of foreign investment in China now comes from or through Hong Kong.
    China relies on Hong Kong's easy access to investment capital, sophisticated financial, technical and legal expertise, and entrepreneurial skills to fuel its own economic growth. Thus, Beijing has a real interest in making its stewardship of Hong Kong a success. The issue is whether it understands what is needed to do so or whether a slow erosion of Hong Kong's vitality and autonomy will result from ill-advised actions.
    The United States will continue to support efforts to preserve Hong Kong's way of life through the change in sovereignty and beyond. The U.S.-Hong Kong Policy Act is designed to do just that. We believe that China, as the United States and Hong Kong itself, has an interest in Hong Kong remaining an open, prosperous and vibrant society. Such a future for Hong Kong is certainly our goal and one we will work for.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Bader appears in the appendix.]
    Mr. BEREUTER. Deputy Assistant Secretary Bader, thank you very much for your excellent statement.
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    We will now go to Members' questions. We will alternate on both sides of the aisle in accordance with the time that the Members appeared or were here at the beginning of the session.
    I would begin then by noting that it is often said that the leaders in Beijing are more willing to adjust their policies if they are approached quietly, but more difficult when they are publicly confronted. I am wondering if you would agree, and I would ask you two other questions.
    In what ways, if any, has Beijing been flexible in dealing with the transition issue, and I also would like to have any candid comments you would have with respect to the Hong Kong Reversion Act, which I intend to introduce today.
    I would say parenthetically that the input we received from the State Department was extremely helpful. You had a short period of time in which to provide that input, so I appreciate your special effort.
    Secretary Bader, if you would attempt to answer those questions?
    Mr. BADER. Yes, Mr. Chairman. First on the question of approaching Beijing quietly, I certainly agree with your point that when one is engaged in public shouting matches with Beijing, there is much more of a tendency for Beijing to dig in its heels.
    China is in the midst of a succession. The 15th Party Congress is coming up this fall. Nationalism has been on the increase in China. When one spells out publicly in strident terms what one expects or demands of them, one can look forward to a rebuff.
    That does not mean that one does not state one's values and one's interests clearly and unequivocally in public, but I certainly agree that the diplomatic track can sometimes accomplish things if there is a certain appropriate tone in our public comments.
    Second, has Beijing been flexible in some respects on the transition? I would say that one can roughly divide their approach into two areas, the economic area and the political area.
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    I think on the economic side, Beijing very clearly understands its stake in the future of Hong Kong and Hong Kong's role in China's own development. Your statements and my statements illustrate that with various statistics about trade and investments.
    The linkages between Hong Kong and China have grown enormously in the last 20 years, and China well understands its dependence for development on Hong Kong, so in terms of Hong Kong's future economic autonomy we have seen flexibility. They have reached agreement, for example, on the airport project, a $21-billion project, on the financing terms. I allude in my statement to the agreement on the Court of Final Appeal.
    The Joint Declaration in itself is a document, I think, of extraordinary flexibility. The terms of the Joint Declaration, as your statement pointed out, go well beyond China's requirements under international law and, if implemented, would, I think, represent an action of remarkable flexibility.
    On the political side, as I indicated, we have seen less flexibility. The way they have handled the Legco and the Bill of Rights indicates that China is motivated on the political side, I think, by continuing concerns of what happened in 1989 in China, and the million people in the streets of Hong Kong that demonstrated in support. The political situation has been more mixed.
    Finally, on the Hong Kong Reversion Act that you have introduced or that you are introducing today, we did see a draft in the last day or two. I would just like to say that from a quick reading of the Bill, and it has circulated through relevant offices in our building, our initial reaction is that it is a very constructive and very positive piece of legislation.
    I think it reinforces the objectives of the U.S.-Hong Kong Policy Act. It is entirely consistent with our objectives, our policy and our approach. Naturally, there will be elements in it on which the Administration might have a slightly different approach. I would just mention one briefly, the question of whether or not there has been a breach of the Joint Declaration and whether the United States should take a position on that in the establishment of the provisional Legco.
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    We look forward to working with staff in discussing the language of the Bill. We have had excellent relations with your staff on other matters and look forward to doing so on this.
    Mr. BEREUTER. Thank you very much.
    I will turn to Mr. Capps for his initial questions as a Member of the Committee.
    Mr. CAPPS. Thank you very much. Not only my initial questions, but it is my initial time on the Committee. I am a freshman here, and I am very honored to be part of this. I very much appreciate the way the Chairman is conducting this inquiry.
    I have not been to Hong Kong, but I have just recently returned from Beijing where there was a lot of interest in Hong Kong, a lot of talk about Hong Kong. I had an opportunity to meet with some of the officials of the PRC and discuss this matter with them.
    I was born and raised in Nebraska, and I now live in California. I have an optimistic disposition about all of this. I think I understand the concern about the transition and the apprehension and the fear. Clearly, we want the transition to go well, and we are going to be monitoring it very, very carefully.
    I picked up a hint of something else there, and that was the fascination on the part of the Chinese people with Hong Kong and the great respect I think they have for market economy and for the way it is working. There was even from time to time talk that Hong Kong would not only perhaps create some greater stability in China, but to be part of an ongoing dream for the Chinese people that it might solve a number of their problems and a number of their challenges. I picked this up particularly among the students with whom I spent a couple of weeks at Peking University.
    I know this is just partial evidence, but my question is, could one develop the thesis that the presence and power of Hong Kong will encourage an accelerated democratization of the People's Republic of China?
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    Mr. BADER. That is an excellent and a fascinating question, Congressman. The things you heard from the students do represent the feelings and the wishes of many people in China.
    I think if you talk to Chinese leaders about this thesis of whether or not Hong Kong will help transform and liberalize China, you might get a different perspective. They might have a similar conclusion, but they might not be quite so positive about the prospect.
    I think that if one looks at what has happened in China in the last 20 years since Deng Xiaoping opened up China to the West, you have had a massive transformation in what China is like across the board with values from the outside world penetrating China, along with trade. Most of those values and ideas have most effectively penetrated China with a Chinese face from Hong Kong, from Taiwan. That is in fact what has been going on, and I have no reason to believe that will not continue to go on.
    China, however, has created a ''one-country, two-systems'' framework with the hope of limiting the degree of interaction on the political side between these two systems. The phenomenon you are describing I have no doubt will continue. There will be mixed reactions to it, depending on who you talk to on the Chinese side.
    Mr. BEREUTER. Thank you very much.
    I turn now to another gentleman from California, Mr. Kim.
    Mr. KIM. Thank you, Mr. Chairman. Before I proceed with my question, I would like to ask for unanimous consent that my written statement be included as official opening comments.
    Mr. BEREUTER. Without objection, that will be the Order.
    Mr. KIM. Thank you, Mr. Chairman.
    I do have a couple of questions for you, Mr. Bader. The first question is concerning this ''one-country, two-systems'' principle. Obviously there are such drastic differences in these two countries. China is known as a very closed society. Hong Kong is wide open and enjoys freedom of press and business. It is almost like one country within another country. It is a totally different system.
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    This is certainly a challenging role model to me. For that reason, a lot of us have skepticism. For example, a couple of weeks ago there were articles in numerous newspapers claiming that China had already begun to curtail or challenge the existing civil rights law which guarantees individual rights. They were already challenging this Bill of Rights, so to speak. That is a big concern. What guarantee is there that the basic, traditionally-enjoyed Bill of Rights will be protected?
    Now, at the same time I understand the Hong Kong stock market is strong, and their economic future seems to be solid. Why is that? Is there any historical basis for this strong economic confidence? That is my first concern.
    My second is the C. H. Tung provisional government. I understand they will be eventually recognized by the PRC as a provisional council, but then what assurance do we have that he might not eventually align with the PRC and begin to recognize PRC's concern and begin to eliminate certain civil rights and civil liberties in Hong Kong?
    Is there any guarantee that he would not do that when his government assumes power and proceeds perhaps to drag its feet in setting a time line for the free elections to select members of a new legislature? That is a possibility. What kind of assurances do we have from the Tung Government at this time? What makes us sure that he will not change his mind as time goes by?
    Those are the two concerns and questions I have, Mr. Bader.
    Mr. BADER. I have jotted down several questions here, Congressman Kim. I will try to answer all of them. If I fail, please remind me which ones I have missed.
    The first question is what guarantees do we have that civil liberties will be protected? What guarantees do we have that C. H. Tung and the Hong Kong Government will not limit civil liberties?
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    There is an old Chinese saying, Congressman, that it is dangerous to make predictions, especially about the future. I think I will heed that for the most part, but the guarantees we have are basically the Joint Declaration. What guarantees do we have that China will live up to the Joint Declaration? China's self-interest. China's enlightened self-interest.
    China wants to make this system work. The Chairman's statement and my statement emphasize the stake that China has. If it does not work, China will be the principal party that suffers. The guarantees are written down in the Joint Declaration and Basic Law. Of course, the devil will be in the details and the implementation.
    Some of the signs thus far have not been encouraging. I think the only thing I would point out is I do not think that one should overreact to one or two headlines.
    The two major problem areas we have seen so far are the Bill of Rights and the provisional Legco. Those, of course, were very much caught up in UK-PRC battling over other issues. Those, nonetheless, were very troubling steps that the People's Republic of China took.
    The stock market. Why is the stock market so strong? I think that the business community generally believes that the Joint Declaration is going to work, that the ''one-country, two-systems'' will work. Capital is not fleeing. The degree of interdependence between the Hong Kong and Chinese economy is enormous. The business community generally believes the system is going to work.
    Will China and the Hong Kong SAR drag their feet on the election of Legco? Well, the Hong Kong Government and the PRC have announced that a new Legco will be elected within 1 year. We would like to see it elected much faster than that, and they are on the public record with that 1 year deadline. As I say, we hope they will do better.
    Mr. BEREUTER. Thank you very much.
    Gentlemen, I need to recognize in our committee tradition a Democrat next, even though you may have appeared first.
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    The gentleman from Florida, Mr. Wexler, is recognized for his first questions before the Committee.
    Mr. WEXLER. I just have one question. I represent a district in southeastern Florida which encompasses a great bulk of Palm Beach County. A number of people, principals in investment firms who represent people who have sizable investments or interests in Hong Kong, have expressed a concern regarding the stability of the currency in Hong Kong subsequent to the changeover.
    I was wondering if you might comment as to what your thoughts are with respect to the currency?
    Mr. BADER. I am going to give that a try, Congressman. I know if we were commenting on the U.S. currency only Mr. Greenspan could comment, but I suppose I am free to comment on the stability of a foreign currency.
    The Chinese have stated that the Hong Kong dollar will continue to be freely convertible after 1997. The Bank of China has become one of the three issuing authorities of the Hong Kong dollar, indicating China's own commitment to the stability of the currency.
    Hong Kong has $63 billion in foreign reserves backing up its currency. It is, I think, maybe the third largest total of foreign reserves of any place in the world. There has not been any flight away from the Hong Kong dollar. I think Hong Kong dollar-denominated deposits have, in fact, been increasing in recent months.
    If one looks just at the trends of the last couple of years, there is ample ground for confidence. I would not want to make recommendations on investments. I would leave that to the private sector, but certain indications from the last 2 years are very positive in that regard.
    One other point I would mention in that regard, Congressman, is, of course, China's own investments in Hong Kong. I have seen estimates of up to $50 billion of Chinese investments in Hong Kong. One would think that if China's intentions were to try to destabilize Hong Kong and the Hong Kong dollar that they would not be pumping that kind of capital into Hong Kong, which would then be subject to depreciation as a result of ill-advised actions.
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    Mr. BEREUTER. Secretary Bader, thank you very much.
    Chairman Greenspan is appearing before the Banking Committee where I serve today, and I understood your remarks very clearly.
    Mr. BEREUTER. The gentleman from Arizona, Mr. Salmon, is recognized.
    Mr. SALMON. Thanks, Mr. Bereuter.
    I was fortunate enough within the last month to be able to visit China and Hong Kong; Hong Kong for the second time, China for the first time. While I lived in Taiwan for a couple of years during the 1970's, I never really did get an opportunity to brave the waters and visit mainland China during that time.
    I believe that our policy regarding the reversion of Hong Kong is simply a microcosm of our broader China policy, and I have a few questions. No. 1, I know that there is a new Secretary of State, but I would like to understand whether or not the policy, or at least the delineation of the overall policy, has changed somewhat.
    Under Warren Christopher, according to him, the policy was ''strategic ambiguity'' with China. I am wondering under Secretary Albright if that policy has been given a new, maybe more pleasant-sounding name, and what exactly does that mean to us in our relationship with China?
    Representative Kim asked several questions regarding what assurance do we have, and I think that when the dust all clears, we have reassurance. We have the Joint Declaration, which is really probably as good as the paper it is written on.
    I understand that we have to have somewhat a degree of trust, and I would hope that the kind of trust that we have is the Reaganesque kind of ''trust, but verify'' with China, that we believe them and take them at face value, but that we are not suckers in the process as well because in the final analysis, as we saw with the missiles being lobbed in the Taiwan Strait, with the situation with human rights, problems with intellectual property rights in China, nuclear non-proliferation, and I could go on and on and on, we do not control or dictate to their people or to their government exactly what policies they pursue. I think that should be painfully obvious to the American people by now.
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    I understand, as you do, that the Chinese Government has the most to lose with an unsuccessful transition with Hong Kong. No. 1, they understand that the whole world is watching. I believe in my heart that they want to be perceived as a responsible superpower. That is how they would like the world to think of them at large.
    I also believe that they know that Taiwan is watching very closely and understand that if a peaceful reunification is one day to occur, then absolutely the Hong Kong transition must be a smooth one or that probably will be delayed, if not forestalled completely.
    With that understanding, knowing that the Chinese probably understand how important it is for them to have a smooth transition, and they want that—I believe they do—they also have on the other side this control aspect.
    During the Tiananmen Square incident, they exhibited, I think, a policy that they are willing to sacrifice all else for control. They do not want to look like a bunch of pushovers to the Chinese people and to senior military leaders. Otherwise they lose their power. They lose their control. They have this dichotomous goal of wanting to look like responsible leaders, but at the same time not looking like pushovers. It is a very fine line for them to walk.
    I get frustrated because here in Congress the only stick we ever seem to even talk about using is the tired, old stick of MFN. When we were in China this time, obviously that question came up. Congressman Kolbe was there a couple of weeks before I was there, and he made the comment when asked by Chinese leaders and the Chinese press whether or not permanent MFN was likely this year.
    We are still in a wait-and-see mode as to what is going to happen to Hong Kong before we try to even pursue a permanent MFN. We have the WTO. We have all kinds of mechanisms. Why is it that we always get bogged down on using the trump card?
    Could you talk just a little bit about some of the other tools at our disposal for more effectively communicating our values, our desires, and really, really engaging and, finally, when is the President going to visit?
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    Thank you.
    Mr. BEREUTER. Secretary Bader, as you finish your note list there, you are welcome to respond. We look forward to that.
    Mr. BADER. All right. First, has our policy changed since Secretary Albright took over with regard to so-called ''constructive ambiguity?''
    Congressman, I first heard that term, and I last heard that term, during the tensions in the Taiwan Strait. It was a phrase used by a reasonably senior Administration official. I cannot remember the context, and the context may well have been a seminar.
    It was not meant to be, I think, a clarion call. It was a descriptive term, and it is obviously not a clarion call. This is not a term we have been using since, and it was a term that was used in a specific context.
    Your comments about ''trust, but verify''; I could not agree more. We cannot just assume that the Joint Declaration is going to be implemented. I think our verification procedures are spelled out in the U.S.-Hong Kong Policy Act. We are obligated to report on the degree to which China is fulfilling its obligations under the Joint Declaration. There are specific requirements spelled out in that Act.
    We have a Consulate General that will be producing a report in late March that will be coming up to the Committee. It will do so every year. There are consequences envisioned under that law if it turns out that the high degree of autonomy is not occurring.
    I note your reference to Congressman Kolbe's comment during the visit. I certainly know that comment was interesting. Without attempting to either associate or disassociate myself with that particular point, I think that the general point that the Congressman was making was absolutely right.
    There is no stronger friend of the development of U.S.-China relations than Congressman Kolbe. He was simply pointing to a political reality that the Congress and the Administration are closely watching the unfolding of the situation in Hong Kong. He has singled out one thing, namely permanent MFN, but I think he was doing that for illustrative reasons. He was saying that the Congress and the Administration look forward to improvements in U.S.-China relations over the next couple of years.
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    President Clinton was up here the other day talking about his intended trip to China. If we are to be able to make the kinds of improvements that we want and that we envision, we can do so only in a certain kind of political climate. If that climate is right, we can do it. If it is not, we cannot. Hong Kong is a big factor in that climate, I think is what Congressman Kolbe was saying, and I think he is certainly right.
    What other tools do we have? I guess as I was saying at the outset, I do not think, and I do not think you would endorse, spelling out specific retaliatory steps we would take if things went sour. I spelled out in my statement the basic elements of the kind of policy we would like to pursue. I look forward to reading the CRS report that the Chairman mentioned.
    I also saw a report from the Heritage Foundation recently which spelled out the steps that they think we should be taking. If I could just read the headlines of that very quickly, because I thought it was really an excellent report, and it shows that we have the makings of a bipartisan approach.
    What the Heritage Foundation calls for, No. 1, is be aware of the impact that U.S. policy toward China has on Hong Kong. No. 2, articulate U.S. interests in Hong Kong to leaders in China. These interests are communicated best through frequent face-to-face interaction between leaders of the United States and China at the highest levels.
    No. 3, maintain a strong U.S. presence in Hong Kong. No. 4, strongly urge Beijing to allow the current democratically elected Legco to serve out its term. If it does not, urge elections as soon as possible. No. 5, support Hong Kong's continued participation in international organizations.
    No. 6, urge Beijing to sign international human rights covenants. No. 7, closely cooperate with the Hong Kong SAR in fighting drug trafficking, money laundering, alien smuggling and commercial piracy. These are the exact same elements that we think should be in a sound and proper policy.
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    Finally, when is the President going to visit? I think I am not going to make that headline today. I think that the White House would probably find a new Deputy Assistant Secretary of State if I did. The short answer is the decision is not yet made, Congressman.
    Mr. BEREUTER. Secretary Bader, thank you very much for your responses to our questions and for your testimony. We look forward to working with the Department on this important and sensitive issue.
    Before you go, I wanted to mention the Consulate General we have in Hong Kong. You mentioned that it is a large one and a very important one. It has a broad array of agencies represented in it. From my observations, I would say that I think it is an excellent group of Americans representing us there.
    I think that our career foreign service officer, Richard Boucher, who is the Consul General, who has had good experience in the sensitive role as spokesperson for the Department and as our ambassador to troubled Cyprus, is giving it excellent leadership and has the right kind of experience to do a good job in a sensitive and difficult position.
    My compliments to the array of people that you have there from the various agencies in our mission.
    Mr. BADER. Thank you, Mr. Chairman. We appreciate those comments about Ambassador Boucher, and we will certainly see he hears them.
    Mr. BEREUTER. Thank you very much. Any written statements from the Members will, of course, be forwarded to the State Department.
    I would like now to call the second panel, three distinguished witnesses, and I want to thank these gentlemen for taking the time and coming at their own expense to testify before the Committee today.
    I consider their testimony to be very important, and I am glad we have what appears to be, despite controversial subjects on the floor, adequate time in which to give them a full opportunity for presentations and questions to them from the Members. I have already introduced the three members of the panel with a short element of biographical detail, so I will not repeat that.
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    Gentlemen, your entire statements will be made a part of the record. I would ask that each of you, if possible, summarize in approximately 8 to 10 minutes. We will begin as listed with Governor Thornburgh.
    Governor Thornburgh, you may proceed as you wish.
STATEMENT OF THE HONORABLE DICK THORNBURGH, COUNSEL, KIRKPATRICK & LOCKHART, L.L.P., FORMER ATTORNEY GENERAL OF THE UNITED STATES     Mr. THORNBURGH. Good morning, Mr. Chairman, Members of the Subcommittee. Thank you for giving us a chance to appear this morning on an issue where we have reached and passed the 2-minute warning in the countdown to July 1, 1997.
    I have submitted to the Committee my statement in full and will summarize that in my testimony. As is evident from my statement, my prime concern is with the future of the rule of law in Hong Kong.
    Parenthetically as a devotee of the rule of law and in recognition of the Truth in Testimony law which the Congress has passed, I would like to state for the record that I have not received any Federal grants for consulting on the reversion to Hong Kong. I trust that keeps my skirts clean with you and your colleagues, Mr. Chairman.
    Mr. BEREUTER. Thank you, Governor. That is the first time we have heard this under the new rules.
    Mr. THORNBURGH. I thought maybe we could set a new record today.
    I do appear, however, as a founding member of the U.S. Committee for Hong Kong, a committee in formation of a bipartisan nature which is designed to support the guarantees made to the people of Hong Kong. We will be closely monitoring the ongoing activities in that area.
    My first encounter with Hong Kong was in 1980, the year after normalization of relations between the United States and China, when as Governor of Pennsylvania I led a trade mission to the Far East, and, most recently, in 1994 I served as the chairman of a study group of the International Republican Institute, a part of the effort to monitor the status of the rule of law, the legal system in Hong Kong and the prospects for post 1997.
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    At that time, our report took note of what we perceived to be a steady erosion in those prospects. I regret to say I feel that erosion persists to this day. For the record, Mr. Chairman, I would offer a copy of the report of the International Republican Institute and urge your reference to it as part of the historical record leading up to today.
    Mr. BEREUTER. Without objection, that will be made a part of the Committee files.
    Mr. THORNBURGH. As has been pointed out, the Joint Declaration in 1984 promised a high degree of autonomy to Hong Kong in all but defense and foreign affairs and in effect guaranteed a continuation of Hong Kong's unique way of life for 50 years.
    Particular reference was made to the rule of law and its importance to the economy and society of Hong Kong, to the existence of an independent court system and an elected legislature, the rights and liberties of its citizens and a market economy, all of this under the rubric of what has already been referred to as Deng Xiaoping's characterization of an aspiration toward ''one-country, two-systems''.
    The first problem in the implementation of the Joint Declaration arose with the passage in 1990 by the People's Republic of China of the so-called Basic Law. The Basic Law in many of its particulars is at odds with the Joint Declaration. This was pointed out first in an important study by the International Commission of Jurists in 1992, finding in 15 particulars conflicts to exist between the Basic Law and the Joint Declaration.
    More recently, these conflicts have been summarized in a powerful article entitled ''The Last Days of Hong Kong,'' by Asian expert Ellen Bork in the Weekly Standard from which I quote to point out the particulars of these conflicts in three important areas.
    Ms. Bork noted, ''Where the Joint Declaration calls for an elected legislature, the Basic Law provides that only one-third of the legislature will be elected by July 1, 1997, and that no more than half its seats will ever be required to be filled by election.'' Of course, that statement has been overtaken by events.
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    She continues, ''Where the Joint Declaration says Hong Kong's courts will have the power of final adjudication, the Basic Law will be interpreted by the Standing Committee of the National People's Congress in Beijing.''
    ''Whereas the Joint Declaration says Hong Kong's legal system will not be changed, Article 23 of the Basic Law directs the Hong Kong legislature to pass laws prohibiting any act of treason, succession, sedition, subversion against the Central People's Government or theft of State secrets and against foreign political organizations conducting activities or establishing ties with Hong Kong political organizations.''
    These are examples of the kinds of conflicts that have been built in to the juxtaposition of the Basic Law on the Joint Declaration.
    More recently, in 1995, the effort to flesh out the Court of Final Appeal took liberties with the Declaration's guarantees with regard to the particularly important role for the independent court system in Hong Kong.
    With the acquiescence of the British Government, it undertook to limit the number of common law judges upon which the court has traditionally depended upon expatriate participation to one and also abrogated the guarantee of the independent selection process for judges by inserting the Chief Executive into that process for the first time and finally took note of the exemption from the legal system of acts of State and enumerating them by referring to such as those involving defense and foreign affairs and using them only as examples.
    December 21 of last year, however, saw the most serious incursion into the guarantees of the Joint Declaration when the new provisional legislature was chosen by the 400-member selection committee, which in turn was chosen by the 150-member reparatory committee, not precisely what the Joint Declaration had in mind with its guarantee of an elected legislature. This organization, as you may know, meets in Shenzen for fear of being subject to the current court system in Hong Kong for its illegal status.
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    Moreover, the Basic Law in Article 23, as I indicated, requires this legislature to pass laws regarding subversion, theft of State secrets and foreign ties of organizations within Hong Kong.
    The recent examples of Wang Dan and Xi Yang and the charges of the type raised against them for alleged subversion and violation of the State secrets law has sent a chill through the Hong Kong community, and concern has been racheted up about what kind of subversion and theft of State secrets laws would be passed.
    Finally, in terms of the abrogation of the Joint Declaration as the action of the Preparatory Committee on February 2 and its recommendations regarding the repeal of 25 existing ordinances in the present Hong Kong. In particular, three sections of the Bill of Rights ordinance should be focused on in particular.
    One relates to civil liberties and the attitude taken toward the international covenant on civil and political rights, which ironically was included and guaranteed as Article 39 of the Basic Law itself, now intended to be shelved by the provisions approved by the Preparatory Committee and awaiting final approval.
    Second was the repeal of five electoral laws adopted in Hong Kong, another step against the guarantee of an elected legislature and clearing the way for the provisional legislature to take whatever action it may see fit with regard to the guarantee of elections set forth in the Joint Declaration.
    Finally, the repeal of the Societies Ordinance and the Public Order Ordinance, in each case a partial repeal, but clearly impacting on the freedom of association, freedom of assembly, freedom of procession and demonstration, all of which adhering in a free democracy and guaranteed in Articles 27 and 39 of the Basic Law.
    In finality, the future of laws guaranteeing civil rights and civil liberties in Hong Kong has been clouded substantially by this action undertaken by the Preparatory Committee and promised by the provisional legislature.
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    As China has stepped up its attack on its commitment in the Joint Declaration, some of China's defenders, including members of the provisional legislature, have attempted to justify China's actions by the shortcomings of British colonial rule.
    Mr. Chairman, it is important to debunk that excuse once and for all. China's commitments in the Joint Declaration are clear and unambiguous. They were voluntarily undertaken in an international agreement registered at the United Nations. No alleged defect in British rule can be used to justify China's violations of its commitments.
    Efforts to excuse China's string of broken promises should be seen as what they are, a determination that Hong Kong's people are not entitled to democracy, the rule of law and human rights as they were promised in the Joint Declaration.
    Let me touch for a moment in closing on some comments with regard to U.S. policy. That policy was set forth by the Congress in the Hong Kong Policy Act of 1992 and calls for full implementation of the Joint Declaration to be accompanied by annual reports with respect to the status of activities undertaken with regard to Hong Kong.
    These reports have been disappointing. In 1995, the Congress itself cited deficiencies in the reports submitted under the Act and enacted specific reporting criteria requiring detailed information on the status of and other developments affecting implementation of the Sino-British Joint Declaration, including the Basic Law's consistency with the Joint Declaration, the treatment of political parties, the independence of the judiciary and the Bill of Rights.
    Despite these specific directives, the 1996 report failed to address the Basic Law's inconsistencies and other violations of the Joint Declaration. Subsequently, the Congress passed additional legislation requiring that the 1997 report specifically address China's appointment of a provisional legislature and the expected dissolution of the Legco.
    The 1997 report, due March 31, will be the last report required under the Act before reversion. I respectfully suggest to the Subcommittee that it consider holding a comprehensive hearing on this report in order to thoroughly examine not only the Joint Declaration's implementation, but also the State Department's treatment of the developments over the past year, including the appointment of the provisional legislature, the status of the Bill of Rights Ordinance and other laws affecting civil liberties and the treatment of political parties.
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    The Department of State should be put on notice in advance of this report that Congress expects a full and complete accounting of developments over the past year.
    The State Department's reports under the U.S.-Hong Kong Policy Act reflect, in my view, a much larger problem in U.S. policy toward Hong Kong. The United States claims that it cannot identify violations of the Joint Declaration because it is not a party to the Joint Declaration.
    The official Administration position is that the United States does not offer legal interpretations of agreements to which it is not a party and where the parties themselves have not stated their positions. The United States thus claims in effect that it cannot conclude that the Joint Declaration's provision for an elected legislature is violated by the appointment of a provisional legislature because Great Britain itself has not said so.
    It is true that Great Britain has not taken the step of calling the provisional legislature a violation of the Joint Declaration. Instead, Britain has attempted to pursue a kind of two-track policy opposing the provisional legislature on political grounds while refraining from drawing a legal conclusion about its inconsistency with the Joint Declaration.
    This, in my view, is a specious position which the United States must reject unequivocally. Great Britain's position, which is untenable in my view, is irrelevant. Support for the Joint Declaration is a matter of U.S. law. Even if the U.S. law did not link our policy to support of the Joint Declaration, U.S. policy toward Hong Kong should clearly be informed by China's compliance with the Joint Declaration.
    The Administration position toward Hong Kong is also shortsighted. U.S. interests in Hong Kong and Asia from trade to law enforcement will be directly affected by whether the Joint Declaration's broad guarantee of autonomy is respected by China. The concept of autonomy cannot be separated from the guarantees of an elected legislature, an independent judiciary and a capitalist economy. Any broken promise by China will make Hong Kong's autonomy itself more fragile.
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    As a former Attorney General and law enforcement official, Mr. Chairman, you may understand my particular concern about the efficacy of our ability to cooperate with the government of Hong Kong after July 1 in important areas relating to law enforcement. They have been touched upon in Secretary Bader's statement.
    One item of great concern that the people of Hong Kong share is the future of anti-corruption efforts carried out in Hong Kong. There are two things I think that have to be kept in mind here.
    One is that there currently exists in the Independent Commission Against Corruption one of the most effective anti-corruption mechanisms in the world in Hong Kong. The second is that that Commission will be subject to control by the People's Republic of China after July 1, 1997, and headlines all too frequently remind us of the epidemic problems of corruption within the PRC. I think that what carefully has to be monitored in particular is the future of the successor to the ICAC.
    The people of Hong Kong have expressed their allegiance to democracy and their belief in the principles of their civil rights and their civil liberties consistently since they have been given the right to vote and express themselves. They believe in the guarantees of the Joint Declaration, and their votes have been consistently for candidates that have supported democratic principles and the rule of law.
    I think it is terribly important that we pay particular attention to what the people of Hong Kong hold in the way of expectations of what this country establishes in the way of support for their aspirations. In particular, I would take note of the fact that at this time around the world there is a movement toward democracy, human rights and the rule of law which is unprecedented.
    This country stands as an exemplar of those principles, and it would be a tragedy if at this time when democracy and the rule of law are gaining ground around the world that Hong Kong's people, a great many of whom are refugees or descendants of refugees from repression, were to be denied the future that they were promised under the Joint Declaration in 1984.
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    The United States simply must stand up for the people of Hong Kong. As the strongest and most free nation in the world, our leadership is crucial. It is more than a matter of national interest. It is a matter of national honor.
    [The prepared statement of Mr. Thornburgh appears in the appendix.]

    Mr. BEREUTER. Governor Thornburgh, thank you for your strong, excellent statement.
    I noted your recommendation that the Committee hold hearings on the 1997 State Department report under the Hong Kong Policy Act. It sounds like a good recommendation that I would hope to implement.
    I would also mention that while the State Department does not feel that they can ascribe the word ''violation'' to what has taken place with respect to the Basic Law of 1984 since they are not a member, on Page 7, Subsection 5, I call it that, a violation.
    Dr. Oksenberg, we are happy to have your statement. Please proceed as you wish.
    Mr. OKSENBERG. Thank you for giving me this opportunity to share my views with you concerning American policy toward Hong Kong as its transfer from British to Chinese rule approaches. In compliance with House rules, I assure you that I receive no financial support from either the American or any foreign government. I have no financial interest in the topic before us. I am here strictly as a scholar.
    I express my admiration to the two preceding statements, one by an outstanding diplomat, Jeff Bader, and by a person who is a learned student of the law, Governor Thornburgh. My presentation is perhaps more from my own perspective as a student of Chinese politics and a student of Chinese foreign policy.
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    The United States has an interest in a tranquil transfer of power and in Hong Kong preserving a high degree of autonomy. The United States will be well served if China adheres to the ''one-country, two-systems'' formula after July 1 and Hong Kong is able to retain those qualities that have served it, China, the region and the United States so well through the years, a professional and apolitical civil service, the rule of law, the freedom of its populace to receive and disseminate information so crucial to the operation of a vibrant market economy, and a government capable of acting upon the interests of its citizens.
    Beijing bears a major responsibility in enabling Hong Kong to endure and thrive. I believe the top leaders in Beijing wish for Hong Kong to retain its special characteristics, but I am less certain that these leaders have the understanding, the will and the capacity to discipline their entire regime to this end.
    I am concerned that after July 1, various ministerial and provincial bureaucrats in the People's Republic will be unable to resist the temptation to interfere in Hong Kong's internal affairs and to make their presence felt in a heavy-handed or oppressive manner. They would thereby destroy the delicate equilibrium that has enabled Hong Kong to perform its remarkable role as a meeting place between East and West.
    On the other hand, if the transition goes well, China will have made a giant stride in its peaceful and constructive involvement in world affairs. The Hong Kong transition offers China the opportunity to demonstrate that it honors the commitments it has undertaken and behaves in a responsible fashion. It will have demonstrated that it can rule one of the world's great cities effectively. Its credibility will soar.
    Now let me turn to what I see as some of the underlying issues and the challenges ahead. As I have already indicated, considerable doubt exists that China will adhere to its commitments in the Joint Declaration of 1984 and the 1990 Basic Law. This doubt exists as to whether Hong Kong will in fact enjoy the autonomy that the ''one-country, two-systems'' formula implies.
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    The reason for the doubt is abundantly clear. The formula commits China's rulers to allow activities in Hong Kong that they do not permit in the rest of the People's Republic.
    During the 48 years of Communist party rule, Beijing's instinctive reaction to developments it does not like all too often has been to assert its authority and bring matters under control. Toleration of dissent is not among the leaders' virtues, and an inclination to suppress is among their vices. Adherence to the ''one-country, two-systems'' formula would be a bold departure in their style of rule.
    The transition to the new system is now underway. The construction of the new government of Hong Kong, the government of the Hong Kong Special Administrative Region under its Chief Executive, C. H. Tung, has begun. Selected in December, 1996, Mr. Tung emerged as Hong Kong's leader through a competitive and consultative, but not democratic, process. The process, orchestrated by Beijing, included many sectors of Hong Kong society, but other sectors either abstained or were pointedly excluded.
    The key question at present is whether Hong Kong will be a genuinely autonomous region. The early signs, in my opinion, are mixed. Both Mr. Bader and Mr. Thornburgh gave ample reasons for those signs being mixed, and I would add to the list that some in Beijing have sought to involve China's National People's Congress in the writing of specific laws that pertain to Hong Kong's domestic or internal governance.
    Beijing has been quite intrusive in the work of the Preparatory Committee and the provisional legislature. Beijing has intervened in the selection process of new officials. Beijing has seemed unwilling to allow the new government time to organize itself and to deliberate on its own basic issues of governance.
    But, there are many good signs. The leaders of China repeatedly have indicated their commitment to the 1984 and 1990 documents. Mr. Tung has made clear his desire to protect the integrity of the civil service.
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    The Chinese have indicated that their military forces to be stationed in Hong Kong will remain in the barracks. China's national police force, the People's Armed Police or wu-jing, will not have a presence in the territory. The burden of maintaining order will be solely the responsibility of the Hong Kong police force.
    At the working level, good relations now exist among those responsible for the transfer. Progress has been made in arrangements for the formal ceremonies at the handover. The Hong Kong stock market and public opinion polls certainly do not reflect a sense of panic.
    Let me share with you my thoughts as a scholar of Chinese politics and a private citizen about the real issues which will determine Hong Kong's political economy. What will I be looking for in the coming months as the indicators that the ''one-country, two-systems'' slogan will be a reality?
    If my testimony has any use at all, I think it is in the questions I pose in these following paragraphs:
    First, will the Chief Executive secure immediate and unfettered access to the highest rulers in Beijing without passing through intermediate bureaucrats? Will his immediate superiors within the Chinese political system be the President of the People's Republic of China, the Chairman of the National People's Congress and the Premier? Will he participate in those meetings in Beijing where the highest leaders consider issues affecting Hong Kong, or will he sit in the waiting room while China's top leaders decide the SAR's fate?
    Second, will the Chief Executive obtain a formal status in the Chinese system equal to his responsibility as the leader of a special autonomous region with 20 percent of the country's gross national product? Will he be accorded the rank of a National People's Congress Vice-Chairman or State Council Vice-Premier?
    Unless he is ranked higher than a provincial Governor or minister, officials at that level will disregard his entreaties when their minions intrude in Hong Kong. In short, by conferring very high status on the Chief Executive, the top leaders in Beijing will be signaling to others in the realm that he is truly an authoritative person.
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    Third, will the Chief Executive be the preeminent authority in the Hong Kong political landscape, and will he secure deference from the many mainland political figures who will be based in Hong Kong from the Ministry of Foreign Affairs, the New China News Agency, the Chinese Communist Party, the People's Liberation Army, the Bank of China and the China Resources? I am impressed by how many central government agencies already are represented in Hong Kong, and their number and size are growing. Maintaining Hong Kong's autonomy will require the Chief Executive and his administration establishing their preeminence among this constellation.
    Fourth, will the autonomy, political neutrality and professionalism of Hong Kong's civil service be maintained? Will recruitment and promotions continue to be based on merit and not political considerations?
    Fifth, will the Hong Kong branch of the Chinese Communist Party establish Party groups within government agencies, universities, schools, newspapers and enterprises led by a Party secretary that will intrude on the prerogatives of management? Will the Party intrude on personnel appointments? Will Party members begin to have leadership responsibilities over government departments as political appointees? These are major techniques through which the Communist Party leads government operations in China. Will the Party begin to install the same mechanisms in Hong Kong, thereby making a mockery of the slogan ''one-country, two-systems''? It will be ''one-country, one-system''.
    Sixth, will the Ministry of State Security and the Ministry of Public Security enlarge their presence in Hong Kong? I refer here to the covert Chinese intelligence and counter intelligence apparatus. These agencies are the principal organizations that engage in surveillance and intimidation activities on the mainland. Will some of their operations be lodged in the new Ministry of Foreign Affairs building under construction in the central business district of Hong Kong, as some knowledgeable Hong Kong citizens assert? Understandably, Beijing long ago established in Hong Kong a covert capability to detect operations aimed at the PRC. Will this apparatus, for example, now expand its surveillance over the journalist community or nurture a system of informance or engage in extensive phone tapping?
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    Seventh, will the new Hong Kong Government, as the colonial government before it, retain a robust, independent counter intelligence capability to monitor and discourage covert PRC actions that would create a chilling atmosphere of quiet fear and restraint?
    And eighth, what will happen to the democratic forces of Martin Lee and Sze-Tu Wah and the others and indeed the Democratic Party? Indeed, what at this point is their objective and strategy? Do they intend forever to abstain from and oppose the emerging system, or do they seek to be part of a loyal opposition to the Tung Administration? How and when can they become a part of the process? Will they accept the implicit bargain necessary for the ''one-country, two-systems'' formula to work, which I take to be that in exchange for China not interfering in Hong Kong politics, Hong Kong cannot and will not be used as a base for activities in China intended to subvert its political system? The participation of the Democratic forces in a dialog with the new Chief Executive that has now begun is a promising development.
    Note that all the questions I have raised are not even mentioned in the 1984 Joint Declaration or the 1990 Basic Law. Yet, in my opinion, these eight critical and complex issues will largely determine Hong Kong's long-run political fate.
    These matters of detail and procedure are now in the capable hands of the new Chief Executive, C. H. Tung, and his aides to negotiate with the authorities in Beijing and with the Hong Kong community. I would guess that all of these questions are well known to Mr. Tung. Many of them obviously are very sensitive, and the answers to some cannot even be openly revealed. They require private and personal understandings.
    To secure cooperation from China's leaders, Mr. Tung must also elicit their trust and confidence, but he must not lose the support of his own community in the process. I do not envy his delicate political task. Mr. Tung merits support and confidence as he embarks on his task. American hectoring of his effort can only prove counterproductive.
    If the leaders in Beijing and the Democratic Party in Hong Kong permit, assist and encourage Mr. Tung and the SAR government to carve out a sphere of autonomy and establish their authority, then the new government will be able to maintain the rule of law and an independent judiciary, create a democratically elected Legislative Council in 1998, protect the freedom of access and dissemination of information, more generally to defend freedom of speech and religion, sustain the international nature of Hong Kong's cultural and social life, protect the value of the Hong Kong dollar and sustain the fragile arrangements that enable the market economy to flourish.
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    If Mr. Tung does not secure his status in Beijing and Hong Kong and if the Communist Party, the Ministry of State Security, the New China News Agency, the People's Liberation Army and the other mainland agencies establish an unconstrained base in Hong Kong, all the laws on the books and even a democratically elected Legislative Council will do little good. It will be ''one-country, one-system'', and the objectives I have just enumerated will not be met.
    Transition will not be easy or smooth. Not everyone wishes that the ''one-country, two-systems'' formula will work. The responsibility for a successful transition now rests primarily upon the new Hong Kong Special Administrative Region, the leaders of China, the outgoing colonial government and the British.
    The United States and the entire region have a major interest in Hong Kong's continued prosperity and the welfare of its people. As a secondary actor in this drama, the U.S. Government, acting in concert with its friends and allies, should quietly express its views to the principal actors, the incoming Hong Kong Administration, China, Taiwan and the departing British.
    In my prepared remarks, I make some recommendations about what those American views should be.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Oksenberg appears in the appendix.]

    Mr. BEREUTER. Dr. Oksenberg, thank you very much for your excellent statement.
    I noted with great interest the indicators that you suggested were an important part of your testimony. Indeed, they are important enough that I think I may directly convey them to Mr. Tung with our best wishes for his success in making sure that the indicators are positively met.
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    We will now call upon Mr. Timothy McKenna, the president of Kerry Securities, for his testimony.
    Mr. McKenna, you may proceed as you wish.
    Mr. MCKENNA. Good morning, Mr. Chairman and Members of the Subcommittee.
    First, I wish to thank you for providing me with the opportunity to participate on this distinguished panel. While I may not be an old Asian hand in the colonial sense, I believe myself to be quite knowledgeable about the region.
    Professionally speaking, I spent 10 of the past 13 years living and working directly in various parts of Asia, including Hong Kong, Korea, Thailand and Singapore. The attractions that drew me to Asia in 1984 still exist today, the unequaled business dynamism and exotic locales that are steeped in deep cultural traditions. The region's tremendous growth and development continue to provide an abundance of investment opportunities.
    As a merchant banker with hands on experience in the region, my U.S. clients look to me to provide insight and guidance in their own decisionmaking processes. The building blocks of this analysis are quite similar regardless of whether the ultimate investment is traded on the New York Stock Exchange or the Hong Kong Stock Exchange.
    Typically included in such assessments are an analysis of macro and micro economic data, an analysis of the respective equity market valuations, and an analysis of industry groups and specific companies. Clearly the process is more of an art than a science, given the number of assumptions one is required to make when building econometric models or that of corporate earnings.
    Regardless, as an investment advisor, my primary responsibility is to preserve the capital of my clients and concurrently maximize potential returns. The clients I refer to are all institutional investors, as opposed to retail investors, and include pension funds, insurance companies and hedge funds.
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    My expertise and focus are Asian markets, excluding Japan. Hong Kong is the largest market in this universe and thus warrants a significant portion of my time. Its aggregate market capitalization is nearly 50 percent greater than the region's second largest market, Malaysia, and some six times greater than the smallest market in the Philippines.
    On the macro economic side, Hong Kong's domestic economy continues to show signs of improvement. Domestic demand growth is expected to be sustained by a continued firm employment picture, which has had a positive impact on consumption. This should be bolstered further by the wealth effect created by a resurgent residential property market, as well as the equity market.
    In 1996 alone, the residential property sector rebounded strongly with price increases of 20 percent for the mass market flats and up to 45 to 60 percent gains for luxury apartments. At the same time, the Hong Kong equity market posted strong gains of 34 percent growth year on year.
    Hong Kong's external sector growth, however, was relatively weak last year with export growth managing only low- to mid-single digit growth. This is due, somewhat, to the sluggish global economic environment, but also as a result of a revival in trade protectionism on the part of major trading partners. While we do not expect a major pick-up in export demand in Hong Kong in the medium term, significant growth could be achieved if China gains membership to the World Trade Organization.
    While Hong Kong's trade prospects will remain linked to the health of the U.S. economy, its overall economic growth is becoming less susceptible to the economic cycles of the United States and becoming increasingly more reliant on developments in China, both economic and political.
    For example, an estimated 80 percent of Hong Kong's manufacturing has been relocated to the southern and coastal regions of China. Ten years ago, half of Hong Kong's labor force was employed by this manufacturing sector. Today, manufacturing jobs in the territory account for only 15 percent of employment.
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    Moving on to the stock market, despite the Hang Seng Index's 34 percent rise over the past 12 months, the current market valuation indicates further room for price appreciation. On an earnings basis, valuations remain well below historical highs, as well as that on a dividend yield basis. Corporate earnings growth over the next 2 years is expected to be greater than the regional average, and thus, the risk of downside price volatility appears limited.
    Most asset prices in Hong Kong are highly sensitive to the U.S. interest rate picture since two-thirds of the market's earnings are derived from banks and property companies. Thus, an expanding Chinese economy, coupled with a non-inflationary growth in the United States, should be significant primers to propel the Hong Kong equity market even higher.
    Most investors will agree that equity valuations, especially in Asia, are a function of political risk as well. Notwithstanding unexpected external shocks, the political risk debate pertaining to the Hong Kong market focuses on several key issues.
    Concerning leadership, as previously mentioned, the appointment of Tung Chee-hwa as Hong Kong's Chief Executive on December 11 last year was not a surprise. He is perceived to be pro-business and, given his close contacts in China, is more likely to have the ear of key Chinese authorities.
    As previously mentioned by Secretary Bader, the decision by Anson Chan, who heads the civil service, to remain Chief Secretary after the handover should be undoubtedly viewed as a vote of confidence. Assuming other top civil servants stay on through the handover, we believe the transition will be smooth.
    Concerning monetary policy, according to the Basic Law, Hong Kong's monetary system and the Hong Kong dollar will be preserved after the handover. The Hong Kong Monetary Authority and the People's Bank of China have given repeated assurances that the Hong Kong dollar peg to the U.S. dollar will be maintained.
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    The Hong Kong dollar will remain legal tender in Hong Kong and will be treated as a foreign currency on the mainland. We expect this peg to remain intact for at least 3 years after the change in sovereignty. Not only will this extended period allow the political transition to stabilize, but it will also allow the Hong Kong dollar to become fully convertible in foreign exchange markets.
    In the meantime, the Hong Kong Monetary Authority should be able to fend off speculative attacks on the Hong Kong dollar since the Exchange Fund balance is nearly 500 billion Hong Kong dollars or 65 billion U.S. dollars. This is an equivalent to five times Hong Kong's cash in circulation.
    Anecdotal evidence indicates on the monetary side that there is a strong level of confidence in the local currency. Fifty-seven percent of bank deposits are presently held in Hong Kong dollars, up from a low of 37 percent in 1990 after Tiananmen Square and the highest level since before the Joint Declaration was signed in 1984.
    On the civil liberties front, the recent announcement from the mainland recommending abolishing or amending some civil liberties laws when China takes over the British colony on July 1 has triggered protests in Hong Kong and promoted some in the international community to lodge official protests.
    It has also had a dampening effect on the Hong Kong stock market. The benchmark index has fallen 3 percent since the news was first reported in mid January, and the investment community is now waiting to see whether the announcement will depress local sentiment as well.
    In this regard, the most recent results of the South China Morning Post's Quarterly Confidence Index poll released on February 3 shows rising confidence levels among the local population. I note, however, that the poll was carried out before China's recent announcement concerning the roll back of human rights ordinances.
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    The polls showed that 80 percent of the respondents were confident about Hong Kong's figure, compared to 61 percent a year ago. The South China Morning Post added that the confidence level again was the highest since the Tiananmen Square timeframe.
    In conclusion, Hong Kong's reversion to China will only be the first of many significant changes to Asia's political landscape over the medium term. Leadership positions in Indonesia, Malaysia and the Philippines will all be contested in the next 2 years. These changes dwarf in comparison to the historical significance of Hong Kong's return to China.
    With the world watching, China's message of support for Hong Kong is likely to remain loud and clear up until and well after the actual handover. Given its long-term aspirations regarding Taiwan, we believe it is unlikely China will want to provoke international criticism by meddling with the freedoms that the citizens of Hong Kong currently enjoy.
    For the moment, foreign investors remain optimistically bullish on the Hong Kong equity market. This has as much to do with improving fundamentals and positive sentiment toward the upcoming handover as with the fact that alternatives in Asia specifically are lacking.
    I note, however, that investors tend to be fickle, and if other larger Asian markets show signs of recovery, investors will be quick to take profits in Hong Kong and move on. The concern of most weighted in Hong Kong is that the catalyst for profit taking may come from within—that is, the mainland.
    A misguided policy decision from China such as the abolishment or the amendment of the currency peg or excessive political wrangling on the mainland would quickly lead investors to scurry for the exit, regardless of the market's perceived fundamental strengths.
    In closing, I wish to pass on a comment made last month by Hong Kong's Financial Secretary, Mr. Donald Tsang, in an interview again with the South China Morning Post. Mr. Tsang warned that international investors indeed may abandon the territory if China goes through with plans to scrap the key provisions of the Hong Kong Bill of Rights, but he said quite bluntly that if they, implying international investors, are happy with China's plans, they will invest more. If they are not happy, they will leave.
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    Thank you.
    [The prepared statement of Mr. McKenna appears in the appendix.]

    Mr. BEREUTER. Thank you very much, Mr. McKenna.
    All three of you gentlemen coming from very different areas of high expertise have addressed the issues important to us in a very excellent fashion and have given us an opportunity to focus in on questions.
    I will begin the process by asking a comment to Governor Thornburgh. I want to know specifically if you think that the current provisional legislature which is, of course, appointed by Beijing rather than elected, can enact legislation which circumscribes the participation of the follow-on elected legislature, which Mr. Tung has indicated he hopes will be elected in the spring of 1998?
    Mr. THORNBURGH. Obviously I cannot read the minds of those who have been behind the installing of the provisional legislature, but it would seem to me that clearly one of the highest items on its agenda ought to be the adoption of clear rules and policies that carry out the provisions of the Joint Declaration and the commitment already made to establish an elected legislature within a year.
    This, it seems to me, offers a logical candidate for the observation made by several Committee Members this morning that the watch word ought to be ''trust and verify.''
    One of the best ways to verify the bona fides of Mr. Tung and the provisional legislature with regard to democracy and elected legislature, it seems to me, would be for them to undertake presently, as soon as possible, a commitment to spell out precisely what they think the guarantees of the 1984 Joint Declaration mean when they say that the SAR should be governed by an elected legislature. Right now, that question is very much up for grabs.
    There is a tremendous resentment among the people of Hong Kong who have had the opportunity for the first time to exercise their democratic rights in electing their officials over the last 6 or 7 years, over this provisional legislature being imposed upon them.
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    They and we should look for a very strong signal from this provisional legislature that they intend as quickly as possible to convert their mandate, uncertain as it may be, into something that represents a truly elected legislature.
    Mr. BEREUTER. Gentlemen, all three of you have in one fashion or another made reference to the extraordinarily professional civil service that Hong Kong enjoys. You, I think, Mr. McKenna, talked about it in terms of the stability, the signs, that it gives for economic stability.
    Mrs. Chan, of course, has provided extraordinary leadership. Anson Chan is remaining on as the head of it at this point. I think she was said to be the most popular candidate to be the Chief Executive Officer. Her continuation in that role was a sign, I suppose, that is very favorable from Beijing.
    What do you think would be the major threats to the integrity of the civil service that we should watch for? Perhaps you have already identified this to some extent, Dr. Oksenberg, in indicators, but any comments you might have about not just the importance, but also what kind of threats to the civil service you might see and what the outside world can do about those potential threats.
    Mr. THORNBURGH. Let me say with regard to Anson Chan, for whom I have enormous respect and whose retention appeared to be a very important signal with regard to the integrity of the civil service in Hong Kong.
    Just a week ago today, there was a news report quoting Ms. Chan as being very critical of the action taken with regard to the Bill of Rights Ordinance. She was very straightforward in her assessment of that action casting some doubt on the commitment of the PRC to follow through on the ''one-country, two-systems'' concept.
    An observer, Sunny S. H. Low, director of a multi-university project tracking major issues during the transition to Chinese rule, said, and I quote from the newspaper article, ''Chinese officials will remember her remarks very well. She will be a temporary figure in the Hong Kong Government.''
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    I suggest that is another place where verification and oversight might be a good indicator of how sincere the PRC is with respect to another very important item, as you mentioned, Mr. Chairman, and that is the integrity of the civil service. If Ms. Chan is dispatched because of her candor in assessing the actions to deal with the Bill of Rights Ordinance, it will send a very negative signal indeed.
    Mr. OKSENBERG. There are two other details in response to your question, Congressman. The first is whether the files of civil servants remain under the control of the civil service itself or whether those files are made available to some of these PRC agencies now in Hong Kong. There is some concern about that particular issue.
    Second, in the Hong Kong governmental system, both at present and in the future, there is an executive committee or cabinet that serves the Chief Executive. That new executive committee has now been appointed, and there is some question about what its precise role will be after July 1, 1997.
    Will the individual members of that council have portfolios which will enable them to intervene in specific departments, or will that body be a broad consultative agency, a committee that meets regularly with the Chief Executive Officer, but serves as a committee and collective body?
    To the extent that the members of that executive council acquire individual responsibilities and since they are political appointees representing diverse circles within Hong Kong, there will begin to be a more intrusive political involvement in the operation of the government. It is not yet clear how that particular body will function after July 1.
    Those are two other indicators that I will be looking for myself. I might say, though, Congressman, that I do not mention these indicators in hopes the Congress should issue warnings that unless these indicators are met, the United States will intervene or impose sanctions against Hong Kong. Rather, these are things that we want to know about. It is important that the United States remain abreast of developments in Hong Kong.
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    I have just had a quick look at the legislation you are proposing. It strikes me as just right, but I would not seek to have the United States become the party that seeks to promote all the specific items. I would hate for the United States to station itself at the front line in immersing itself in all of these details.
    At this point, the primary burden belongs to C. H. Tung and the new SAR to protect Hong Kong's autonomy, and secondarily, the burden belongs to Britain as the issuing party with China of the Joint Declaration.
    Mr. BEREUTER. These are indicators to watch.
    Mr. OKSENBERG. That is right.
    Mr. BEREUTER. That is the way we will accept it.
    Mr. OKSENBERG. That is right. Not to act upon.
    Mr. BEREUTER. Mr. McKenna. Governor Thornburgh.
    Mr. THORNBURGH. Mr. Chairman, I might differ somewhat with my learned colleague in that regard.
    Mr. BEREUTER. All right.
    Mr. THORNBURGH. I do not think that a lot of these concerns are simply details.
    I hope I misunderstood Secretary Bader in his testimony when he referred to recent media concern regarding the provisional legislature and the Bill of Rights Ordinance as irrelevant issues. I wrote that down when I heard it because it somewhat jarred me.
    If these are viewed as mere details and irrelevant issues in our overall relationship with the PRC, then I think we are betraying our long-time commitment to the rule of law and human rights and that we not only, as you have suggested in your pending legislation, which I applaud, increase our breadth of monitoring and of verifying, if you will, but that we consider at every juncture in our relationships with the PRC the best and most efficacious way to express our concern about the failure, for example, of the provisional legislature to take action with dispatch with regard to the election of a permanent legislature and other, many of them mentioned by Dr. Oksenberg, concerns that are there.
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    Obviously we wish for the people of Hong Kong and for the people of China a successful and smooth transition, but I suggest, as I did in my prepared testimony, a higher obligation that we have with regard to, No. 1, the honoring of a solemn undertaking in the Joint Declaration and our commitment as a worldwide exemplar of the rule of law and democratic principles to see that those are not snuffed out in the course of such an important transition.
    Mr. BEREUTER. Governor, thank you. I think it struck me and Members of the staff as surprising if Secretary Bader had said that. We will check the transcript carefully on that issue.
    Mr. THORNBURGH. If I am mistaken, I would apologize, but I heard it and wrote it down because it seemed to me to be at odds with what his otherwise strong statement was.
    Mr. BEREUTER. We will go back and look to make sure that there is no confusion about that. If there is, we will try and clear it up with him.
    Mr. McKenna, did you have anything you would like to offer?
    Mr. MCKENNA. Yes. Again, the investors are looking for signs of confidence. Mrs. Chan's decision to stay is surely that. What to look for is a zero tolerance regarding corruption in office of the civil service and then hopefully a same zero tolerance regarding politically motivated appointments; not just mid- and high-level positions in the civil service, but even a seepage of entry level positions.
    One point that Dr. Oksenberg pointed out regarding access to civil servant files, and the same goes for the financial community's files regarding clientele, etc. That is a major concern in Hong Kong, given its position in the region as a financial center.
    Mr. THORNBURGH. I would suggest that one of the best ways to avoid a Hong Kong version of Filegate would be the continuation of a strong ICAC (the Independent Commission Against Corruption), which has been an exemplar worldwide of how to deal effectively with these kinds of tendencies.
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    That I would add to the rather long and expanding list of things that ought to be carefully monitored.
    Mr. BEREUTER. Thank you, gentlemen.
    I will now turn to my distinguished Ranking Member about who I made positive comments in his absence. He has been here for almost the entire part of your testimony, gentlemen.
    Understand, Mr. Berman, you will not want to deliver your opening statement orally, but it will be made a part of the record without objection in its entirety, and you are recognized.
    Mr. BERMAN. Thank you very much, Mr. Chairman, and thank you for holding the first hearing of the Subcommittee in this Congress on this critically important issue.
    I apologize to you and to my colleagues on the Committee and to the witnesses for both being late because I had something that I had to be at and because I will now have to leave early because of something else I have to be at. None of it should indicate a lack of interest in this issue.
    First of all, I would be stunned if a representative of the Administration came here and referred to the issues mentioned by Governor Thornburgh as irrelevant. I just have to assume it was a miscommunication, but I will read the testimony anyway to check it out, and I plan to read all of your testimony. I did not have a chance to read it before the hearing, but I will take it with me.
    I just want to go to a very basic question. It seems to me there are two different levels of issues in looking at what is happening here with Hong Kong. One is what we would like to see Hong Kong continue to be and remain. We have those feelings about lots of parts of the world, and we want to see policy to help pursue those desires.
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    The second question is the extent to which the Chinese are breaking or construing their commitments that they made in the Joint Declaration and in the Basic Law so that we can conclude from what they are doing that we cannot even count on what they promised to do.
    I guess from that point of view, and it is sort of a legalistic point of view, I am curious to know, and perhaps you spoke to it in your testimony, and I guess I will ask Governor Thornburgh this first, whether you think what they have done up until now is inconsistent, that it violates or at least undermines in spirit what they have pledged to do in terms of their action on the human rights ordinances, some of the stands they have taken on assembly and press and speech on the legislature, or is everything they have done up until now not inconsistent with what they promised to do in those two documents?
    Mr. THORNBURGH. I think you have to answer that in two ways, Congressman Berman. No. 1, clearly the assessment of the International Commission of Jurists in 1992, in attempting to square the Basic Law with the Joint Declaration, found a number of clear inconsistencies, and that is a nice way of saying violations, if you will, in the Basic Law of the commitments made in the Joint Declaration. That is one category, and I would cite——
    Mr. BERMAN. In other words, you cannot even talk about those two documents together because the second document, which they imposed——
    Mr. THORNBURGH. Right.
    Mr. BERMAN.—unilaterally, you think——
    Mr. THORNBURGH. Well, if it were me, I would not urge it on you so much as an organ of the United Nations, the International Commission of Jurists, which report I would recommend to you and your staff because it has as much vitality and greater credibility today than it did in 1992.
    The second set of questions relates to the actions undertaken by the Preparatory Committee and the provisional legislature that relate to ongoing concerns. There it gets a little bit murkier.
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    For example, the action taken with regard to the Bill of Rights Ordinance. The Legal Subcommittee recommended one course of action. That was modified to somewhat dampen its affect. To use a terribly trite term or phrase, the jury is still out on how the actions of the provisional legislature and the PRC relate to the underlying commitments made in the Joint Declaration. We have not reached July 1, 1997, yet.
    Mr. BERMAN. Right.
    Mr. THORNBURGH. I would suggest, as I did earlier, that one of the best ways for them to reassure skeptics about their intentions in this regard, particularly with regard to the legislature and the guarantee of an elected legislature, is to spell that procedure out now. Do not wait until after July 1, 1997.
    I think the answer clearly is that there have been violations in both the legal and political sense. Our government has expressed its concern about some of these, although stopping short of calling them violations for their own legal reasoning.
    I think the fact that these have occurred and have laid some markers down as to what the intention of the PRC is makes it all the more important that the type of comprehensive hearing which I suggested you may want to hold on the report, the last report forthcoming from our State Department, and the kinds of legislation suggested by your Chairman and the continued monitoring of those indicators make them all that more important.
    Mr. OKSENBERG. May I comment? I agree that there is a range of developments that can be said to depart from the 1984 Joint Declaration and the 1990 Basic Law. Both the 1984 and 1990 documents are filled with ambiguities. What we have seen, in my view, is that each side has interpreted and stretched those ambiguities in the manner favorable to it.
    Second are the clear departures from commitments made. I think it is incontestable that the Chinese have departed from some of the agreements. But there is also another factor which merits some note. Namely there were private understandings and letters that had passed between the British and the Chinese before Governor Patten's arrival. Those letters have now become public. Governor Patten, curiously, was not informed of those letters before he made his public remarks about his determination to move more rapidly toward full democratization of the Legislative Council.
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    I have read those letters. There was a private understanding between the Chinese and British for the transition in which there would have been a through train on the legislature. Governor Patten has said those letters were private exchanges between the British and Chinese foreign ministries and he does not consider them binding.
    Mr. BERMAN. This expression, a through train——
    Mr. OKSENBERG. A through train means that the existing Legislative Council selected before 1997 would have continued in office after 1997.
    Mr. BERMAN. The one elected in 1995?
    Mr. OKSENBERG. In 1995.
    Mr. BERMAN. Do you mean in private letters between the British and Chinese—long before 1995, they envisioned this 1995 election?
    Mr. OKSENBERG. Yes, there was to be not an election of all legislative council members but some of them.
    There was an agreement reached before 1992 through an exchange of letters as to what the minimum number of the 60 people selected in 1993 and 1995 would be through election (the number was to be 20) and what number (40) would be selected under the prior practice, which was in effect an appointment procedure. Also the British pledged that they would consult the Chinese before increasing the number above 20.
    The Chinese felt that the departure from those letters had violated an understanding.
    Mr. BERMAN. The Chinese?
    Mr. OKSENBERG. Yes, the Chinese, because Governor Patten did not adhere to them. He did not even know about them. That is an unfortunate part of the past, and it has to be also understood in the context of how strongly the Chinese reacted.
    By the way, the letters also indicated that the British were not satisfied yet with the agreement that they had reached, and they would try to change it to make the process of democratization faster. They did not think that that rate—only 20 elected in 1995—would satisfy the Hong Kong populace. But they promised not to make an adjustment without prior consultation with the Chinese.
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    I just simply want to introduce that into the record to say it is not an unambiguous record as to all of the violations occurring on the Chinese side. Neither side has behaved meticulously in interpreting what was after all an ambiguous document to start with.
    This does not, in my mind, negate the necessity of accelerating the process of selecting a democratically elected legislature after 1997, but what I have mentioned simply helps illuminate the reasons for the vehemence with which the Chinese rebuffed Governor Patten's very understandable and publicly strongly supported efforts to accelerate the process of democratization after he arrived in 1992.
    Mr. BERMAN. So all of that could explain the indignation we hear from certain Hong Kong residents and business people in defending the Chinese when they denounce what has happened and that the Chinese efforts, which do not recognize that, are appropriate? You think that explains——
    Mr. OKSENBERG. Only partly, because some of the people who are now complaining privately also encouraged Mr. Patten to do what he did.
    Mr. THORNBURGH. May I drop a footnote, just a very slight footnote to that?
    Mr. OKSENBERG. It is complicated.
    Mr. BERMAN. This is very British.
    Mr. THORNBURGH. It is hard for me to see how a through train of a non-elected legislature would fulfill the guarantee of an elected legislature set forth in the Joint Declaration.
    Mr. BERMAN. All right. Turn it around for a second, though. If you intended to have a democratic legislature by April 1998, would the appointment or even through train of a provisional legislature that clearly does not meet the test of democratic legislative process be a violation of the agreement?
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    In other words, you have sort of said it. We do not know the full story yet, and the Chinese have done nothing to reassure us yet, but it is still possible that they may go forward with a duly elected democratic legislative process which has the authority they were supposed to have under this ''one-country, two-systems'' program. Is that a fair conclusion?
    Mr. THORNBURGH. Yes.
    Mr. BERMAN. Thank you.
    Mr. BEREUTER. Thank you very much, gentlemen. I gave the Ranking Member some discretion because I thought what was being pursued was very valuable, something I had never heard before, and I think it was a service to continue that way. I hope my colleagues will agree.
    I do call upon Mr. Capps now for his questions.
    Mr. CAPPS. Thank you. I want to say how much I appreciated all three witnesses' testimony and how much I learned from all of them.
    I think we have a very intriguing story in front of us here about how this is all going to take place. I know we are hoping for a smooth transition and looking for the mechanisms by which this can take place, this transition, and are particularly concerned about the U.S. role in that regard, the responsibilities we have, the obligations and also the opportunities.
    I cannot help but notice the very strong kind of cross cultural dimension to all of this. We are talking about colonialization and the end of colonialization. We are talking about various cultures coming together.
    Governor Thornburgh, I was particularly impressed with the repetition that you gave to the issues of democracy, rule of law and human rights, and yet I think that while all of those might be new experiences for part of the people involved who do not yet have human rights, do not yet have democracy, do not have rule of law in quite the way in which those terms are defined by, I guess those of us who are more familiar with them, what I would look to would be more subtle and more kind of mediating tokens or symbols of the possibility of rule of law, of human rights and democracy.
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    I found clues to that, Dr. Oksenberg, in your testimony where you continue to come back to the necessity that we protect access to and dissemination of information, freedom of the press, freedom of speech, freedom of religion.
    I particularly liked, being a representative and proud advocate of the humanities, that you talked about the international quality of the universities, of vibrant and free press and also freedom of religion.
    I guess the big question is what can we do not simply in our role with the U.S. Government, but as human beings who are concerned about the outcome? What can we do to advance those kinds of ideals and aspirations?
    Mr. OKSENBERG. Mr. Capps, your question is in my mind. I welcome your pushing an open door because I do think that in no small measure this transfer involves cultural change and cultural understanding.
    From that point of view, I think Americans have to recognize that Hong Kong will be different after July 1, 1997. It is going to be ruled by Chinese. The British will no longer be there. The British brought qualities that they alone in many respects possess.
    Your question is profound, I think. How do we distinguish between what is universal, a true rule of law, which I strongly support, but what changes can be expected simply because a cultural change has occurred?
    That does not respond to your immediate question. It is an observation. Your question, it seems to me, underscores the responsibility of private Americans not only in the corporate realm, but in foundations, in universities, in journalism, among our private citizens, to remain deeply involved in the future of Hong Kong.
    For example, the faculties on the leading universities in Hong Kong, Chinese University, Hong Kong University, the new Hong Kong Science and Technology University, are truly international. It is important for those universities not to become provincial.
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    I would hope that our foundation world would draw its attention to that. I would hope that our various journalist associations who monitor press freedom continue to take a deep interest in the future of Hong Kong.
    The presence of the Asian Wall Street Journal located in Hong Kong itself is one of the most important factors that will both promote freedom of information and be a test of it because the Wall Street Journal is not going to be printed in a place that does not allow freedom of accurate statistics on the mainland of China.
    You are absolutely correct that there are these vital links. They are vibrant at the present. They must be sustained.
    Mr. THORNBURGH. It is quite clear, as you have pointed out, that there are enormous cultural differences across the Pacific, but I think it is also clear that the genie is out of the bottle in Hong Kong so far as all three of the important salient principles that we hold dear and which are embodied in the Joint Declaration.
    The rule of law has been existing in Hong Kong throughout its own existence and really is one of the under-girding supports for its economic and financial preeminence. The fact that people need not fear that their property would be seized without due process of law or that they had a court to go to to enforce their contracts is a hallmark of an environment that is favorable to business.
    The strong support given to democratic parties in the elections, albeit that they have occurred only since 1990, the preference expressed for candidates committed to democratic principles speaks for itself.
    With regard to the human rights area, while there are a number of these draconian colonial laws on the books, they have never really been enforced under the aegis of the British. One of the reasons for the Human Rights Ordinance was to see that those did not pose some kind of threat of revival under a different administration.
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    I believe that despite those cultural differences, which you have identified so appropriately, there are principles that have taken hold in Hong Kong that are going to be very hard to reverse on the part of whomever is in control.
    Mr. BEREUTER. Thank you.
    I think we should turn now to Mr. Wexler, the gentleman from Florida.
    Mr. WEXLER. Mr. Chairman, I am really just in a learning stage, and I would just appreciate the opportunity to listen.
    Mr. BEREUTER. All right. The gentleman passes.
    Mr. WEXLER. Thank you.
    Mr. BEREUTER. The gentleman from American Samoa, Mr. Faleomavaega.
    Mr. FALEOMAVAEGA. Mr. Chairman, thank you. My apologies for being a little late, but I certainly appreciate the testimony of our distinguished members of the panel and offer my personal welcome to a very dear friend who served formerly as president of the East-West Center in Hawaii, Dr. Oksenberg. I am very pleased that he is here to give his testimony.
    If I were a sitting judge, I would like to give Governor Thornburgh an A+ for a masterful, very legally thorough presentation in all legal aspects of the law as far as the rule of law is concerned and the concerns that he has expressed about the transition for Hong Kong in July of this year.
    Mr. Chairman and members of the panel, looking at it from another perspective as a matter of policy, I have to credit Dr. Oksenberg with an A+ as well. It may be that I have a very different perspective from Governor Thornburgh. I have been to Hong Kong, and I have also been to Shanghai.
    One of the things that I associate myself very closely with Dr. Oksenberg's presentation and his paper, is the fact that we lack in many instances understanding of the Chinese mind; in terms of how a Chinese person thinks, the fact that they have very different cultural values and heritage. I can also say that we expound democracy from a western perspective, and I am sure that there is no disagreement that democracy comes in different forms.
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    I hate to use, and maybe it is not a good example, the experience of our country with Southeast Asia and the very bitter memories for this Member, having served in Vietnam, of the serious problems in our policymaking towards Southeast Asia in that period. I still have a very bitter memory of that.
    This all relates to Hong Kong as a classic example. I think we tend to forget the fact that this was literally a British colony and that for over 150 years the Chinese were never given any say as to who would be the next appointed Governor. It was a political plum job from London. It was only through recent developments in Chinese and British relations and because there is no longer a British empire that England has had to let go of this colony.
    I think it is only proper and right that Hong Kong should go back to its original ruler. As much as we like to cast aspersions and say it is a Communist country, times have changed. I think one area that we seem to miss at times is that we never seem to give the Chinese enough credit for their progress and achievements. Give them a chance.
    I note an observation of what Mr. Tung has said. We aspire to say that we need freedom of the press and we need the media. Sometimes, however, that has been one of the basic problems that we have in so-called open societies or democracies, that the media in overreaching and aggressiveness has become a problem and not the solution to problems at times; there are cases where perhaps collective harmony is more important than pursuit of individual rights, as has always been expounded by our own nation.
    My question to the members of the panel is I go back to Secretary Albright's comment about human rights violations in China. Basically it seems to me that our policy toward China should not be centered just on one given issue. I think perhaps we may be overreacting to the concerns that have been expressed about this transition. I kind of like to think that maybe the Chinese know better themselves on how to handle the transition.
    I would like to ask the members of the panel if I am correct in my readings recently that Governor Patten just literally undertook far-reaching reforms in Hong Kong without China's assent and cooperation. This caused a lot of negative reaction from Beijing. I question why all of a sudden a big kick for democracy when for the previous 100 years Britain never even thought of giving the Chinese community in Hong Kong democratic participation, if you want to call it that?
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    I just want a response from the Members. Please, Mr. McKenna, you could not have hit it on the head any better. This is the PRC's golden goose, and I do not think for a second that the policymakers in Beijing are going to kill this golden goose in Hong Kong.
    In the same way, I recently visited Shanghai and right in the center of a very Communist country, you have a most prosperous city. We think that there is no free market system in Shanghai. I kind of like to think that the PRC is very much sensitive toward Hong Kong and that it will be preserved just like the way that Shanghai is becoming a capitalistic center of the world; it's exciting to think that these two major cities will be China's counterparts to Tokyo, Wall Street, London and Bonn, etc.
    That is the sentiment that I have. Let's not put a short leash on our Chinese counterparts. Give them a chance to breathe a little bit, perhaps, and then maybe 6 months after the transition we will know if perhaps PRC is not as ruthless as some may believe.
    Mr. BEREUTER. Do any of you gentlemen want to try that?
    Mr. OKSENBERG. Well, I certainly want to make a couple statements.
    First, for the record, it is awfully good to see you again, Congressman Faleomavaega. I want to thank you for your enormous support to me during my presidency at the East-West Center. I always came to Washington, called upon you, and you were really most enthusiastic and one of my strongest backers. I will always remember that. I appreciate it.
    As far as your remarks are concerned, while there is much wisdom in your observation, as I tried to say in my commentary, I think there are real reasons for concern, and one should keep those in mind. The Chinese have demonstrated a great capacity, the leaders of China, over the past many decades to shoot themselves in the foot. They have not always acted on their economic interests.
    I met with Deng Xiaoping in 1981, a conversation that I will long remember. It was when I accompanied either President Carter or Dr. Brzezinski. I do not remember which of those conversations, and I have not checked my notes, but Hong Kong came up.
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    Mr. FALEOMAVAEGA. I wonder, Dr. Oksenberg, if we ourselves have not gotten into that same situation of shooting ourselves in the foot, too, a couple of times?
    Mr. OKSENBERG. That is possible. That is possible, but it does not mean that they do not either.
    In the conversation, Hong Kong came up. Deng Xiaoping said that he did not anticipate an early return of Hong Kong to China; that in fact his prior concern was Taiwan. He then went on to say you know, we have not ruled Shanghai well, so how can we expect to take over Hong Kong and do well when we have not even learned to enable Shanghai to fulfill its potential?
    In fact, Hong Kong surfaced as higher on the priority of the Chinese because the British and the Hong Kong business community wanted assurances as to what would happen after 1997.
    Do not assume that the Chinese have all the sense at this point on how to deal with a complex city. Those who have negotiated with them have found that they have not always manifested the understandings about what it has taken to sustain Hong Kong's prosperity.
    I agree with you that Shanghai has made great progress in the last few years, but Shanghai is still not a city ruled by law. It is still ruled in an authoritarian fashion. It is not a city which most people in Hong Kong would prefer to live under at the present time.
    As far as the cultural differences, I recognize them. That is why I stress so much the personal relations that C. H. Tung will have to establish with the leaders of China. This is going to be a Chinese pattern, not a legal pattern, that enables Hong Kong to retain its autonomy.
    I would encourage you, Congressman, also to pay attention to Governor Thornburgh's remarks. The values and aspirations of the people of Hong Kong are not just those of Chinese, but they have received a great deal of influence from the West. They have lived in a different kind of context.
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    It is true that in the election the Democratic party—clearly running as supporters of a fully democratic Hong Kong—won the largest number of seats.
    There are some issues here that Mr. Thornburgh has raised that I embrace and must be given considerable weight, but on your main point I would also agree; namely that we have many issues involved with China. No one issue should be made primary or hold all other issues captive, security issues, economic issues.
    At the same time, I would not give secondary importance to the human rights and rule of law domain because in the final analysis, without the rule of law many Chinese commitments become less credible. They become personal commitments. They are not etched and lodged in institutions. We have to deal with that kind of a political system much more warily, and that is why the notion of ''trust, but verify'', becomes much more important. I do not think we can neglect that dimension of the nature of the Chinese system.
    Mr. BEREUTER. Unless there is an urgency to continue, I think that is a very good statement on which to end. I do not want to cut the other two gentlemen off, though, if you have a point you would like to make.
    Mr. THORNBURGH. Well said.
    Mr. BEREUTER. It was an excellent hearing in general, and our colleague from American Samoa makes many, many contributions here. Occasionally he reminds us about the implications of colonialism, the vestige of colonialism, and he reminds us occasionally that he does not vote when he goes to the House floor, but he does vote in Committee.
    Gentlemen, thank you very much. You have been a distinguished panel and very helpful to us. I appreciate your time and effort. Thank you.
    This hearing is adjourned.
    [Whereupon, at 12:05 p.m., the Subcommittee was adjourned.]