Making a Deal for 1997

By Pico Iyer

Britain and China near an agreement on the freewheeling colony's future

The poker game has lasted almost two years now. The players are the world's most populous nation, China, and that most weathered of empire builders, Britain. In the kitty is a gleaming pearl, the scintillant colony of Hong Kong, which London is due to return to Peking in 1997. The favored strategy so far has been caution. Through 19 rounds of official bidding and bluffing, the British have remained outwardly imperturbable, while the Chinese have countered with a variety of shrewd hands.

Last week both sides came close to laying their cards on the table. The decisive session occurred during a four-day visit to Peking by British Foreign Secretary Sir Geoffrey Howe. After seven hours of bargaining with his opposite number, Foreign Minister Wu Xueqian, Howe spent 90 minutes with Premier Zhao Ziyang in the Purple Light Pavilion, where Emperors once gave audiences to "barbarians" bringing tribute. Finally, the Foreign Secretary went on to the Great Hall of the People and spent an additional 40 minutes with Deng Xiaoping, China's de facto leader, who has elevated the recovery of Hong Kong to a national mission. By the time their discussion ended, Deng, looking tanned and healthy less than a month before his 80th birthday, seemed positively merry. "If we say that it was General de Gaulle who brought an end to French colonialism," he proclaimed, "then we can also say that Prime Minister Margaret Thatcher has brought an end to British colonial rule."

In Hong Kong the following day, Howe made public the cause of all the blithe spirits: the two countries had worked out the basic principles of a treaty that they hope to draft and initial as early as next month. The Sino-British plan for the future of the flourishing colony and its 5.5 million people, declared Howe, had all the makings of "a historic agreement." It would convert Hong Kong into an "autonomous special administrative zone" that could continue to be a bastion of freewheeling capitalism for at least 50 years after the 1997 handover. The terms of the agreement would be strictly monitored by a bilateral Joint Liaison Group, which would be formed once the treaty is signed. The proposed deal apparently satisfied both parties. If Peking could rejoice in the return of the capitalist jewel, London could be pleased that its elusive opponent seemed responsive to so specific and binding an agreement. Said a top British official: "It is the best deal on offer, and we are confident we will be able to sell it to the Hong Kong community."

That, of course, is of paramount importance to both countries. While the Chinese dragon and the British lion have been warily circling each other, the world's third-largest financial center has responded to every shift in the bargaining like a sampan in a typhoon. As uncertainty over Hong Kong's future mounted, untold billions of dollars left the colony; foreign consulates have been flooded with visa applications from jittery locals, businessmen in particular. The value of the Hong Kong dollar fell 40% last year, as did the price of choice properties. The Hang Seng stock market index, perhaps the most vivid thermometer of economic faith, has dipped by more than 30% in the past two years. With confidence somewhat buoyed by Howe's reassurances, it climbed 66.95 points, to 893.69 in a single day last week, its most bullish performance since the talks began in September 1982.

The British began the negotiations by conceding that their 99-year lease on the New Territories (constituting 90% of the colony) would elapse in 1997, yet contending that Hong Kong Island and Kowloon were theirs in perpetuity. China quickly squelched that claim. Then London demanded a continued British presence in a Chinese-owned Hong Kong after 1997. Peking said no to that too. With little progress being made, the Chinese delivered an ultimatum last fall: if no agreement was concluded by September 1984, they would unilaterally announce the terms of the colony's future. That got Britain's attention: during a visit to Peking last April, Howe acknowledged for the first time that China would enjoy total sovereignty over Hong Kong after 1997. But he presented two unequivocal demands: that the colony be allowed to preserve the hyperkinetic free enterprise that is its trademark and lifeline, and that it continue to enjoy some autonomy.

Meanwhile, each side tried to divine the other's hand. Britain feared that Peking would make good on its unilateral threat. The Chinese in turn realized that in undermining the colony's confidence, they were in danger of radically devaluing the precious capitalist gem they expected to acquire. After all, the 400-sq.-mi. enclave boasts exports greater than those of the entire People's Republic and supplies China with some 40% of its foreign exchange. Most important, perhaps, Peking hoped that by transforming Hong Kong into a semiautonomous special administrative zone without fuss, it could tempt Taiwan to enter into a similar arrangement.

The kind of terms that Howe outlined last week appear to do justice to both the wishes and the worries of China and Britain. Said the Foreign Secretary: "A preservation of all the rights and freedoms which the people of Hong Kong now enjoy'' would be entailed. The colony would keep its legal, educational and financial systems at least until the year 2047; residents would still be permitted to travel and trade freely; the Hong Kong dollar would remain convertible on the world currency markets. Although China would be in charge of defense and foreign affairs, Hong Kong would be responsible for controlling its trade as well as Asia's largest free port.

The creation of a Joint Liaison Group would be a compromise between Britain's desire to have no monitoring body during the transition period and China's demand for a commission that would operate as a kind of shadow government. According to Howe, the group would include five Chinese and five British representatives; it would meet in Peking, London and Hong Kong until 1988 and then establish its principal base in Hong Kong until 2000. It would try to ease the transition from British to Chinese rule both before and after 1997, and to ensure full compliance with the agreement by both sides. The group is meant to soothe the fears of Hong Kong's residents, almost half of them refugees from the Communist mainland, who fear that China might start meddling in the colony's affairs well before 1997. Howe took pains to stress that the group "will not be an organ of power; it will have no supervisory role; it will play no part in the administration of Hong Kong."

Yet, as the British were quick to point out, some sticking points remain. Foremost among them is the destiny of 2.5 million Hong Kong Chinese who carry Hong Kong-British passports. Britain has said that it will not grant them full citizenship, but they are unlikely to want to become Chinese citizens. Another problem is that even if the colony is allowed to retain its judicial system after 1997, it is unclear how or by whom judges will be appointed.

There is also a possibility that China's post-1997 control of Hong Kong's bustling international airport will involve complicated renegotiations of landing rights with many countries, including Taiwan. Observed a British official in Peking: "There are still some pretty tricky issues to be resolved, and unless they are resolved, there won't be an agreement."

Once drafted, the treaty will be discussed by local bodies representing the residents of Hong Kong, who have not been entirely pleased with Britain's handling of their fortunes. It must then be presented to the British Parliament and to the Standing Committee of the National People's Congress in Peking. Although Thatcher can expect to receive overwhelming support in the House of Commons, Deng may have to persuade hard-liners that he is not being extravagantly generous toward the citadel of laissez-faire capitalism. If all goes well, Thatcher and Zhao could sign the final treaty before the end of the year, and poker faces may even give way to smiles. --By Pico Iyer. Reported by Murray J. Cart/Hong Kong and David Aikman/ Peking

With reporting by Murray J. Cart, DAVID AIKMAN