Reality of HK's 'one country, two systems'

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Reality of HK's 'one country, two systems'

By Justine Lau and Tom Mitchell in Hong Kong
Tue Nov 28 17:15:27 EST 2006


The intervention of the Hong Kong and Macao Affairs Office in the sale of PCCW (NYSE:PCW) to foreign bidders represents Beijing's boldest intervention in the territory's supposedly sancrosanct commercial affairs since the 1997 handover.

When Hong Kong returned to Chinese rule nine years ago, the former British colony was promised autonomy over all aspects of its governance except those related to defence and foreign affairs. Under the "one country, two systems" principle conceived by Deng Xiaoping, China's late patriarch, the world's biggest communist country pledged to protect Hong Kong's capitalist tradition.

Over the years many have accused China of wielding an "invisible hand" in the territory's political and judicial affairs but Beijing has trod carefully in the commercial arena for fear of damaging Hong Kong's reputation as an open place to do business.

However, the proposed sale of PCCW's telecoms assets to Australia's Macquarie Bank and TPG-Newbridge of the US struck a nerve.

Though supportive of Richard Li's takeover of PCCW six years ago, officials at the Beijing-based Hong Kong and Macao Affairs Office were taken aback by Mr Li's moves in June to sell his company's assets to foreign companies.

By proposing to sell PCCW's assets rather than the company itself, Macquarie and TPG-Newbridge's bids neatly sidestepped the right of China Netcom (NYSE:CN) , PCCW's second-biggest shareholder, to veto sales of more than 10 per cent of the company's equity.

As part of China's state council, or cabinet, the HKMAO serves as a bridge between China and its two special administrative regions.

While the HKMAO stayed silent, in June state-owned China Netcom issued a strongly worded statement opposing any changes in PCCW, saying it should continue to be "managed and owned by Hong Kong people". It remains unclear if the HKMAO was acting on orders from higher above or on its own. One sceptic says: "This smacks of second-tier politics in Beijing."

Others note that the HKMAO's reporting lines flow to both Wen Jiabao, the premier, and Zeng Qinghong, vice-president, who heads an elite government working group that oversees Hong Kong-related policymaking.

Second-tier politics or not, the HKMAO has reminded foreign investors in Hong Kong that "one country, two systems" may be a nice catchphrase but it is not the reality.