Ken Davies recalls how a smooth transfer of sovereignty was preceded by rocky negotiations

Just more than 20 years ago the Economist Intelligence Unit (EIU) published my book-length special report “Hong Kong after 1997”, which at least one Hong Kong secretary for administration privately praised and told me was their bedtime reading. As forecasts go, it was not wrong — though perhaps not for the right reasons. Economic growth did collapse but for reasons that had nothing to do with jitters over the transfer of sovereignty and more to do with the plunge in the Thai baht that set off the Asian economic crisis on the day after the handover, July 2, 1997. And though the economy did recover, it didn’t grow quite as fast as I had expected in the following years.

Maybe the lasting value of the report was that it neatly summarized the historical background that was scattered in various accounts written by participants in the negotiations and by outside historians and commentators.

Several interesting points had been missed by reporters and TV anchors who had been rushed to cover the handover, often with inadequate preparation.

For one thing, the notion that the impetus for the handover came entirely from China was a mistaken presumption. Mao Zedong had, more than once, decided not to take Hong Kong, even though the People’s Liberation Army could have done so by force in 1949, when it bypassed the territory, and after 1960, when the Chinese mainland started to supply most of Hong Kong’s water and a simple phone call threatening to turn off the tap could have achieved the same result.

It was the British administration that approached Beijing to discuss political arrangements after 1997 because businesses were pushing it to find out what would happen to their land leases after the 1898 agreement on Britain’s 99-year lease of the New Territories expired. The atmosphere became more favorable after Deng Xiaoping took over at the end of 1978.

Another widespread misconception is that Hong Kong as a whole was recognized as British territory by China before 1997. The Communist Party of China that took power in 1949 abolished all unequal treaties, so considered all of Hong Kong as China’s sovereign territory. Hong Kong was consistently marked on all maps of China published in the People’s Republic of China as “British occupied”.

The handover ceremony on the night of June 30, 1997 was a beautifully choreographed event. But the negotiations leading to it were anything but smooth.

Britain’s then prime minister Margaret Thatcher was sent to Beijing to agree to the handover of sovereignty to China but only on The author is former chief economist, Asia and Hong Kong bureau chief with the Economist Intelligence Unit (EIU) and head of global relations in charge of cooperation with the Chinese government in the OECD’s Investment Division.

China rebuffed the British proposal with its own brilliant formula: “Hong Kong people rule Hong Kong” and, of course, “One Country, Two Systems”.

condition Britain continued to govern Hong Kong. That was a non-starter, as Deng swiftly made clear.

Thatcher then slipped and fell on the steps of Beijing’s Great Hall of the People, triggering the collapse of the Hong Kong dollar that was only ended by the adoption of the fixed link to the US dollar because Hong Kong people took her fall as a bad omen.

China rebuffed the British proposal with its own brilliant formula: “Hong Kong people rule Hong Kong” and, of course, “One Country, Two Systems”. This meant a reassurance that Hong Kong’s institutions would continue after the handover.

The result is still, whatever the problems encountered in recent years, a spectacular achievement: A peaceful transfer of sovereignty amounting to decolonization, recognized by the international community and allowing a smooth continuation of economic success.

The challenge now is to formulate a clear, positive vision of Hong Kong’s future after 50 years of “One Country, Two Systems” expires in 2047. The SAR will be halfway toward that watershed just five years from now. China’s leaders appeared in the 1980s to imply, but did not (to my knowledge) explicitly promise, that the formula might continue after then. The alternative is “One Country, One System”. Which is it to be? It seems to me the result this time will be determined more by Hong Kong people themselves, in how they conduct themselves in self-governance, in promoting community harmony and in managing their own economy.