NPC DELEGATES DISCUSS HONG KONG'S ROLE IN CHINA

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001284

SIPDIS

SIPDIS

DEPARTMENT FOR EAP, EAP/CM
NSC FOR DENNIS WILDER

E.O. 12958: DECL: 03/27/2031
TAGS: PREL PGOV CH HK
SUBJECT: NPC DELEGATES DISCUSS HONG KONG'S ROLE IN CHINA


Classified By: E/P Section Chief Simon Schuchat; Reasons 1.4 (b, d)


1. (C) Summary: During a March 24 lunch with the Consul
General, seven Hong Kong delegates to the PRC National
People's Congress (NPC) and/or the Chinese People's Political
Consultative Conference (CPPCC) discussed the role of Hong
Kong in the PRC's Eleventh Five-Year Plan. Several delegates
said that some Beijing leaders believed Hong Kong recently
had become more of a "problem" than an asset, and they would
be "happy if Hong Kong could just maintain the status quo"
and "take care of itself." If the central government were to
publicly convey this message to Hong Kong, however, it would
be attacked in the media for interference in Hong Kong's
affairs. While other regions of China would welcome
additional assistance from the SAR, which it could provide in
areas such as development of legal and management expertise,
most Hong Kong entrepreneurs were only interested in sectors
where investments offered high rates of return. A recent
proposal for Hong Kong to become China's "international
center," which some of the Hong Kong delegates had raised at
the NPC, was viewed as impractical by other attendees.
Following a brief discussion of the RMB exchange rate issue,
one of the NPC delegates suggested that we should not expect
any "drastic adjustment." End Summary.


2. (SBU) On March 24, seven Hong Kong delegates to the PRC
National People's Congress (NPC) and/or the Chinese People's
Political Consultative Conference (CPPCC) discussed the
recently concluded NPC and CPPCC meetings in Beijing with the
CG, E/P Section Chief, and poloff. The guests included
Executive Council and Legislative Council (Legco) member
Jasper Tsang Yok-sing, of the Democratic Alliance for the
Betterment and Progress of Hong Kong (DAB): Asia Financial
Holdings Chairman Robin Chan; former Liberal Party Chairman
Allen Lee; Hong Kong Basic Law Committee member Raymond Wu
Wai-yung; Legco member and Liberal Party founding member
Sophie Leung Lau Yau-fun; Hong Kong Polytechnics University
Professor Priscilla Lau Pui-king; and Hong Kong Government
Central Policy Unit member Tsang Tak-sing (brother of
Jasper). All except Jasper Tsang, who is a CPPCC
representative, serve as NPC delegates.

Eleventh Five-Year Plan
--------------


3. (C) The delegates noted several characteristics of the new
Eleventh Five-Year Plan, which was the focus of the NPC
meeting in Beijing. Sophie Leung observed that it "put the
issues on the table," including the growing income
disparities in China and the increasing environmental cost of
rapid economic growth. She also noted that the FYP process
recently had become much more transparent; during an October
2005 visit to Beijing, she was shown the gist of the new FYP,
and during the congress the deputies were allowed to keep
their copies of the plan, rather than return them at the
conclusion. Jasper Tsang noted that the plan for the first
time encouraged Chinese private enterprises to invest
oversees. Tsang Tak-sing said he had drafted an amendment,
subsequently adopted, to clarify Hong Kong's role as a center
for both logistics and shipping. Since logistics is one of
the Hong Kong Government's pillar industries, there could
have been a problem had it been omitted. Patricia Lau
discussed the plan's target of four percent of GDP for
spending on education, with a greater portion of that
spending by the national and provincial rather than local
governments.

Beijing's View of HK
--------------


4. (C) Allen Lee said he was "somewhat concerned" about Hong
Kong Chief Secretary Rafael Hui's recent, widely quoted
remark that Hong Kong faced a danger of being "sidelined" by
the development of the mainland. Along those lines, he had
heard in some of his "side meetings" in Beijing that Hong
Kong recently had become more of a "problem" than an asset to
Beijing. Raymond Wu seconded that remark, adding that
Beijing would be "happy if Hong Kong could just maintain the
status quo" and "take care of itself." Jasper Tsang agreed,
noting that elsewhere in China the discussion focused on
"moving ahead," while in Hong Kong people simply wanted to
"maintain" the city's role and status. According to Leung,
however, if the central government were to publicly convey
this message to Hong Kong, it would be attacked in the media
for interference in Hong Kong's affairs.

Hong Kong's Role in China
--------------


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5. (C) Patricia Lau observed that other regions of China
would like to receive assistance from Hong Kong, to which
Allen Lee replied that "its too far, their per capita income
is still too low." Wu suggested that, "if Hong Kong wakes
up," it could usefully provide legal, management, and
networking expertise to the mainland, and he said the central
government leaders understood what Hong Kong had to offer.
Lee, however, replied that "Hong Kong tycoons are greedy" and
only want to invest in hotels and infrastructure projects
where they can earn 50-100 percent returns on their
investment, rather than in industrial projects offering just
ten percent return. Leung noted that the first generation of
Hong Kong investors in the Pearl River Delta had focused on
manufacturing for export, but this was no longer the case.
Taiwan companies in the Delta, on the other hand, continued
to help integrate the mainland into world markets.

Hong Kong as China's International Center
--------------


6. (C) Regarding proposals that Hong Kong become China's
"international center," Lau observed that the city already is
China's international financial center, but this role could
be enhanced through expansion of markets for bonds,
commodities, and currency (renminbi); she said some of the
Hong Kong delegates had raised this suggestion at the NPC.
In her view, if Hong Kong did not take on this role, then
China's financial development would be delayed and Hong Kong
ultimately would "lose out." If, on the other hand, the
proposal were adopted, then Hong Kong would be able to help
the mainland with its non-performing bank loan dilemma and
with strengthening its banking sector. Allen Lee observed
that this proposal would be extremely difficult for the
government to implement; if they did so, then it would only
be for political reasons. Tsang Tak-sing noted a recent news
article suggesting that this plan would antagonize
mainlanders for giving additional preferences to Hong Kong.

RMB Exchange Rate
--------------

7. (C) Lau inquired about U.S. pressure on the PRC regarding
the renminbi (RMB) exchange rate. She defended the central
government's maintenance of its managed exchange rate, noting
that Beijing would adjust the rate in a "reasonable and
gradual way." In response the Consul General, noting the
imminent arrival of Codel Schumer from the mainland, observed
that the Chinese and U.S. Governments had agreed two years
ago that the RMB was undervalued and that the exchange rate
needed gradual readjustment, but that the USG had expected to
see more rapid change. Lau agreed that "in principle" the
RMB should be more flexible, but we could not expect any
"drastic adjustment."
Cunningham