Identifier
Created
Classification
Origin
06HONGKONG2741
2006-07-05 08:07:00
CONFIDENTIAL//NOFORN
Consulate Hong Kong
Cable title:  

THE COLOSSUS: A YEAR OF DONALD TSANG

Tags:  PREL PGOV ECON PINR HK CH 
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VZCZCXRO8909
PP RUEHCN RUEHGH
DE RUEHHK #2741/01 1860807
ZNY CCCCC ZZH
P 050807Z JUL 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 7605
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 8976
RUEHUL/AMEMBASSY SEOUL PRIORITY 2581
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 2984
RUEHKO/AMEMBASSY TOKYO PRIORITY 4151
RUEHCN/AMCONSUL CHENGDU PRIORITY 0865
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 9885
RUEHGH/AMCONSUL SHANGHAI PRIORITY
RUEHSH/AMCONSUL SHENYANG PRIORITY 3353
RUEHIN/AIT TAIPEI PRIORITY 3956
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 002741 

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DEPARTMENT FOR EAP, EAP/CM
NSC FOR WILDER
TREASURY FOR KOEPKE

E.O. 12958: DECL: 07/05/2031
TAGS: PREL PGOV ECON PINR HK CH
SUBJECT: THE COLOSSUS: A YEAR OF DONALD TSANG

Classified By: Consul General James B. Cunningham. Reasons: 1.4 (b,d).

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 002741

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NOFORN
SIPDIS

DEPARTMENT FOR EAP, EAP/CM
NSC FOR WILDER
TREASURY FOR KOEPKE

E.O. 12958: DECL: 07/05/2031
TAGS: PREL PGOV ECON PINR HK CH
SUBJECT: THE COLOSSUS: A YEAR OF DONALD TSANG

Classified By: Consul General James B. Cunningham. Reasons: 1.4 (b,d).


1. (C) Summary. After a year in office, despite what
appeared to be a series of political defeats, Chief Executive
Donald Tsang has mastered Hong Kong's political scene and
seems to dominate his opponents and rivals on all sides.
Buoyed by continued strong economic growth, Tsang has
effectively deployed an effective personal style and has
maintained popularity in public opinion polls, albeit
somewhat down from his peak. Facing an election process to
begin his first full term, Tsang,s success is assured: even
if the pan-democrats can nominate a credible candidate, it is
clear to all that Beijing will not accept any substitute for
Tsang. Nevertheless, a contested campaign with a popular

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alternative candidate like Anson Chan could prove difficult
for both Tsang and Beijing in dealing with public opinion.
It appears that Beijing is working hard to prevent an
alternative from emerging. In his next term, Tsang will need
to focus on serious structural problems that are not now
being addressed: the public's desire for greater
democratization as well as systemic flaws in Hong Kong's
system, on the political side, and the challenge of
maintaining Hong Kong's competitive edge while managing
increasing integration into the mainland economy, on the
economic side. Nor has his leadership been tested by
economic or social crisis, and of course Tsang remains
vulnerable to changes in Beijing's political climate. End
Summary.


2. (C) It may seem paradoxical to call Donald Tsang's first
year in office a success, considering that his high profile
democratic reform proposal failed to win Legislative Council
(Legco) approval in December 2005, and that he was forced to
shelve the West Kowloon Cultural District project in February

2006. Of his three "signature" projects, he has only

succeeded in moving forward with the new government office
complex at Tamar, for which Legco approved funding on July 23
-- and even Tamar could be overturned at a later date.
However, Tsang is likely to revisit both constitutional
reform and the West Kowloon project in his next term.
Furthermore, the extent to which these failures have damaged
his prestige or limited his political power is probably
minimal.


3. (C) When Tsang took office, it was widely understood that
he would have only limited freedom to change personnel in the
government. Nonetheless, he has added several of his own
choices to the Executive Council (Exco),and made several
adjustments to the ministerial and sub-ministerial ranks,
including choosing his own Secretary for Justice, the third
ranking position in the government. Most importantly, he has
installed a key ally, former Secretary for Commerce Industry
and Technology John Tsang (no relation),as his chief of
staff -- and possible successor. (It is a clear sign of how
secure Tsang's power is at this point that there is already
active speculation about who will be best positioned to
succeed him in 2012!) There is widespread expectation that
Tsang will make further changes after his expected

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re-election in March 2007, when he will be free to discard
Tung's appointees.


4. (C) Tsang has used Beijing's support, and his personal
popularity, to clearly distinguish himself from his
predecessor. Early in his tenure, when it seemed his
constitutional reform package could pass, he convinced
Beijing to permit him to lead a delegation of all Legco,
including members previously banned, to meet with Guangdong
provincial leaders. On a very different level, after years
of HKG insistence that Hong Kong did not need competition
legislation, Tsang authorized creation of a task force that
has now recommended putting a formal structure in place that
can take on non-competitive business practices regardless of
which sectors are involved. Hong Kong's strong economic
performance has allowed Tsang the luxury of a tax cut --
albeit very limited -- even as the government also prepares
for the eventual introduction of some form of sales tax.


HONG KONG 00002741 002 OF 003



5. (C) Even as Chief Secretary, Donald Tsang did well in
popularity polls; when he took on that position in 2001 after
Anson Chan stepped down, his approval rating was 67.3
percent. Dragged down by the overall unpopularity of the
Tung administration, his approval fell to 55.9 percent
immediately after the historic July 1, 2003 march. When he
was named as Tung's successor, he enjoyed over 70 percent
approval, and even at his lowest point -- in December 2005,
during the contest over his constitutional reform package --
his approval rating was 64.2 percent. His approval rating
remains in the mid-60s. He even had the support of 45 percent
of the pro-democracy marchers on July 1, 2006.


6. (C) Tsang took office with few if any allies among the
local political class. The so-called "pro-government
parties" distrusted him. Traditional leftists, who comprise
the base of the Democratic Alliance for the Betterment and
Progress of Hong Kong (DAB),the largest pro-Beijing party,
saw him as a holdover from the colonial administration, and
criticized his knighthood. The business class does not, in
general, value bureaucrats and did not see Tsang as more than
an administrator. Many among the pan-democrats feared and
distrusted him, recognizing that he would be more credible
than his predecessor C.H.Tung in connecting emotionally with
the middle class, and would provide the public with the more
responsive and effective governance that they ultimately
desired. As a sort of latter-day mandarin, however, he would
not be fundamentally sympathetic to democracy.


7. (C) However, Tsang had Beijing's backing, and has been
able to keep it. In the past year, he has already hosted two
visits by members of the CCP Politburo's Standing Committee
-- compared with nine visits (by six different members,
including the handover ceremony itself, and four visits by
Jiang Zemin) in the more than seven years of C.H. Tung's
tenure. At several junctures, Hong Kong leftists have
floated rumors that Beijing was dissatisfied with Tsang's
performance, either because of his public remarks or for
specific policy failures like the collapse of constitutional
reform. Each time, Tsang has been able to produce a clear
endorsement from Beijing, forcing the left to fall in line
behind him.


8. (C) Tsang has kept Beijing's support for a variety of
reasons, but undoubtedly his success at weakening Hong Kong's
democrats has been an important element. Today the democrats
are divided, with an increasingly clear line between the
newly formed, more moderate Civic Party (CP) and the
traditional standard bearer, Democratic Party (DP). Their
core issue, democracy, is still potent but less urgent, now
that the unlucky, inept and unpopular C.H. Tung is gone.
Turnout at the July 1 pro-democracy march, while better than
expected, was still far below the 2003 and 2004 totals, or
even the December 2005 march against Tsang's constitutional
reform proposal. This satisfies Beijing's fervent desire
that the masses be kept out of the streets. The
pan-democrats have been so weakened that they have had to go
outside their own ranks for a potential CE candidate, and are
trying to recruit former Chief Secretary Anson Chan. No
doubt Chan is a popular and credible candidate, and her
alignment with the democratic camp is a significan benefit
for them. But she is holding her own cunsel while leaving
the door open. If she does un, she will be a formidable
opponent in forcingTsang to have a genuine policy debate
that he an Beijing may find hard to handle.


9. (C) Thanks to Beijing's support, Tsang seems to have
satisfied the broader business community that he is able to
look out for Hong Kong's economic interests on the mainland.
He has engaged with the "Pan-PRD" "9 plus 2" process and has
steadily won incremental improvements in Hong Kong service
sector market access under the Closer Economic Partnership
Arrangement. It seems as though Hong Kong is on the verge of
being permitted a further expansion of renminbi business,
including the possibility of issuing renminbi debt
instruments in Hong Kong - whether this is really an economic
boon for Hong Kong's financial sector is questionable, but

HONG KONG 00002741 003 OF 003


since it is perceived as a good thing, it probably rebounds
to Tsang's credit. Meanwhile, Hong Kong is still the market
of choice for mainland IPOs, including, over the past year,
hosting the world's two largest: the USD 11 billion Bank of
China listing and the USD 9 billion China Construction Bank
listing.


10. (C) Tsang's leadership has not been tested by the kind of
difficult situations about which C.H. Tung frequently
complained, such as the Asian financial crisis or SARS.
Certainly his popularity and political dominance would be
stressed by a significant downturn in the U.S. and/or in the
mainland. His deft handling of the Asian financial crisis as
Financial Secretary, which helped shelter Hong Kong from the
worst of the downturn, however, suggests that he would be
willing to take bold measures as needed. Furthermore, he is
much less likely to create his own troubles, as Tung did with
the Article 23 National Security legislation. Perhaps his
greatest vulnerability is to leadership shifts in Beijing, if
they led to different policies towards Hong Kong or towards
his own position.
Cunningham