CODEL MCCAIN ROUNDTABLE WITH SENIOR HONG KONG

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 000637

SIPDIS

DEPT FOR EAP/CM

E.O. 12958: DECL: 04/05/2019
TAGS: PGOV ECON EFIN ETRD PHUM OREP SENV HK CH
SUBJECT: CODEL MCCAIN ROUNDTABLE WITH SENIOR HONG KONG
STATESMEN

Classified By: Consul General Joe Donovan for reasons 1.4 (b) and (d).


1. (C) Summary: Former Chief Secretary Anson Chan told CoDel
McCain April 5 that Hong Kong's deterioration under "one
country, two systems" has more to do with the failure of the
current administration to defend Hong Kong's interests than
with interference from the Mainland. Executive Councilor and
economist Professor Lawrence Lau argued that even democracy
will not help Hong Kong if it fails to maintain its
international standing, warning that Hong Kong people are
becoming more insular. Civic Exchange CEO Christine Loh felt
Hong Kong should take advantage of increasingly liberalized
Chinese foreign investment rules to attract Mainland
investors to Hong Kong, creating a Mainland constituency with
a stake in Hong Kong's ongoing success. While Chan and, to a
lesser extent, Loh argued the Mainland has dampened progress
towards democracy, they did not believe that the Mainland
would block democratic development to the point that Hong
Kong came to be more like the Mainland. On the environment,
all three maintained that the situation had deteriorated and
required more attention by the Hong Kong government. On
climate change, Loh argued that the Mainland leadership was
quite well-informed and focused on the issues, but would look
for a policy signal from the United States in Copenhagen.
End summary.


2. (C) On April 5, The Consul General invited three Hong Kong
"senior statesmen" to offer CoDel McCain (Senators John
McCain, Lindsay Graham, and Amy Klobuchar) their perspectives
on Hong Kong's present and future status. The group included:

-- Former Chief Secretary and former independent
pan-democratic Legislative Councilor Anson Chan Fong An-sang.

-- Executive Councilor, Vice Chancellor of the Chinese
University of Hong Kong and noted economist Professor
Lawrence Lau Juen-yee.

-- Civic Exchange Chief Executive Officer and former
Legislative Councilor Christine Loh Kung-wai.

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Defective Political System
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3. (C) Asked to offer their views on Hong Kong's current
situation, Anson Chan explained that, while people still
viewed Hong Kong as a place that works, popular
dissatisfaction with the government was growing. She argued
Hong Kong's government is failing to uphold the "two systems"
side of "one country, two systems." In part, this has to do
with the defective nature of Hong Kong's governance system,
with an unelected Chief Executive hard pressed to win support
in a legislature which has to answer to voters. However, she
laid a large part of the blame on the government's poor
performance on alleviating the growing rich-poor gap and on
progress towards democracy, which has engendered public
discontent. Chan also contended that the central government,
through the Central Government Liaison Office, was
increasingly interfering in Hong Kong's elections and even
its day-to-day governance.


4. (C) Christine Loh described "one country, two systems" as
a double-edged sword. Yes, it had generally protected Hong
Kong's unique way of life, although the pace of
democratization had been slower than Hong Kong people wanted.
The Hong Kong and Macau Affairs Office (HKMAO) had served as
a buffer, she said, keeping Mainland interests from seeping
into Hong Kong to the detriment of its autonomy. However,
the unintended consequence of HKMAO's monopoly on Hong Kong
was that ministers on the Mainland do not consider Hong Kong
in their work, meaning Hong Kong interests in major economic
questions are not heard during the policy debates.


5. (C) Citing President Hu's recent defense of Hong Kong and
Macau against their being listed as "tax havens", Lawrence
Lau argued the Mainland does not ignore Hong Kong's
interests. He sees a greater concern in Hong Kong turning
inward itself. People are not interested in learning
Mandarin, and are giving up their English. In that regard,
he contended, democracy will not help if Hong Kong isolates
itself. Hong Kong must maintain its internationalization and
build its relationship with the Mainland. Without the
former, Hong Kong will truly become "just another Chinese
city"; without the latter, Hong Kong will be an island
disconnected from China.


6. (C) Asked by Senator McCain about roots of public

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discontent, Chan cited sham "public consultations" after
which the government does as it chooses, the government's
apparent belief that economic integration can only occur at
the cost of Hong Kong's unique social system and freedoms,
and the government's failure to carve out Hong Kong's niche
in the development of China. However, this has not led to a
greater call for socialism, as Senator McCain ventured it
might. Chan believed that Hong Kong people are generally
pragmatic and prefer to rely on their own resources. What
they want from the government, she contended, is assistance
to the neediest sectors of society, including job training,
and also long-term investment in economic prosperity through
education and development of competitive sectors.


7. (C) Loh contended the current system leaves people feeling
they have little influence collectively. She noted that, as
neither a dictatorship (which can order change) or a
democracy (which can win a mandate),the government was
poorly designed to implement structural change. Lau
concurred to an extent, noting that much of the political
debate now is a government vs. anti-establishment divide.
This makes dealing with thorny issues such as reforming the
tax base very difficult.


8. (C) Regarding the Mainland's role in slowing development
of democracy, none of the three Hong Kongers believed that
the one country would inevitably trump two systems, leaving
Hong Kong more like the Mainland and not able to reach its
democratic goals. Lau argued that, while more progress was
needed, Hong Kong was still freer than it had been before

1997. Chan was much more pessimistic, yet still felt Hong
Kong could succeed if the government had the will to do so,
and also believed that the Mainland was changing more than
the CoDel might realize. Loh argued that the democracy
debate had always been part of Hong Kong, and was part of
China's story as well. All felt China still regards Hong
Kong's unique system as valuable and hoped for its success.

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Economic Role Hong Kong's to Lose
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9. (C) Chan, Loh and Lau all saw Hong Kong's core advantages
in its open flow of information and the rule of law.
However, both Chan and Lau argued Hong Kong is losing its
chance to remain a vital international economic center. Chan
told the CoDel Hong Kong had a long history of participation
in international economic fora, whereas now the government
either "doesn't turn up" to meetings, or attends but says
nothing. Lau noted that the Mainland has 90 double-taxation
treaties, while Hong Kong has five. The PRC state aluminum
company Chinalco is in the process of acquiring a stake in
Australia's Rio Tinto mining company. Hong Kong should be
the ideal place to set up a headquarters for the resulting
new entity, but Hong Kong lacks a taxation treaty with
Australia, so the office will be opened in Singapore. Both
Chan and Lau argued the government is moving too slowly to
identify and develop industries such as insurance in which
Hong Kong's rule of law system offers an advantage over
Mainland cities.


10. (C) Regarding the rise of Shanghai, Lau argued that there
was more than enough business in China to support several
economic centers. Even if Hong Kong served only the Pearl
River Delta, that was 400 million people. Loh sees Hong Kong
missing an opportunity in the liberalizing rules for foreign
investment now emerging on the Mainland. By getting
Mainlanders to invest in Hong Kong, Hong Kong can create a
constituency on the Mainland committed to Hong Kong's
success.

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Environmental Issues
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11. (C) Christine Loh argued that Hong Kong has done poorly
on environmental issues, and that Hong Kong's air quality wasnow twice as bad as Los Angeles. She cited roadsie
emissions as most important, more so than PearlRiver Delta
industry. Lawrence Lau noted that Hng Kong power plants
also still burn dirty coal. Anson Chan decried the
seven-year debate beforethe government started retro-fitting
coal-fired lants with clean coal technology as aother
failure in governance. Loh blamed the media in part: Since
the "old fashioned" media do not give adequate coverage to
environmental issues, the government believes the issue is
not o the minds of citizens since they don't see "riots".


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12. (C) Loh was markedly more upbeat about the Mainland,
although she admitted they were starting from a different
place in development. She believes the Politburo are
well-briefed on environmental issues and the impact of
climate change on China, particularly the importance of
energy efficiency. She told the CoDel China will come to
Copenhagen ready to negotiate, but will be looking in the
first instance for a policy signal from the United States.
Noting China has always cited its low emissions rate per
capita, Lau argues Copenhagen needs to look for some
universal criteria which will put all economies on the same
scale while allowing for their levels of development. Loh
countered that such a debate would take so long the result
would come "too late." She thinks a series of ad hoc deals,
in which less-developed countries are guaranteed energy
supplies, can be concluded more quickly.

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Other Issues
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13. (C) Chan, Lau and Loh all downplayed the CoDel's concerns
about China's military buildup, with Chan arguing that all
states built up their military capabilities as a deterrent.
China's base, she argued, was still very small. None of the
three saw the buildup as directed "against" anyone, save
perhaps against a unilateral declaration of independence by
Taiwan. While they accepted that the new Ma administration
was not inclined in that direction, they told the senators
that such restraint was never taken for granted under Chen
Shui-bian. Asked by Chan whether Congress and the U.S.
government remained interested in "one country, two systems",
McCain argued they did, but that the economic crisis was
causing America to look inward. Graham argued that Taiwan
was very successful in lobbying, but that Hong Kong had fewer
advocates.

(U) The CoDel did not have the opportunity to clear this
message prior to departure.
DONOVAN