ECONOMIC INTEGRATION

IN examining the economic integration between China and Hong Kong, one needs to distinguish between two types of integration. One type involves the increasing integration of the Hong Kong economy with the Chinese economy. This integration can be trade-related – Hong Kong exports to, or imports from, China – or it can be investment-related – Hong Kong firms move their manufacturing sites to China. The other type involves control by mainland Chinese firms over assets located in Hong Kong. Although these two types of economic integration are often lumped together, they in fact have different implications for government–business relations in Hong Kong.

Trade and investment integration with China is nothing new; Hong Kong has served as a trade entrepot between China and the rest of the world since the founding of the People's Republic of China (PRC) in 1949. Investment integration came much later, beginning in the late 1970s in reaction to China's open-door policies. It is important to point out here that trade and investment ties of this kind alone have not changed in any meaningful way the manner in which Hong Kong's economy is governed. Hong Kong has remained a laissezfaire economy regardless of the fact that an increasing proportion of its trade is with one of the most illiberal economies in the world.

Chinese acquisitions of Hong Kong assets are of a different order altogether: They are of far more recent vintage, closely connected with the imminent transition of sovereignty from the British to the Chinese.