The Fourth Asian Tiger: An Analytical Inquiry on the Development of Hong Kong’s Capitalism

The evolution of capitalism in East Asian nations’ economies has challenged the myth that the East Asian region is a homologous conglomerate of same customs, history, and culture; contemporaneously, its expansion has demonstrated that endemic forms of capitalism may arise absent Western influence. For decades, East Asian capitalism was regarded as a modified progeny of Western European economic models, as East Asian economies were “[absent] of an autonomous, autochthonous [capitalist structures] as in all parts of the world with the only exception of western Europe[1]”. This Eurocentric perspective offers limited and bias information regarding the autonomy of East Asian peoples to industrialize; depicting them instead as only dependent colonials that absent foreign intervention would have never been able to develop. Moreover, this model fails to reconcile the correlation between British imperialism in East Asia, especially in select Crown Colonies such as Singapore, Hong Kong, Taiwan, and South Korea, and the evolution of these colonies into what they are now known as the Four Asian Tigers.

The specific case study of Hong Kong is particularly noteworthy given its geographic location and historical continuity with China. In fact, one might ponder the question, what role did Chinese historical customs regarding capitalism have in concomitance with British imperial rule of Hong Kong, especially in the immediate post-war 1945-1949 period? While much of early academia argues that British colonialism imported Western European capitalism, which was then perfected in the Hong Kong petri dish, it can be argued instead that the tense power struggle between Great Britain and China may provide the answer. The struggle of Britain to retain Hong Kong without damaging international relations with China, especially with the Kuomintang in the immediate postwar period, meant lesser government intervention in economic affairs, which coupled with Chinese historical attitudes about petty capitalism, saw Hong Kong’s service sector flourish and from it an endemic form of presently successful capitalism.

In order to understand its past, presenting a wide-angle on Hong Kong’s present allows for a more immediate gauging of the successes or failures of past economic policies, as the postwar period for Hong Kong marked the development of a simple port into one of the greatest economies in the world. Firstly, the issue of governance in Hong Kong still remains controversial, as its structure continues to be “decidedly undemocratic”[2], and ruled by a municipal elite. Nevertheless, the supposed “failure” of democracy obtains negative connotations only insofar that it disadvantages those under its undemocratic rule. That is, clearly it is not the case in Hong Kong. The governing undemocratic elite translates seamlessly into “traditionally avoiding major intervention to correct market forces in the economy, [instituting] laissez-faire [economic policies]”[3]. Moreover, the city’s free-market constitution[4], is the origin and driving force for prosperity in the economy. The government’s economic policies are not only laissez-faire but almost completely un-interventionist. The recipe for Hong Kong’s economic success seems to be best summarized as a series of thrifty policies such as: “balanced budgets, avoidance of public debt, an economy ethic in government that strives to avoid wasteful spending, an aversion to central planning, minimum intervention in or regulation of the private sector, commercial provision of public economic services, a constitutional legal framework that protects private property and a whole range of personal freedoms, free trade, free movement of capital, avoidance of subsidies to industry, minimally intrusive general business requirements, a free market in labor, and a system of low rates and low overall taxation”[5].

This system might seem innovative or even socially cruel to those Western European nations that strive on socialist welfare policies in a desperate kamikaze-like attempt to reconcile them with capitalist economies—yet, non-interventionist, Hayekian, free-market economies pay off, as is evident in the Hong Kong case study. However, while many in academia would point to the Sino-British agreement and the Base Law as the background Hong Kong necessitated to become an economic superpower, it can be clearly argued that instead, it was a mixture of Chinese capitalist attitudes and British colonial intervention—or factual lack thereof—that paved the way as early as in the 1945-1949 period.

Chinese capitalist attitudes developed as early as the T’ang and Sung period, and parallels in Hong Kong’s customs post-1945, which created the present economic miracle, are clearly identifiable. Chinese early forms of capitalism rested largely on family enterprises and used consanguineous relationships as the “organizational medium for the economy”[6] in the early T’ang and Sung periods. While not capitalism proper, a sense of capitalistic shrewdness was beginning to develop in middle-class families. The familial unit has been studied by economists for decades as the first unit of economic forms of consumption and production. This Chinese form of non-proper capitalism, is a mode of social organization that is “legitimated through kinship principles” and is “not dependent on a system of political economy”[7]. Capitalist ventures became thus detached and independent of any one political order[8]. Moreover, these extended kinship ties allowed families to “forge lineage organizations that functioned as accumulating and investing corporations”[9]. Furthermore, extended kinship was a viable enough excuse to evade official control with the “border-jumping mechanisms used by capitalist multinational corporations”[10]. While early Chinese capitalism was regarded as a type of petty rather than proper capitalism, the attitudes towards it remain well founded in Hong Kong in 1945-1949: the ability to succeed despite, or in spite of, a political economy; accumulating and investing in the service sector; and depending on international markets more than national markets. “Although they have been modified by circumstances, the traditional Chinese social institutions and values do not appear to have been seriously undermined by the combined forces of new economic opportunities, urban growth, industrialization and the changing Hong Kong demographic composition”[11] (Chan, 1983). Perhaps as a just echo of historic Chinese shrewdness when it comes to capitalistic endeavors. Hong Kong’s resilient capitalistic economy has successfully weathered international recessions, trade quarrels, oil shocks, and internal disputes. Its free-market economy has enabled Hong Kong businessmen to adjust quickly to changing external circumstances[12], an echo of the adaptability of the familial units at the basis of early T’ang and Sung petty capitalism. Moreover, Hong Kong Chinese centripetal family serves presently as a crucial and basic focus of individual social and economic loyalties[13], again reiterating the endemic nature of familial capitalism to Chinese culture.

It is evident, as is the case for Hong Kong, that “Chinese-dominated areas of the world economy are not characterized by heavy industry, rather, the Chinese specialize in relatively small, and medium-sized industries”[14], as the originating hub of capital formation was historically within the family, and maintained this prerogative throughout Hong Kong’s development. Hong Kong’s present economy depends on “export-oriented light manufacturing industries along with a myriad of servicing industries within a free port, free-enterprise environment. Highly developed banking, insurance, and shipping systems complement its industrial sector”[15]. The economic developments from the postwar period until present day, have shown the city’s financial services sector to be the most rapidly growing part of its economy[16], as historically the Chinese have not invested into heavy industry but rather in the service market, or in manufactured exports, particularly low-priced textiles[17] and in general, met the demand for manufactured goods for export to world markets[18]. It is important to note that private investment has continuously been coming from a group of successful, indigenous Chinese investors[19], which cripples the thesis that Hong Kong was merely a colonial city dependent on it the British to strive: internal income growth since the postwar accounts for most of the investment.

Interestingly, “[of the] decisive question of accumulation…the connection established by Max Weber between the tradition of austere Puritan thrift and early capitalism”[20] seems to perfectly apply to the first historical developments of capitalism in China, yet contradict the definition of modern capitalism. In a sense, this ambiguity can be explained with the fact that if Hong Kong’s economy were only historically Chinese, perhaps capitalism proper would never have developed precisely because of culturally thrifty attitudes emboldened by Confucian law and philosophy. However, Hong Kong’s economic success is not only due to the customs of Chinese attitudes towards petty capitalism, but also thanks to its ability to strive especially in spite of a lack of political economy, personified by the ambivalent attitudes of British colonial policies.

Historically, “the first great thrust of Chinese bourgeoisie happened during a period when national sovereignty was divided (between the late Tang, early Sung dynasty)”[21]. It can be deduced thus that an attribute of this endemic form of capitalism is it necessitates lack of government intervention in order to develop and expand. It can be thus asserted that, “division of national sovereignty has always been favorable to the development of the middle classes and capitalism”[22], insofar that it allows for a free-market economy in which firms can operate unrestricted and capitalist venture can strive. This type of independence resonates with the Hong Kong case: historically, “politicians and political regimes have tried to constrain Chinese entrepreneurs and to channel their energies”[23] yet to no avail, instead reinforcing the perceived need for a Hayekian economy. Historically, “Chinese capitalism [was] not a domestic capitalism, yet profit-oriented in the private sector”[24], which would explain the necessity of Hong Kong’s economy to be non-interventionist, as well as explain the failure of Mao’s socialist political economy in mainland China.

Therefore, it seems unsurprising that the echoes of the early development of Chinese capitalism resonate in Hong Kong’s postwar economic situation. Policies of non-intervention in the private sector[25] allows for a greater independence for the marketplace to determine the pattern and scope of economic development[26]. Although these capitalist characteristic might seem obvious for some, their relation to economic growth is quite clouded. Generally, “low rates of taxation and limited government supply strong incentives to individuals”[27] to invest in the economy in an unrestricted manner especially in those private sectors such as banking and export/import industries that would otherwise, in any other space and time, be impossible because of the amount of regulation attached. Therefore, in Honk Kong, the postwar period was characterized by a small public sector to prevent it from crowding out the private sector[28]. Moreover, the beneficial spillover of a small public sector is that it ensures that “resources are used efficiently either in private hands or under autonomous management”[29] and wasteful costs are minimized.

Hence, it was quite clear that in order for Hong Kong to prosper in the immediate postwar, the colony was to maintain a level of unprecedented autonomy for the British Crown, in line with the early developments of Chinese petty capitalism and the transcendence of those attitudes into 1945-1949 Hong Kong businessmen. “As long as the British did not attempt to create in Hong Kong a separate political identity and an independent city-state, the People’s Republic would tolerate the temporary existence of a British administration”[30], analyzes Roger Louis, in an attempt to give a snapshot into the ambiguous behavior of British administration of Hong Kong. Since British measures of self-government, suggested by the colony’s first administrator, Sir Young, would be interpreted as an attempt to install a collaborative and permanently hostile regime[31] against China, the British position on the subject remained ambiguous for the first five years of administration. Moreover, “economic prosperity would depend on keeping the colony on peaceful terms with China and at the same time redirecting Hong Kong’s trade and industry toward the West”[32], both considerations which influenced deeply future British decisions regarding Hong Kong.

First, of noteworthy value to further analysis, is a discussion of Hong Kong’s demographic and geographic importance for the British empire, in order to better understand British interest in it. The region was a free port, dating back to 1841[33], once used only by British shipping, thanks to the harbor’s position as China’ only deep-water port and the world’s second largest container capacity[34]. Moreover, the population of Hong Kong at the time of the British reoccupation in 1945 was 800,000 of which 97 percent was and remained Chinese. In 1946, the population increased to over 1 million[35] and at the time of its reintegration in China in 1997, over five million people lived in Hong Kong, a land area of some 400 square miles and producing the second highest per capita GDP in Asia[36]. Quickly, Hong Kong rose from “a relatively insignificant port, to the world’s third largest financial center”[37]. Demographic increases are important to track, especially for historical data gathering because they can be suggestive of economic or social development. After the collapse of the Nationalist government[38], Hong Kong saw an astronomical number or refugees inhabit the city, increasing the skilled labor pool that led to the emergence of a service sector in Hong Kong’s economy[39]. Moreover, refugees from the civil war infused the colony with energy and wealth[40], precisely because of the socialist hunt for the upper class businessmen in mainland China, who were pushed into the Hong Kong region. Nevertheless, “Hong Kong’s economic resilience had roots in the necessity for the refugees to start a new life”[41].

Hence, considering the immense potential in Hong Kong, England was able to exploit the inability of Chinese leaders to deal effectively with an industrialized society[42] while mainland Chinese leaders struggled with the inability to repel European Imperialism[43]. This allowed for Britain to retake Hong Kong in 1945 and engage in postwar modern international capitalist development. However, the Hong Kong continues to be noteworthy and unique even under British colonial rule. Hong Kong “enjoyed formal status as a Crown Colony but lacked distinguishing characteristics of the era of British colonial rule that could be found in almost all other principal colonial territories: the development of a nationalist movement and the advance toward self-government”[44]. These aspects are entirely akin to the Hong Kong case yet are not found in any other British colony: moreover, this uniqueness allowed for Hong Kong’s economy to further develop. Therefore, once again, Hong Kong’s present economic success should also be described within the parameters of non-interventionist British colonialism, with high rate of return beneficial spillovers.

The British contemplated launching Hong Kong on a course that might have given the colony a national identity much earlier and might have secured the status of independence within the Commonwealth[45]. This was an advantage easily foreseeable by Sir Young, the first administrator post-1945 of Hong Kong, who believed in the gradual process of the transfer of responsibility. He denoted that: “[Hong Kong] needs to develop an active sense of citizenship and to become capable of openly expressing and giving practical effect to the general desire of its inhabitants if it is to remain under British rule and to resist absorption by China” [46]. His initial policy plans were to form a municipal council that would be “constituted on a representative basis… the municipal council would be elected on a popular franchise”[47]. While larger macro-executive decisions would remain within the scope of the Foreign Affairs imperial office of the Crown, lesser policies would be of sovereign concern. In fact, even traditional Colonial office policy throughout the world comprised “introducing representative government in gradual stages”, such that colonial subjects were allowed step by step to manage their own affairs[48]. Moreover, Sir Young vigorously proposed constitutional reform as a means of preventing the absorption of the colony by China[49]. [Young] believe that Hong Kong could eventually develop a British identity as a city-state within the British Empire and Commonwealth. These policies seem aligned with British colonial rule elsewhere, yet the level of non-intervention was to materialize as a response to mainland China’s opposition to Young’s ambitious project.

Until the late 1947, the Nationalist Party of Chiang Kai-shek seemed to menace the British presence in Hong Kong[50]. Chiang Kai-shek monopolized the economic life of the entire country by turning China into a “comprador-feudal state-monopoly-bureaucratic capitalism: directed at the Chinese commercial and industrial bourgeoisies of the treaty ports, who were in close relation with foreign powers and the great landlords”, as well as descriptive of the type of nationalist country Kai-shek aspired to. Essentially, the Nationalist Party seemed to be in opposition to Sir Young’s grandiose plan of a unified and nationalist Hong Kong precisely because it separated Hong Kong from the national ideal of a unified China and because it created an alliance with Great Britain that China was not yet ready to be part of. Moreover, the United States backing of Kai-shek’s nationalist claim allied it to China rather than Britain in the discourse of Hong Kong’s independence. Amidst these contentions, Sir Alexander Grantham, governor of Hong Kong from 1947 to 1957, believed that the British might hold their own against the Nationalist Party but that if China were brought under Communist control (a specter that could have easily materialized at the beginning of his administration and ended up being as at the end of the administration), “then it would have only been a matter of time before some kind of rendition campaign started”[51]. By contrast to Young, Grantham thought that the Chinese cultural affinity and proximity of the colony to China would prevent the development of a British allegiance[52]. In fact, Grantham had spent most of his years in China, and had developed a deeper understanding than Young of Chinese attitudes towards foreigners.

Nevertheless, regardless of this initial hiccup, Grantham’s administration proved most effective, demonstrated not only by his long tenure, but also by the fact that following his administration, until 1978, Hong Kong maintained an extraordinary degree of stability in its political and economic institutions[53]. This stability enabled for an increase in trade with Hong Kong, which was able to retain its non-interventionist political economy, and attracted traders in part because of its relative political neutrality in Asia[54]. Grantham’s decision to steer away from Young’s ambitious plans to create a Chinese-free, British-dependent Hong Kong proved successful. Free enterprise depended as much on the framework of British law and administration as it did on the hard work of the overwhelmingly Chinese population[55]. By avoiding political opposition to Kai-shek and later to Mao, Grantham was able to administer limited interventionist economic policies in Hong Kong, which allowed the city to prosper. A visitor from Shanghai in 1949 said, “there is undoubted prosperity… real wages have increased an estimated 25 percent as compared with pre-war, the building trades are booming, and the high prices for food have benefited the farmer… there is no dearth of fine motor cars, fine food, and good things in the shops; and if business is actually at middling levels, the men of business are most certainly enjoying their indifferent prosperity”[56].

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Footnotes

[1] E Balazs. “The Birth of Capitalism in China.” Journal of the Economic and Social History of the Orient 3 (no. 2, 1960), 197

[2] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.” Journal of Comparative Business and Capital Market Law, (no. 7, 1985), 201

[3] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 202

[4] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”. The New China. (Boulder, Colorado: Westview Press, 1987), 641

[5] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 642

[6] Gary Hamilton. “Overseas Chinese Capitalism”. Confucian Traditions in East Asian Modernity. (Cambridge: Harvard University Press, 1996), 335

[7] Gary Hamilton. “Overseas Chinese Capitalism”., 335

[8] Gary Hamilton. “Overseas Chinese Capitalism”., 336

[9] Hill Gates. China’s Motor: A Thousand Years of Petty Capitalism. (Ithaca: Cornell University Press, 1996), 273

[10] Hill Gates. China’s Motor: A Thousand Years of Petty Capitalism., 273

[11]Ming K. Chan. “Stability and Prosperity in Hong Kong: The Twilight of Laissez-Faire Colonialism? A Review Article”. The Journal of Asian Studies, 42. (No. 3, May, 1983), 595

[12] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 642

[13] Ming K. Chan. “Stability and Prosperity in Hong Kong: The Twilight of Laissez-Faire Colonialism? A Review Article”., 595

[14] Gary Hamilton. “Overseas Chinese Capitalism”., 332

[15] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 641

[16] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 648

[17] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 198

[18] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 650

[19] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 198

[20] E Balazs. “The Birth of Capitalism in China.”, 214

[21] E Balazs. “The Birth of Capitalism in China.”, 206

[22] E Balazs. “The Birth of Capitalism in China.”, 206

[23] Gary Hamilton. “Overseas Chinese Capitalism”., 338

[24] Gary Hamilton. “Overseas Chinese Capitalism”., 331

[25] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 649

[26] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 650

[27] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 648

[28] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 647

[29] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 648

[30] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1084

[31] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1065

[32] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1082

[33] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 649

[34] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 205

[35] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1060

[36]Ming K. Chan. “Stability and Prosperity in Hong Kong: The Twilight of Laissez-Faire Colonialism? A Review Article”., 589

[37] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 198

[38] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1059

[39] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 198

[40] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1061

[41] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1061

[42] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 199

[43] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 201

[44] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”. The American Historical Review, 102. (No. 4, Oct., 1997), 1052

[45] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1053

[46] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1066

[47] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1066

[48] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1065

[49] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1064

[50] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1059

[51] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1054

[52] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1058

[53] Alvin Rabushka. “A Free-Market Constitution for Hong Kong: A Blueprint for China”., 641

[54] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 205

[55] Thomas S. Macintyre. “Impact of the Sino-British Agreement on Hong Kong’s Economic

Future.”, 203

[56] Roger Louis. “Hong Kong: The Critical Phase, 1945-1949”., 1061