July 1, 2007 is the 10th anniversary of Hong Kong's return to its motherland of China. How has One China Two Systems changed the economic and financial development of Hong Kong? Why could Hong Kong survive so many crises and challenges since after its handover to Mainland? How is the prospect of Hong Kong's economy in the years to come? In order to get answers, Yong Tang, a Washington-based correspondent of People's Daily, recently conducted an interview with Dr. Jeffrey A. Bader.

As an influential China expert, Bader is Senior Fellow and Director of John L. Thornton China Center, Brookings Institution. He was Ambassador to Namibia (1999-2000); Director for Asian Affairs, National Security Council; Deputy Assistant Secretary of State for East Asia and Pacific Affairs; Assistant, U.S. Trade Representative; Deputy Consul General to Hong Kong; Director, Office of Chinese and Mongolian Affairs, U.S. State Department; Senior Vice President, Stonebridge International.

Jeffrey A. Bader

Bader: IN GENERAL, THE ONE CHINA TWO SYSTEMS MODEL HAS BEEN RESPECTED BY BEIJING AND HAS FUNCTIONED WELL TO PRESERVE HONG KONG'S PROSPERITY AND SPECIAL ROLE. HONG KONG HAS PRESERVED ITS OWN LAWS AND COURTS, CONTINUES TO SELECT ITS OWN OFFICIALS, HAS ITS OWN CURRENCY, CONTROLS ITS OWN IMMIGRATION REGULATIONS, AND ITS PEOPLE ENJOY STRONG PROTECTION OF CIVIL LIBERTIES. THESE ARE CRITICAL ELEMENTS OF HONG KONG'S STATUS.

Yong Tang:Asian financial crisis erupted just one day after Hong Kong's handover. It was a big blow to Hong Kong's economy. How did the financial crisis impact Hong Kong? Why did Hong Kong manage to survive the crisis?

Bader:THE PEOPLE OF HONG KONG HAVE DEMONSTRATED FOR DECADES THAT THEY ARE HIGHLY ADAPTABLE TO CHANGE. WHERE OTHER POPULATIONS SEE CHANGE AS TRAUMATIC, HONG KONG'S PEOPLE SEE CHANGE AS PRESENTING OPPORTUNITIES. HONG KONG SURVIVED THE FINANCIAL CRISIS BY UNDERSTANDING ITS PARTICULAR STRENGTHS AND BUILDING ON THEM. UNLIKE OTHER AREAS IN THE REGION, WHICH ATTEMPTED TO PRESERVE SPECIAL RELATIONSHIPS BETWEEN GOVERNMENTS AND PRIVATE ENTITIES, OR WHICH HAD LARGE PORTFOLIOS OF BAD LOANS BASED ON SPECIAL OR CORRUPT RELATIONSHIPS BETWEEN GOVERNMENTS AND BORROWERS, OR WHICH TRIED TO SUSTAIN CURRENCIES AT UNREALISTIC LEVELS, HONG KONG ALLOWED THE MARKET TO FUNCTION AND RODE OUT THE CRISIS.

Yong Tang:Hong Kong had also experienced two public health crises, one was Avian Influenza virus, or Bird flu while another was SARS, or Severe Acute Respiratory Syndrome. How was Hong Kong affected by these public health crises? Why did Hong Kong succeed in fighting them?

Bader: HONG KONG WAS PROFOUNDLY AFFECTED BY THE SARS CRISIS, WHICH SHUT DOWN HONG KONG TO INTERNATIONAL TRAVEL FOR MONTHS. CRUCIAL TO ITS RECOVERY WAS THE OPENNESS AND TRANSPARENCY THAT ITS GOVERNMENT AND HEALTH AUTHORITIES SHOWED IN RESPONDING TO THE CRISIS, WORKING CLOSELY WITH AND PROVIDING FULL INFORMATION TO THE WORLD HEALTH ORGANIZATION AND INTERNATIONAL EXPERTS.

Yong Tang:How do you comment on Hong Kong's current economic situation? It is rumored that Shanghai will become another Hong Kong. Which city, Hong Kong or Shanghai, will become the financial center for China in the future?

Bader: HONG KONG AND SHANGHAI PLAY DIFFERENT ROLES. HONG KONG IS A REGIONAL FINANCIAL AND COMMERCIAL CENTER FOR ALL OF SOUTHEAST ASIA, AS WELL AS A HUB FOR THE GROWTH OF THE PEARL RIVER DELTA. SHANGHAI IS A NATIONAL FINANCIAL AND COMMERCIAL CENTER FOR CHINA, THOUGH ITS PARTICULAR STRENGTH IS IN THE ZHEJIANG-JIANGSU AREA. HONG KONG WILL CONTINUE TO LEAD SHANGHAI AS A REGIONAL COMMERCIAL AND FINANCIAL CENTER UNTIL SUCH TIME AS THE RMB IS A FREELY CONVERTIBLE CURRENCY ON INTERNATIONAL MARKETS.

Yong Tang:Hong Kong enjoys easy access to the global world while at the same time it has unique geographical proximity to the mainland. What advantages and disadvantages does Hong Kong enjoy from these factors? With the deepening of China's reform and opening up to the outside world, will the importance of Hong Kong's role as bridge between Mainland and the world be on the decline or vice versa or remain the same? How could Hong Kong and Mainland China create win-win relations in the increasingly globalized world?

Bader: HONG KONG IS THE LARGEST INTERNATIONAL PORT IN THE WORLD. THAT ADVANTAGE IS NOT LIKELY TO DIMINISH IN THE YEARS TO COME. HONG KONG ALSO ENJOYS A SPECIAL PLACE AS A BRIDGE TO THE MAINLAND BECAUSE OF THE RULE OF LAW SYSTEM IN PLACE IN HONG KONG, WHICH IS ATTRACTIVE TO INTERNATIONAL INVESTORS.

Yong Tang:Will the current economic development model of Hong Kong offer some valuable lessons and experiences for Macao and Taiwan?

Bader:MACAU'S AND TAIWAN'S NEEDS AND ROLES ARE QUITE DIFFERENT, SO I'M NOT SURE THERE IS TOO MUCH FOR THEM TO LEARN FROM THE HONG KONG EXPERIENCE.

Yong Tang:How do you think of the change of Hong Kong's financial status in the world over the past ten years? Do you view Hong Kong today as one of the global financial centers in the world? Does Hong Kong lag behind New York and London, the two generally recognized financial centers in the world? If Hong Kong does lag behind them, where is the problem and how could Hong Kong catch up with New York and London?

Bader:THE HONG KONG EXCHANGE IS ONE OF THE WORLD'S MOST IMPORTANT. NEW YORK'S AND LONDON'S REMAIN LARGER, MORE LIQUID, AND MORE ATTRACTIVE FOR INVESTORS. CHINESE COMPANIES OFTEN FIND HONG KONG A GOOD PLACE TO LIST, SO HONG KONG MAY CONTINUE TO ENJOY AN ADVANTAGE IN ATTRACTING CHINESE COMPANIES.

Yong Tang:In 1995, one Fortune story proclaimed the death of Hong Kong after its handover to Mainland China. Several days ago, 10 years after Hong Kong was returned to China, Time Asia Edition declared in a 25-page cover story that Hong Kong is more energetic than ever before. How do you comment on the report of Fortune and Time?

Bader: THE PREDICTIONS OF THE DEATH OF HONG KONG WERE WRONG. CRUCIAL TO HONG KONG'S SUCCESS ARE TWO FACTORS: CHINA'S SPECTACULAR GROWTH, AND CHINA'S RESPECT FOR HONG KONG'S HIGH DEGREE OF AUTONOMY. WHILE NEITHER HAS BEEN WITHOUT PROBLEMS, ONE CAN SAY THAT IN GENERAL EACH HAS PROCEEDED WELL, AND HONG KONG HAS BENEFITED.

Yong Tang:How do you predict the future economic development of Hong Kong, say in a 10 or 20 years range? Is Hong Kong becoming more and more disadvantaged and marginalized due to the global economic reality or vice versa?

Bader: HONG KONG IS LIKELY TO CONTINUE TO BENEFIT AND PROSPER FROM A GLOBALIZED ECONOMY. A RISK TO HONG KONG'S FUTURE IS THE RISE IN CERTAIN QUARTERS OF ECONOMIC NATIONALISM AND PROTECTIONISM. HONG KONG CANNOT FLOURISH IN A WORLD WHERE THESE PHENOMENA ARE PREVALENT.

Yong Tang:Did you ever visit Hong Kong? Have you ever lived in this city for some time? How do you view Hong Kong and Hong Kong residents in person? Do you have any unique impression on this city? Do you have any personal and interesting Hong Kong stories, which you want to share with our readers?

Bader: I LIVED IN HONG KONG FOR 3 YEARS FROM 1992 TO 1995, AND VISITED MANY TIMES SINCE THEN, INCLUDING FOR THE REVERSION TO PRC RULE ON JULY 1, 1997 AND WITH PRESIDENT CLINTON ON HIS VISIT TO HONG KONG IN 1998. I HAVE ENORMOUSLY FOND MEMORIES OF THE CITY AND ITS PEOPLE, MANY OF WHOM REMAIN CLOSE FRIENDS. I MARRIED MY WIFE DURING MY 3 YEAR TOUR IN HONG KONG IN 1995, AND A NUMBER OF MY DEAR FRIENDS FROM HONG KONG ATTENDED OUR WEDDING. SO HONG KONG AND ITS PEOPLE REMAIN AN IMPORTANT PART OF MY LIFE.

By Yong Tang, People's Daily Correspondent based in Washington, DC