The former chief executive reflects on a difficult past but he remains hopeful about what lies ahead It has been 10 years since the handover. What is the significance of Hong Kong's return to China in historical and political terms? Thank you very much for giving me this opportunity to talk to the readers of the South China Morning Post, a wide readership. The significance is at three levels. At Hong Kong's level, after 156 years of separation, Hong Kong is reunited with a bigger family. The other significance is that the uncertainty of what would happen after 1997 was removed and the fact that 'one country, two systems' has been successfully implemented removed uncertainty. So that's really very significant. From a global level, an issue left outstanding historically was resolved through negotiation and in a peaceful way. That in a way gave an example to a lot of countries, how many complicated problems can be solved through negotiation with goodwill. From China's perspective, the significance is that Hong Kong now is part of China again and that a step has begun towards the ultimate reunification of the entire country. Do you think Hong Kong has completed the transition to become part of China? Many people say that although the transition period is over, Hong Kong people psychologically, despite the convergence in the economic arena, still don't think they are Chinese and they lack a strong national identity. What is your view on that? The question is on two levels. Is the transition complete? I think in every respect the transition is complete because it's about the resumption of sovereignty, it's about implementing 'one country, two systems'. And by all accounts, 'one country, two systems' is successfully implemented here. I can relate a story that I was told. Before July 1, 1997, there were many dignitaries from the US coming to Hong Kong, and on a flight coming over someone was saying that 'one country, two systems' would not work in Hong Kong. They arrived in Hong Kong and I had the chance to meet many of them. Everyone was very sceptical about this. I told them: 'It's all right. I understand your doubt. Why don't you come back to see me next year? And if next year after you come, you are still not satisfied, come a year later.' Many friends in the last 10 years have come back to see me. Now they say to me: 'One country, two systems is really working in Hong Kong. Congratulations!' It is working and more and more Hong Kong people care about China, understand China a lot more than before, and feel the affiliation with China. There are obviously people who are not there yet. Well, that doesn't matter. In time this will happen. There are some suggestions that people should be more patriotic and the level of national education should be improved in order for universal suffrage to be introduced in Hong Kong. Do you agree? And do you think these two issues are in any way linked for Hong Kong? Hong Kong has returned and China now is exercising sovereignty over Hong Kong. I have said many times in Chinese that 'if Hong Kong does well, China will do well; and if China does really well, Hong Kong will do wonderfully well'. I never attempted to translate that into English. What it says is that if Hong Kong does well, China will do well; and if China does really well, Hong Kong will do wonderfully well. What it means is that Hong Kong and mainland China share the same destiny as we move forward. The key is now more and more people understand this in Hong Kong. And so feeling is coming very naturally now. Of course, at school level a better and greater understanding of what's happening in China is very helpful. I think it's the right thing to do. So far as universal suffrage is concerned, I suppose you will ask me this question later on. With the economic bubble and the Asian financial turmoil, I think you probably agree that 10 years ago very few people expected Hong Kong to go through that difficult period. Most people were expecting turmoil on issues such as free speech and crackdown on dissidents. That did not happen. Many of the difficulties that Hong Kong experienced were unforeseen, such as bird flu. Looking back, do you think Hong Kong had prepared itself adequately for the transition? I think Hong Kong has prepared for the transition as well as can be prepared ... When I stood up and said I want to be counted, run for the chief executive's job, in my speech I made that day I talked about the fact that there is prosperity but underneath there are signs of worry. What we did not expect is that on July 2, 1997, the Thai baht delinked [from the US dollar] and the Asian financial turmoil began to hit Thailand, Malaysia, Indonesia and Korea. Interest rates went up overnight to a ridiculously high level, and that accelerated and created the hard landing that followed. We saw [the] economy picking up somewhat, then we had 9/11 in 2001, before that you had the bursting of the technology bubble in the stock market. Then suddenly we had Sars. So it just continued on. But all through that time, we tried, we understood what needed to be done. We protected the exchange rate in 1998; and then beyond that we had to ask ourselves how are we going to get the economy going again. Our conclusion was that we have to have leverage, take advantage of mainland China's rapid economic development. And that was how we started talking about Cepa, about Chinese individual travellers to Hong Kong, about more and more companies getting listed here. Of course, all these things took time. I remember I first raised this with the president and premier in 2001. The answer was: 'OK, we understand that it is important, but we are in the middle of negotiation with America, Europe and WTO about our own entry into WTO, so could you just wait for this to be concluded? And then come and talk to us.' So that was not concluded until December 2002. We tried as hard as we could to lessen the pain. Through that difficult period people were hurt. Looking back, would you have implemented some of the social policies that you implemented at that time, such as the decisions to go ahead with the mother-tongue education policy in secondary schools, and to introduce the national security legislation under Article 23 of the Basic Law? I think in so far as education reform is concerned and the teaching of Chinese, Mandarin Chinese and so on, it is also part of the education reform programme. I think it is essential. The education reform itself is an issue where there are lots of different views. I think reform is necessary. The result of the education reform will take many, many years to see through. And I would hope that my ex-colleagues in the government will keep on trying, persist in this effort and make sure our education is truly one of the best in the world. I think we are getting some results. Three universities in Hong Kong rank among the highest in the world now. These are all results of the things we are trying to do. We have an obligation to legislate under Article 23 and it is for national security. At the very beginning, before drafting the Basic Law, China could have enacted it as a national law and given it to us to implement. So I think we have the obligation to do it; at an appropriate time we should do it. And I hope when it is done it will be done well and we can get it done. But I will tell you another consideration. You may know it, but I just want to mention it. In the summer of 2003, the financial secretary, then Joseph Yam [of the Hong Kong Monetary Authority] came to talk to me about the fact that there were speculators out there betting we would raise our exchange rate again. Why? Because there was a huge budget deficit. So we were left with very few options. The option we chose was to reduce that budget deficit quite dramatically by increasing taxes and reducing spending. You can ask should we have done that? Because you know the other things that were going on, as well as Sars. Let history be the judge. That action, unpopular as it was at that time, actually was part of the foundation-laying for the recovery later on. Another very unpopular policy at that time was the 85,000 flats-a-year target. Looking back, do you think you were a little bit too rash when you tried to introduce the policy? I don't know whether you know this or not. Before 1997, a target of 85,000 was already set. So it was not that we pulled the figure out of the air. The figure existed already. It was set at a time of very high property prices. But property prices started to fall as soon as the Asian financial turmoil set in and as soon as the interest rates started to appreciate rapidly in 1998. The property prices just steadily came down. It was tough on a whole lot of people. I feel very sympathetic. But these are really, really the facts. But the other point I want to make is that when I ran for chief executive and walked about in housing estates and so on, many people complained to me: 'It's taking us seven years before we can get public housing'. So it was bad. And when I left it was down to two years actually, so from that point of view I'm quite happy. Some say Hong Kong's current political system, with tension between the executive authorities and the legislature, is a recipe for administrative gridlock. People are saying that only by introducing universal suffrage can this tension be resolved. Do you agree? I can name you many, many countries where there's universal suffrage where the tension between the executive and the legislative branches is enormous. So I would not like to say that that is a solution to every problem. I think, in so far as universal suffrage is concerned, we have a Basic Law and we have to go by the Basic Law. We have to look at the basic design of universal suffrage, the road map; how you're going to get there; what you're trying to achieve when you get there. You have to go through these and make sure that you get it right and then you can pick a timetable for it. So the Chief Executive is working very hard, issuing a green paper, going through a consultation process, and then eventually coming to some kind of a conclusion for further presentation. We should support the process and keep an open mind. Recently, a lot of people have been saying that people in Hong Kong are not mature enough in different ways, so they're not yet ready for universal suffrage. What is your view on this? Secondly, in your elevated position as a state leader, have you tried to tell our state leaders about people's desires? Let me give you one observation. Hong Kong has gone through a great deal of difficulty over the last few years, with the implementation of 'one country, two systems' and with the bursting of the asset bubble, the Asian financial turmoil, high interest rates, declining property prices, and high unemployment. But that also is a consequence of globalisation, of changes in the global economic development, and of what's happening in China. Massive changes create a situation here in Hong Kong which have not been faced before - massive changes taking place at the same time. And these are really difficult issues. Would universal suffrage have solved these problems? It may, but equally, it may not. Universal suffrage is not an answer to every challenge that we face, that's what I want to tell you. I agree with what Chief Executive Donald Tsang suggested is a good way forward. So let's work through this way and see how it works through itself. We will go towards universal suffrage, but we have to do it in accordance with the Basic Law. Since stepping down as chief executive and becoming a vice-chairman of the CPPCC, you have been quite active between Beijing and Washington, and the developing Sino-American relationship. Can you tell us a bit more about what you have been doing? Having stepped down as chief executive of Hong Kong and becoming vice-chairman of the CPPCC, you know, I think about what I should do now that I'm at the ripe age of 70. Obviously, I want to do a good job as vice-chairman of CPPCC but the other thing that I thought about was the fact that I have good connections around the world and in the United States because of the network I've built up over many, many years. I want to use these relationships to, for instance, explain to people how well Hong Kong is doing. I also want to tell them about our country's development; where our country is going; what we are trying to achieve, and that our desire is peaceful and that we want to be friends to everyone. Our focus is on development, creating wealth. In so far as China-US relations are concerned, this is the single most important international relationship in the 21st century. How can we make sure it moves forward in this positive direction? That is what I've been trying to do. It is in the interest of both nations for this relationship to be good. So that's the type of work I'm doing. I understand you were instrumental in ensuring that a detailed study was made into the actual trade surplus China has with the US - the one that Lawrence Lau was involved in. Can you tell us about what role that research project has played in shaping or dispelling some of the myths about this trade deficit issue between China and the US? Trade is a huge issue between China and the US. Americans talk of a US$200 billion trade deficit. But if you take the example of a Dell computer made in China, some of the figures I saw indicate US$300 of that US$700 of a Dell computer is for the flat screen which is in fact made in Taiwan. And US$200 is for the Microsoft operating system, which is of course, Microsoft, and US$100 is for the Intel chip, which of course, is Intel. So mainland China gets less than US$100 of the US$700 but it is charged for US$700; that's the theory of our study. So Lawrence Lau - who is the president of the Chinese University of Hong Kong - and I discussed this subject. So together the Chinese University and one of the institutes that belongs to Stanford University made a study. How much benefit are we talking about in all this trade going back and forth for China? What is the retained benefit for China? For example, we buy Boeing planes. Well, how much is the retained benefit for America in Boeing planes? So these are things we try to highlight to help the policymakers and the lawmakers and those people interested. How do you address issues on which both sides do not see eye to eye, such as human rights, or competition and whether China is undercutting profits of US companies? Do you see these issues as major obstacles in the development of Sino-US relations? China does not undercut profits of US companies. American companies invest in China; they make very good business in China. Often, the difficulty of Chinese goods exported to America comes from another myth, saying that China makes these goods at the expense of United States jobs - not the profits of the companies, but the jobs. What China makes, by and large, America does not make. What America makes, China does not make. There is some overlap, very little overlap, but there is some overlap. But what America makes, actually Japan makes, too: Toyota, vis-a-vis General Motors. What America makes European companies make: Airbus versus Boeing. So there's more competition. So we should not get into an emotional argument about this. There are some areas, such as furniture, that both sides were making. Obviously, ours is cheaper, so on and so forth. American think-tanks have calculated, and these are all fact-based, because of Chinese imports, every single American family saves US$1,000 a year of expenditure because Chinese goods are that much cheaper. Also, China has replaced Japan as the third largest importer of American goods in the world, next to Canada and Mexico. The benefit is so enormous for America, and also for China, because it helps to create more jobs. So it's good for both countries. It's a mutually beneficial relationship. People know this. Yes, there are areas [such as] intellectual property where things need to be done. But if you talk to people, they're all full of praise for what China has done. But if you talk to the filmmakers, they're complaining a lot. So what we read in the papers is about the complaints, not about those people who support what China has done for intellectual property, because China has really done a lot on it also. Now, in so far as values are concerned; freedom, democracy ... you know I lived in America for nine years, I understand where America is coming from. I believe democracy, rule of law, these are also Chinese values, not just American values. Everybody values these things. Leaders in China value these things also. It's just that our country is at a different stage of development than America because we have different history, different background, and it's going to take us time to get there. We'll get there in our own way, we will eventually get there. And reasonable people will know how important that relationship is. Do you think the opposition will eventually resolve their differences with the central government? I think that the doors of communication are always there, and Hong Kong's opposition [is] going to the mainland and so on and so forth. But for the others it's a question of really making an effort to understand what is happening on the mainland and its many achievements. They should not rest on past laurels. Where do you see yourself in 10 years' time? The past 10 years have been wonderful to me. Hong Kong people have been wonderful to me, giving me this opportunity. Mainland China has been wonderful to me, giving me this opportunity to serve as the chief executive, and to be able to implement 'one country, two systems', and to be able to overcome all the challenges of the Asian financial turmoil, the bursting of the asset bubble, then Sars. We should really look forward to the future with confidence. We have overcome all these challenges; we should be confident of our future. As for myself in 10 years' time, you know, I'm going to work a few more years - useful years - as a vice-chairman of the CPPCC. And where do I see myself 10 years from now? My oldest granddaughter should have just about graduated from the university. So I hope to be attending her graduation. As the one who pioneered the accountability system in July 2002, what would you envisage the form of the Hong Kong government in like, 10 years, and what would you say to the civil servants in Hong Kong? Since the return of Hong Kong, Hongkongers' expectations of government are much higher. And rightly so, too, because it's supposed to be Hong Kong people governing Hong Kong. Also, the accountability system, like any new political system or political-related administrative system, would take time to mature, to develop, to mature, to perfect it. So we're in the process of doing this. And I've read, as you have told me, that there's a plan to move this further. I think it's a right thing to do, to move this further. And my final point is that Hong Kong has a wonderful civil service. They're good, efficient, dedicated. I think we cannot be more lucky.