THE CONSULATE GENERAL OF SWITZERLAND IN HONG KONG

Introduction
After Beijing's decision to rule out universal suffrage for selecting the chief executive in 2007 and legislature in 2008, the political atmosphere in HK remains tense. Citing veiled threats and intimidation, three radio broadcasters known to be close to the democratic cause have resigned. Ratings of top HK officials have slumped. In his usual way the central government continues to combine gestures of good will with clear demonstrations of its might. The LEGCO elections in September are likely to be the most aggressive in HK's political history.

Domestic Politics
LEGCO debate on NPC's decision: LEGCO president rejected a request by democrats to move a motion of amendment seeking to condemn the decision. The central government liaison office warned legislators that such motions exceeded the duties and powers given to Legco.
Reactions to NPC's decision: for the chief executive of HK should first of all work hard to improve relations with the central government by understanding the international environment faced by the nation, its determination to defend its territorial integrity, the opportunities and challenges presented as it develops, the importance of national security and stability and the impact of HK democracy on the whole country. Inviting Hongkongers to be pragmatical Donald Tsang, the political reform task force head, stressed it would be futile to try moving beyond the limited scope allowed by Beijing for changes to HK's political system. He unveiled some areas of possible change such as an increase of the members of the college electing the chief executive as well as of Legco seat both functional and geographical. During his recent visit to UK the Chinese PM stated that full democracy was the ultimate goal for HK and reaffirmed with PM Blair UK and China's joint commitment to the 1984 agreement. He added that the interpretation by the NPC was based on a long term interest for stability and prosperity of HK. And that the city should focus on the revival of its economy. While a top Bhuddist cleric asked Hongkongers to give the July 1 rally a miss, several tycoons went on expressing pro Beijing stances.
For the democratic camp the NPC decision is a clear infringement on the autonomy of HK and paves the way for a "birdcage" democracy. Some harsh comments were published on the tycoons loud-mouthing the virtues of Beijing's hard-line rule, "a demeanour which gets you to the point where ravening mobs on the streets are looting five star hotels".
For the Economist Intelligence Report the NPC's decision will prolong policy paralysis in HK and will increase the chances of the democratic camp in the September elections. It added that the resignation of the chief executive as early as next year could not be ruled out due to current political tensions prompting a quick official rebuke.
International reactions have been rather subdued: while US Ass. Secr. of State Kelly has asked Beijing to trust HK electorate, London's restraint has prompted some commentators to use the headline "Two countries, one bad deal" and to write that the spirit of the Chinese-British deal had been destroyed and the British had preferred to ignore it.
Pressure on media: citing veiled threats and betrayal by their friends, three radio journalists resigned prompting a public outcry in favour of freedom of speech and the signing of petition by more than 400 HK academics. One of the journalists, Allen Lee, veteran politician, member of the NPC and host of the popular radio program Tea Cup in Storm, testified to the LEGCO home affairs panel that he resigned to protect his family after nearly one year of pressures. For several commentators Lee's testimony reveals Beijing's growing intolerance of dissenting views and the building of a climate of anxiety in HK. Other cases of intimidation have been made public against the pro-democracy Apple Daily newspaper and pro-democracy journalists. It has also been alleged that some pro-Beijing groups have put pressure on their members and employees.
Visits and exchanges: Bishop Zen, the outspoken pro-democracy cleric, has made a first historic journey to his native Shanghai saying that he hoped his trip would start a long term dialogue between HK and Beijing. Moderate democrats have gone to the capital to discuss a proposal for political reform with central authorities. It is the first such visit by pro-democracy leaders since the handover. A high ranking Chinese official, the United Front Work Department Head, Liu Yandong, has been sent to HK on a good will mission during Buddha's anniversary festivities. Her visit is seen as an attempt by Beijing to ease political tension. Commentators have been quick to underline the limits of Liu's call for tolerance and harmony when she declared that it would be very unwise for people to take the streets on July 1, that HK is a economic and not a political city and that the most important thing is that people's livelihood be improved.

International Affairs
Ties with Australia hurt: HK minister has said that the ongoing extradition row involving two Australian citizens has hurt HK's ties with Australia, despite the fact that Australia recently granted extradition of a Chinese National.

Official trip to Russia: Chief Secretary for Administration, Mr Donald Tsang, making HK's highest-level visit to Russia, met top officials and business leaders on May 17 and launched a new video, photo book and exhibition promoting HK as Asia's world city.

Human Rights and Legal Affairs
Concern about freedom of speech in HK: after what happened to the three radio journalists a deep concern is developing about the future of the freedom of expression in HK. A threat to one person's freedom is a threat to society's freedom.
HK bars two dissidents, including Wang Dan: The HK government has denied entry to two high-profile exiled Chinese dissidents, a legislator said on 17.05.04… two Tiananmen demonstration leaders, Wang Dan and Wang Juntao, were refused entry to attend a seminar. The two live in the United States. The government refused them entry without giving reasons and despite guarantees they would not engage in any political activities, he said. The Immigration Department declined to comment.
Law against racial discrimination: …The government has pledged to enact the legislation but it keeps on delaying…One lame excuse has followed another. Stephen Fisher, deputy secretary for home affairs, has argued the consultation had to be deferred because it was inappropriate to publish the proposals just a few months before the Legislative Council elections... He seems concerned that the issue will become politicised... Every legislator voted in favour… The time for dithering is over. The government should match its talk with deeds.

Transborder affairs
An agreement on the establishment of a joint committee to facilitate further exchange and co-operation in science and technology was signed between the Mainland and HK on May 17.

Economy
The First Quarter Economic Report 2004 was released on May 28. Main Points: GDP leaped by 6.8% in real terms in the first quarter of 2004 over a year earlier (oye). Externally, exports of goods surged by 14.8% in real terms in the first quarter of 2004 oye. Exports of services attained a further distinct growth of 13.7% in real terms in the first quarter of 2004 oye. Locally, private consumption expenditure accelerated to a 5.0% growth in real terms in the first quarter of 2004 oye. Overall investment spending leaped by 5.8% in real terms in the first quarter of 2004 oye. The seasonally adjusted unemployment rate continued to edge down, from 7.3% in the fourth quarter of 2003 to 7.2% in the first quarter of 2004 (and further to 7.1% in February - April). The Composite Consumer Price Index still registered a decline of 1.8% in the first quarter of 2004, though much narrower than the corresponding decline Outlook: Even though sentiment in the global and regional economy may have turned more cautious lately, the general tone for the year as a whole is still very positive…the earlier forecast of a 6% growth is still considered reasonable and attainable.
Enlargement of the EU: David Ting, head of the European Commission office in HK, explains the opportunities of the enlargement of the EU for HK. There will be advancements regarding imports, investments and application of European rules on public procurement. HK's total exports to the 10 new EU members were worth US$1.1 billion in 2003, of which 41% went to Hungary and 23% to Poland. This means lowering tariff rate and eliminating import restrictions. While total average tariffs have more than halved from 9% to 4% in the new member states, their reduction on some of Hong Kong's main exports are even more dramatic. According to HK Trade Development Council, "watches and jewellery were the SAR's main exports to the 10 new members. Tariffs for watches of 20-35 per cent in Poland are now just 4.5%, whether they are made in Hong Kong or China". Tariffs on fine and costume jewellery exported to Poland are down from 21% to between 2.5 and 4%. "We expect that our exports to the new member states will increase in the medium term because of the tariff reduction, and we expect that demand will increase due to inflows of foreign investment into that region." With regard to travelling, the 10 new member states, too, have to grant visa-free access for Hong Kong SAR passport holders for stays of up to 90 days.
Deflation could be over in July: the monetary chief, Joseph Yam said: The year-on-year percentage change in the composite consumer price index (CPI) might turn positive by then if prices remained stable in the coming months.
Rising oil prices 'will have little effect on economy' The recent increase in the global oil price should have little impact on HK's economic recovery, a new government report says. It said that, given HK's increasing reliance on the services sector, fuel costs for all sectors of the economy made up less than 5 per cent of overall business operating costs. As such, the direct effect of an oil price increase on overall demand in the economy should be much smaller, the report said. Some fuel retailers raised the pump price of unleaded petrol last week by 20 cents a litre to $11.78 for regular unleaded. This is the third such increase this year and the fourth since March last year, when the average pump price was $11.21.
Deposit protection scheme bill: After 12 years of discussion legislators passed a law on 5 May to set up a deposit protection scheme in 2006 to ensure all depositors receive full payment of deposits of up to HK$ 100'000 if a bank collapses. The plan is to build up HK$ 1.6 billion in five years under the scheme by charging banks a levy. Banks with the highest level of risk will be charged 0.14% each year on their deposits covered by the scheme and those with the lowest will be charged 0.05%. Medium-risk banks will be charged 0.08% and 0.11%. Should all banks pass on costs to customers they will have to pay between HK$ 5 and 14 every year on each HK$ 10'000 deposited.
HK still region's shopping nirvana for tourists: HK is still the region's shopping paradise, a credit-card firm's survey shows. And despite intense competition from neighbours, its supremacy will not be seriously challenged for years to come. The firm predicts that with 7 per cent a year growth in visitor numbers, tourists will be spending US$11 billion a year in the city by 2011, whereas Bangkok, Seoul and Singapore will each see spending of just $3 billion. Still, survey compiler Master- Card International's economic adviser warned against continued over-reliance on mainland tourists. Catering to them would help turn HK from a post-colonial curiosity into just another Chinese city, reducing its attractiveness to non-Chinese tourists, Yuwa Hedrick-Wong said.
2 millionth individual visitor from Mainland: On May 31, the Immigration Department welcomed the 2 millionth individual visitor to Hong Kong from the Mainland since the individual visit scheme was launched on July 28, 2003. The scheme will be further extended to nine cities in three provinces, Zhejiang, Jiangsu and Fujian, from July 1, 2004.
HK's Trade in Services Statistics for 2002 (released on May 24): The value of total exports of services rose by 9.0% to $335.4 billion in 2002 over 2001. The value of total imports of services grew by 3.8% to $199.7 billion over the same period. Taking exports and imports of services together, an invisible trade surplus at $135.7 billion, equivalent to 68.0% of the total value of imports of services, was recorded in 2002. This was larger than the corresponding surplus of $115.2 billion, equivalent to 59.9% of the total value of imports of services, in 2001.
Mainland will buy into $20b HK bond offering: The central government will buy bonds issued by Hong Kong, Premier Wen Jiabao said .The Hong Kong government proposed the $20 billion issue in March to finance future capital projects. If the sale is approved by the Legislative Council, the bonds could be sold as early as mid-July.
HK's Foreign Currency Reserve: the official foreign currency reserve assets of Hong Kong amounted to US$122.1 billion at the end of April 2004 (end-March 2004: US$123.8 billion) In terms of foreign currency reserves ranking, HK is the world's fifth largest holder of foreign currency reserves, after Japan, Mainland China, Taiwan and Korea. The total foreign currency reserve assets of US$122.1 billion represent about seven times the currency in circulation or 46% of Hong Kong dollar M3.
Pan Pearl River Delta Regional Co-operation Forum: The leaders of nine mainland provinces are expected to visit HK on June 1 for a summit on strengthening economic ties with HK and the formation of a pan-Pearl River Delta region. The leaders are due to sign an agreement on regional economic co-operation in Guangzhou on June 3, covering logistics, infrastructure and tourism. Advocated by Guangdong Governor Huang Huahua, the pan-delta concept sees the development of a regional economic system involving nine provinces - Guangdong, Fujian, Jiangxi, Guizhou, Guangxi, Sichuan, Yunnan, Hunan and Hainan - plus HK and Macau. The region has a population of 450 million and a gross domestic product of more than $5 trillion. HK could consolidate its position as China's top financial and logistical centre by helping to create an economic zone covering the entire Pearl River Delta, the Central Policy Unit was told during a seminar… The Trade Development Council's executive director, Frederick Lam Tin-fuk, said the zone would eventually become a common market similar to the European Union.
Property: Land auction - The first government land auction for 2 plots in 20 months attracted enthusiastic bidding from land developers and both the winning bids were up about 70% by the reserve price. Land developers were upbeat while HSBC was concerned about the sharp rise of property price (fear about the return of real estate bubble). Financial Secretary Henry Tang said that it was premature to say land sales might help budgetary deficit.

Health
First infectious disease centre in HK will cost $550m: A proposal to build HK's first infectious disease centre - which is likely to cost $550 million - will be submitted to the Legislative Council next month, Apple Daily reported on Monday. The 10-storey medical centre - which will provide 110 beds - will be located at Queen Mary Hospital. It is expected to be finished in 2006.

Varia
Harbour Fest inquiry: the official inquiry on the 2003 Harbour Fest series of pop concerts fiasco has revealed a series of errors by the InvestHK, the government body in charge, and its head Mike Rowse. The China Daily newspaper has accused Rowse not only of lack of experience but of having the wrong attitude.
Relic of Buddha's finger lent to HK: China has brought to HK famous relics discovered in Xian for
Buddha's anniversary celebrations.

Macau
Offshore companies in Macau: The number of offshore companies in Macau increased rapidly from less than 10 in 1999 to 215 in 2003. Some of them are listed companies in HK. In order to alleviate over reliance on gambling and tourism industry, Macau Gov't offers favourable taxation concession to attract establishment of offshore companies there. HK accountants are concerned about this trend as a lot of jobs related with data processing, trade, supporting services, accounting services, audit services, taxation consultant and engineering services can shift from HK to Macau.
New Las Vegas style Casino in Macau: the Las Vegas Sands Group opened the 1st American operated casino in China.

Press articles related Switzerland
South China Morning Post (SCMP) 05.05.04: Dealer put Chinese artists on world stage. For more than 20 years Manfred Schoeni, one of four victims found stabbed to death in the Philippines ran one of Hong Kong's most successful galleries representing Chinese artists … He made frequent visits to the mainland, choosing promising artists from art academies, and acted more like a patron than a dealer, giving artists living expenses and paying for materials so they could concentrate on painting. Many of his artists, including Jiang, won prestigious awards. One former arts writer who knew Schoeni for several years commented on his sharp eye. When the China "pop art" movement was in full swing in the 1990s, many of the artists were represented by Schoeni.
SCMP 11.05.04: Swiss-born Kathi Zellweger, director of international co-operation at Caritas Hong Kong, provides her insights into her experiences in North Korea (NK). Although she is more concerned about the general crisis in NK, she used the recent railway disaster to show the increasing willingness of the leaders to co-operate with international aid agencies: Caritas' offer of help was immediately accepted due to the trust it had built with North Korean officials. "Ms Zellweger is Swiss in her insistence on neutrality when questioned on the political situation in North Korea, especially in regard to its part in causing the humanitarian crisis. Asked about a possible support of the government by providing aid, Ms Zellweger answered that "it is morally wrong to let people suffer and die on the grounds that humanitarian assistance might be used to support an unpopular government, the elite or army."…
SCMP 20.05.04 2004: Anson Chan Fang On-sang, former chief secretary of Hong Kong took part at this years' International Students' Committee (ISC) Symposium at the University of St Gallen on the subject "China - Political and Economic Leadership - a Challenge to Growth and Prosperity". Apart from four students from Hong Kong, twenty students from the mainland attended this years' ISC. According to Anson Chan, one of the biggest challenges to growth and prosperity on the mainland is "endemic corruption". Comparing the culture of corruption, she said that although Shanghai had advantages, "Hong Kong held the moral and legal high ground" with its rule of law and efficient civil service. Further on, she describes Hong Kong as a "good place to experiment" with democracy. Although it "could succeed", she stressed that there needed to be more dialogue between Hong Kong and Beijing. She considers western-style democracy as a luxury for a vast country like China with so many disparities.
HK Economic Journal 24.05.2004: Swatch - Mr Nicolas Hayek, CEO, Swatch Group, was upbeat about the market potential of Mainland China. His group has been doing business in Mainland China mainly through franchise. They would increase their investment in Mainland China and at the same time they would not give up the market in Hong Kong. He admitted that protection of intellectual property in Mainland China was very weak and it was a difficult issue to deal with. The turnover of Swatch Group was about CHF 300 million last year and it would rise to CHF 600 - 700 million in the future without much difficulty.
The GDP of Switzerland dropped by 1% in the 1st quarter of 2004, contrary to the estimates of economists. It was mainly due to the high exchange rate of CHF to USD that affected Swiss exports and tourism adversely. Mr Nicolas Hayek also mentioned the crisis of the Swiss watch making industry in the 70's. The market share of Swiss watches dropped from 43% in 1974 to 15% in 1983. Companies such as Omega and Longines were on the brink of liquidation. Mr Nicolas Hayek understood that it was no longer workable to focus just on hi-end style and market segment of big spenders. He therefore produced high quality products with low production cost by mass production. It has become the recipe for success for Swatch.
   

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