Hong Kong's Government Under Threat In Wake Of Security Law Debacle

by Mary Swire, Tax-News.com, Hong Kong

11 July 2003

Determined resistance in Hong Kong by the public and by major factions in the Government's usually placid Legco to proposed security legislation forced the Government to withdraw the legislation for reconsideration - but now it seems that much more fundamental consequences may follow, with Chief Executive Tung Chee-hwa and his team weakened to the point that they may no longer have enough backing to govern effectively.

Hong Kong needs firm handling in the months and years to come, with unpopular measures needed to cure the SAR's economic ills, but confidence in a man seen as Beijing's puppet is at an all-time low. Tung insisted at a news conference on Wednesday: "I'm confident that we as a team will be able to ride out the challenges; to remain united, to learn from experience, to improve government effectiveness and to win back support and trust of the public."

After saying for weeks that he would push through unchanged the so-called Article 23 legislation, a 500,000-strong demonstration against the bill first caused Tung to water down the anti-subversion bill over the weekend, but then when Liberal Party chairman, James Tien, resigned in protest at the bill, Tung had to withdraw it. The Liberal Party's seven votes are key to Tung's continued control of Legco.

Now Tung is expected to re-shuffle his cabinet, possibly replacing controversial Finance Secretary Anthony Leung, who argues that Hong Kong must sort out its fiscal problems now, while its reserves are still strong. Tung needs Legco's support for Leung's proposed spending cuts and tax increases in order to balance the budget by the 2006/07 fiscal year, but there is no guarantee that this will now be forthcoming. Many politicians, some backed by Beijing, would prefer to see fiscal loosening. Tung may be agnostic on that issue; but he may resign rather than lose the Finance Secretary.

Standard & Poors warned this week that the government may face opposition to its medium-term fiscal strategy, saying: "Without sufficient support in the legislature, the government would be largely ineffective, and this would lead to a worse policy environment."

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