During the last 10 years, there have been modest changes in Hong Kong's political situation and more significant changes in its economy. These political and economic changes have had an impact on Hong Kong's social and cultural identity. First, Hong Kong is a major entrepôt in Asia, especially for trade with China. 102-383 ). The act commits the United States to treating the HKSAR as a separate entity from the rest of China in a variety of political, economic, trade and other areas so long as the HKSAR remains "sufficiently autonomous" to warrant special treatment. The freedoms of speech and assembly appear to have been largely respected by the Chinese and HKSAR governments, but there is concern about self-censorship by some in the Hong Kong media. The Asian Financial Crisis of 1997, which began almost concurrently with the Handover, had a ripple effect on Hong Kong, resulting in a major asset value realignment, commodity price and wage deflation, and a decline in the city's gross domestic product (GDP). These social and cultural changes have raised the issue of a "Hong Kong identity" that is distinct and separable from a "Chinese identity." The politicization of the Hong Kong population in part can be attributed to an increase in their opportunities to be involved in political activities, such as elections. In particular, there have been three high profile cases where the Chinese government has made decisions on the meaning of the Basic Law that were seen by some as eroding the independence of Hong Kong's courts and the legal protections provided by the Basic Law itself. "The Closer Economic Partnership Arrangement," or CEPA, provides Hong Kong companies preferential access to the markets of the Chinese mainland. However, as will be described later in this report, there is an underlying uncertainty expressed by some Hong Kong residents about the HKSAR's relationship with the Chinese mainland. By negotiating a free trade agreement with China, Hong Kong has bolstered its competitive advantage on the Chinese mainland. Hong Kong's trade in services with China has also increased substantially since the Handover. However, there are elements in the current economic trends that could portend the eventual integration of Hong Kong into the Chinese mainland economy in the long run. Section 103 states that the United States "should seek to maintain and expand economic and trade relations with Hong Kong and should continue to treat Hong Kong as a separate territory in economic and trade matters ... " The section also grants Hong Kong "most favored nation status" (now referred to as "normal trade relations" status), provides for the free exchange between the U.S. and Hong Kong dollars, allows for continued trade of "sensitive technologies" under U.S. export controls, and calls for the negotiation of a bilateral investment treaty (BIT) between Hong Kong and the United States, "in consultation with the Government of the People's Republic of China." Disappearing Middle Class

Along with the decline in its "ex-pat" population, there is a perception that Hong Kong may be losing its "middle class." By and large, the provisions of the U.S.- Hong Kong Policy Act are being met, and Hong Kong is fulfilling its obligations to the United States under the existing bilateral and multilateral treaties and agreements. Civil Liberties

Outward indications seem to support the view that the civil liberties of the people of Hong Kong remain relatively unchanged since the Handover. At present, the only issue that clearly raised concerns about civil liberties in Hong Kong—the Article 23 proposals—is on hold until Chief Executive Tsang or the Chinese government decide to press the matter again with Legco and the people of Hong Kong. Anonymous Hong Kong business consultant
Anonymous Hong Kong Customs official
Anonymous Hong Kong physician
Anonymous Hong Kong retiree
Fred Armentrout, Communications Director, American Chamber of Commerce in Hong Kong
Nicholas Chan Chun Tak, Senior Administrative Officer, Central Planning Unit, Hong Kong Government
Philip Chan Kwan Yee, Research Director, Central Planning Unit, Hong Kong Government
Watson Chan Li Wah, Research Department, Legislative Council
Michael Degolyer, Professor of Government and International Studies, Hong Kong Baptist University
Michael Enright, Professor of Business Administration, University of Hong Kong
He Dong, Head of Economic Research Division, Hong Kong Monetary Authority
Anthony Hutchinson, Director of Public Affairs, U.S. Consulate General in Hong Kong
Linda Lai Wai Ming, Deputy Secretary, Hong Kong Department of Commerce, Industry, and Technology
Emily Lau Wai Hing, Member of the Legislative Council
Alan Leong Kah Kit, Member of the Legislative Council
Leung Kwok Hung, Member of the Legislative Council
Nancy W. Leou, Consul, Economic/Political Section, U.S. Consulate General in Hong Kong
Edward Leung Hoi Kwok, Chief Economist, Hong Kong Trade Development Council
Amelia Luk Siu Ping, S. P., Deputy Law Officer, Hong Kong Department of Justice
Jack Maisano, President, American Chamber of Commerce in Hong Kong
Julie Mu Fee Man, Assistant Director of Community Relations, Independent Commission Against Corruption
Ng Chun Hung, Professor of Sociology, University of Hong Kong
James Tang T. H., Professor of Politics and Public Administration, University of Hong Kong
Cherry Tse Kit Ching Ling, Permanent Secretary, Hong Kong Department of Constitutional Affairs
David Webb, Economist
Pansy Yau Lai Ping, Assistant Chief Economist, Hong Kong Trade Development Council
Yeung Yue Man, Director of Hong Kong Institute of Asia-Pacific Studies, Chinese University of Hong Kong
In the 10 years that have passed since the reversion of Hong Kong from British to Chinese sovereignty, much has changed and little has changed.
On the political front, the Hong Kong Special Administrative Region (HKSAR) has selected its first Chief Executive, only to have him step down and be replaced in a process not without some controversy. Meanwhile, belated changes by the British in the makeup of Hong Kong's Legislative Council (Legco) were initially undone, but subsequent changes in the Legco selection process have brought things back nearly full circle to where they stood prior to the Handover. There is also unease about the independence of Hong Kong's judicial system and the protection provided by Hong Kong's Basic Law in light of decisions made by the Chinese government.
Similarly, the civil liberties of the people of Hong Kong remain largely intact. In part, this can be attributed to the increased politicization of the people of Hong Kong. The freedom of the press in Hong Kong is still strong, but also faces challenges—both on the legal front and from allegations of self-censorship on the part of the media owners reluctant to antagonize the People's Republic of China. Yet, even with these challenges, many Hong Kong residents do not appear to perceive a decline in their civil liberties since 1997.
Economically, Hong Kong is still a major international financial center and a leading gateway into China. However, Hong Kong's economic interaction with the Chinese mainland has grown deeper and broader over the last 10 years than was expected, increasing the city's economic connections with China. This closer tie to the mainland is being bolstered by the signing of a free trade agreement in 2003, called the "Closer Economic Partnership Arrangement," or CEPA, between China and Hong Kong. Current economic and trade dynamics have raised concerns that Hong Kong's relationship with China will shift in the long run from one of synergy to full integration, possibly undermining the HKSAR's "high degree of autonomy."
Recent social and cultural trends appear to reflect some apprehension about the long-term implications of current economic and political trends. There has been a decline in Hong Kong's expatriate ("ex-pat") community, including U.S. nationals. Also, there is a perception that Hong Kong's "middle class" is disappearing. Underlying many of these social and cultural trends is a redefinition of Hong Kong by its residents, indicating a closer identification with China.
At present, few of these long-term trends have had a significant effect on Hong Kong's political or economic situation and its relations with the United States. Under the U.S.-Hong Kong Policy Act of 1992 (P.L. 102-383), the United States treats Hong Kong as a separate entity in a variety of political and economic areas so long as the HKSAR remains "sufficiently autonomous" from China. While Hong Kong government continues to fulfill its obligations to the United States under existing bilateral and multilateral treaties and agreements, there are still some minor issues that might warrant action by Congress. This report will be revised as circumstances warrant.